30 July 2016
1QFY17 Results Update | Sector: Capital Goods
Larsen & Toubro
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Equity Shares (m)
M.Cap.(INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
1457.5 / 21.8
Financials & Valuations (INR b)
Adj PAT *
EPS Gr. (%)
1QFY17 performance below expectations:
Larsen & Toubro’s (L&T) 1QFY17
consolidated performance was substantially below expectations. Revenues of
INR219b (+9% YoY) were in line with our estimates of INR223b. EBITDA at
INR19b (+16.1% YoY) was meaningfully below our estimate of INR24b, driven
by provisions under Ind-AS, write-down in the shipbuilding division and close
out costs incurred in the hydrocarbon segment. However, adjusted for the
same, reported EBITDA was in line with our estimates. Reported PAT at
INR6.1b was below our estimate of INR8.1b.
Margin disappointment led by provisioning and one-time write-downs:
discussed earlier, EBIDTA missed our estimate significantly, primarily due to a)
incremental provisioning of INR2.5b during the quarter under the newly
implemented Ind-AS for expected credit loss (INR1.5b) and employee
performance-linked incentives (INR1b); b) Inventory write-down in shipbuilding
(INR1b); and c) close out cost for the hydrocarbon project in the Middle East.
Adjusted for the same, reported EBITDA was in line with our estimates (see
Exhibit 1 on Page 2). Reported margins at 8.7% were 210bp below our estimate
Order intake below our estimate:
In 1QFY17, consolidated intake stood at
INR297b (+14% YoY), below our estimates of INR350b. Unannounced orders
were at INR48b (16% of total order intake), excluding the services business and
IDPL. Order inflow was primarily driven by finalization of large orders in the
Heavy Civil Infra, Water (Telangana barrage order) and Hydrocarbons (Hasbah
project from Saudi Aramco) segments.
Maintains guidance for FY17:
L&T has maintained guidance on orders revenue
and margins for FY17: order intake is guided to be up 15% YoY and EBIDTA
margins are being guided to improve 50bp YoY to 10.0% (Ind-AS). Revenue
growth is guided at 12-15%.
Maintaining Buy; cutting estimates and target price.
We cut our estimates for
consolidated earnings for FY17/FY18 by 6%/7% to factor in ECL-related
provisions. We maintain
and cut our SOTP-based target price to INR1,660.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
(Ankur.VSharma@MotilalOswal.com); +91 22 6129 1556
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