30 July 2016
1QFY17 Results Update | Sector: Capital Goods
Larsen & Toubro
Buy
BSE SENSEX
28,052
S&P CNX
8,639
CMP: INR1,558
TP: INR1,660(+7%)
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Bloomberg
Equity Shares (m)
M.Cap.(INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
LT IN
935.5
1457.5 / 21.8
1844/1017
0/29/-15
3125
100
Financials & Valuations (INR b)
Y/E Mar
2016 2017E
Sales
1,026 1,094
EBITDA
123.3 124.2
Adj PAT *
47.3
52.4
EPS (INR)*
50.6
56.0
EPS Gr. (%)
7.1
10.7
BV/Sh (INR)
470.2 511.4
RoE (%)
11.1
11.4
RoCE (%)
6.9
8.1
P/E (x)*
31.6
28.6
P/BV (x)
3.7
3.4
EV/EBITDA (x)
19.9
18.7
2018E
1,244
151.7
64.9
69.4
24.0
562.9
12.9
9.4
23.0
3.1
15.5
*Consolidated
Estimate change
TP change
Rating change
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:
As
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
of 10.8%.
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
Buy
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 Sharma
(Ankur.VSharma@MotilalOswal.com); +91 22 6129 1556
Amit Shah
(Amit.Shah@MotilalOswal.com); +91 22 6129 1543

Larsen & Toubro
1QFY17 operational performance meaningfully below estimates
L&T’s 1Q17 consolidated performance were meaningfully below estimates.
Revenues at INR219b (up 9% YoY, estimates of INR223b) were in line with our
estimates. EBITDA at INR19b was meaningfully below our estimate of INR24b
driven by provisions under INDA 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.
Revenues at INR219b (up 9% YoY, estimates of INR223b) were in line with our
estimates. Consolidated E&C sales grew 12% YoY with international up 17% YoY
while domestic sales were up 7% YoY. Infrastructure segment witnessed a
growth of 9% YoY driven by 20% revenue growth in international revenue. Key
projects in Middle East (Riyadh and Doha Metro) are on track and have not
faced any delays in execution.
EBIDTA margins at 8.7% (+50bps YoY) were meaningfully below our estimates of
10.8%. EBIDTA at INR19.1b (+16.1% YoY, estimate of INR24.1b) was
meaningfully below our expectation primarily on account of 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 hydrocarbon project in M. East.. Adjusted for the same, reported
EBITDA was in line with our estimates. Previously employee performance linked
incentives was earlier provided in 2Q/3Q but now will be accrued throughout
the year. Adjusting for the provisions, EBIDTA would be in line with our
expectations.
Management has guided for 50bp improvement in operating profit margin to
10% in FY17 (Under IND AS). Management indicated that implementation of IND
AS has led to 50bps operating margins impact (10% vs. 10.5% under Indian
GAAP) and another 50bps on inclusion of corporate overheads being included.
Exhibit 1: Reconciliation between reported and recurring EBITDA
Description
Reported EBITDA under INDA AS in Q117
Add: ECL provision
Add: Addl employee incentives provision
Add. Provision for inventory write-down in shipbuilding
EBITDA as per IND AS
INR b
19.0
1.5
1.0
1.0
23.0
Source: MOSL, Company
PAT at INR6.1b (+45.5% YoY) in 1QFY17 vs. our estimate of INR8.1b. The miss at
the EBIDTA percolated to the PAT level.
Consolidated E&C reports robust performance led by pick up in execution of
the Infrastructure and power projects
Consolidated E&C sales growth at 12% in 1Q17 was on account of the strong
growth in the international (+17% YoY) as well as strong execution in the
domestic market (+8% YoY). Within the E&C segment, Infrastructure revenues
were up a 9% as international segment registered 20% jump, whereas domestic
30 July 2016
2

Larsen & Toubro
Infra sales registered muted growth of 4%. Revenue growth was driven by
execution of orders in the civil heavy infrastructure, transportation
infrastructure, power transmission and distribution and water & effluent
treatment business. International execution picked up as key projects like
Riyadh and Doha Metro witnessed smooth execution. International revenue
contributed 33% of the infrastructure revenue.
Power segment sales jumped 59% YoY to INR17.2b on strong execution in both
domestic and overseas projects won over the past year (Malwa Chabra and
Bangladesh based gas power plants. Overseas revenue contributed 20% of the
total power segment sales.
Hydrocarbon sales stood flat at INR21.3b on account of the weak order book
available for execution. International revenue contributed 51% of the overall
hydrocarbon segment sales.
Services business (IT&TS, Financial Services) continued to witness robust
growth. IT &TS sales at INR23.5b (+15% YoY) saw robust growth across its end
markets (Insurance, Auto and Aero, Transportation and industrial products
sector). International revenue constituted 94% of the total customer revenue.
Financial services sales at INR20.9b (+17% YoY) as it benefitted from its
continued focus on the B2C segment, Rural and wholesale finance business.
Developmental projects sales at INR11.5b (+17% YoY) saw a strong growth due
to a) Nabha Power operating at 90% PLF, b)revenue booking by Hyderabad
Metro on account of construction orders awarded.
Others segment sales at INR16.2b declined 16% YoY led by weak industrial
demand and low capacity utilization levels, decline in realty and shipbuilding
sales.
(INR Million)
FY17E
FY16 FY17E
FY17
1Q
2Q
3Q
4Q
1QE
121,500 150,000 165,000 230,000 597,796 121,500 118,000
6.2
13.3
11.7
9.2
10.7
4.1
10.2
9,642 13,500 15,675 30,270 61,652
13.2
33.3
56.5
-5.2
-5%
7.9
9.0
9.5
13.2
10.3
2,793 2,500 2,500 2,140 9,934
3,311 3,500 3,900 3,472 14,490
4,826 5,500 6,000 7,422 24,060
-500
0
0
0 5,603
8,363 13,000 15,275 32,080 61,289
2,396 3,380 4,277 8,845 13,777
28.6
26.0
28.0
27.6
22.5
5,467 9,620 10,998 23,235 53,115
5,967 9,620 10,998 23,235 53,115
6.0
49.7
39.0 -11.2
13%
% Var
3.0%
Quarterly Performance (Standalone)
Y/E March
Net Sales
Change (%)
Other operational income
EBITDA
Change (%)
Margin (%)
Depreciation
Interest
Other Income
Extraordinary Inc/(Exp)
Reported PBT
Tax
Effective Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
E: MOSL Estimates
FY16
1Q
2Q
3Q
4Q
114,437 132,343 147,739 210,613
10.7
4.1
-1.5
11.0
8,515
-21.7
7.4
2,688
3,154
5,222
0
7,895
2,263
28.7
5,632
5,632
-22.0
10,124
-24.5
7.6
2,536
3,834
4,875
5,459
8,628
2,203
25.5
11,884
6,426
-38.3
10,019
-36
6.8
2,444
3,812
6,171
917
9,934
2,022
20.4
8,829
7,912
-25.3
31,932
28.2
15.2
2,545
3,973
7,367
-773
32,780
6,616
20.2
25,391
26,164
39.5
9,642 11,328 -14.9%
13%
16.2
7.9
9.6
2,793 2,600
3,311 2,900
4,826 5,200
-500
0
8,363 11,028 -24.2%
2,396 3,350
28.6
30.4
5,467 7,678
5,467 7,678 -22.3%
-3%
9.5
30 July 2016
3

Larsen & Toubro
Exhibit 2:
Segmental Details (Consolidated) INR m
1Q
Net Revenues
Infrastructure
Hydrocarbon
Power
Metallurgical & Material Handling
Heavy Engineering
E&C total
Electricals & Automation
IT&TS
Financial Services
Development Projects
Others
Total Revenues
% YoY
Infrastructure
Hydrocarbon
Power
Metallurgical & Material Handling
Heavy Engineering
E&C total
Electricals & Automation
IT&TS
Financial Services
Development Projects
Others
71,130
15,530
9,800
9,160
8,210
113,830
9,590
17,380
14,820
21,610
12,520
189,750
17.4%
-48.9%
-32.3%
-12.9%
-4.2%
-8.6%
10.2%
22.1%
-180.1%
569.0%
28.0%
FY15
2Q
95,900
18,010
11,600
7,700
8,000
141,210
11,500
18,500
15,518
9,800
14,400
210,928
26.9%
-24.2%
-19.4%
-31.9%
-20.8%
4.5%
2.7%
14.2%
25.9%
78.2%
6.7%
3Q
4Q
150,700
22,060
14,400
7,840
9,790
204,790
14,710
20,320
16,346
8,690
15,180
280,036
12.3%
1.1%
-7.7%
-55.1%
-31.7%
0.7%
5.8%
20.5%
-64.3%
174.1%
-11.8%
FY16
1Q
2Q
3Q
117,200
21,700
22,800
5,800
8,600
176,100
12,100
22,700
18,980
12,900
15,600
258,380
4Q
180,500
24,800
21,700
7,600
9,500
244,100
13,400
22,900
19,960
13,700
18,400
332,460
FY17
1Q
90,700
21,300
17,200
0
6,500
135,700
9,300
23,500
20,910
11,500
16,200
217,110
115,200
17,700
11,300
6,800
8,000
159,000
12,100
19,700
16,832
11,400
19,800
238,832
22.3%
-25.9%
-30.2%
-56.1%
-25.2%
-0.9%
3.4%
21.6%
31.9%
225.7%
63.6%
83,100
106,400
21,200
19,300
10,800
14,000
0
6,200
121,300
9,600
20,500
17,817
9,900
19,400
198,517
5,600
6,200
151,500
11,200
22,900
18,438
13,600
16,300
233,938
10.9%
7.2%
20.7%
-27.3%
-22.5%
7.3%
-2.6%
23.8%
18.8%
38.8%
13.2%
16.8%
36.5%
10.2%
-24.5%
6.6%
0.1%
18.0%
20.2%
-54.2%
55.0%
1.7%
19.8%
9.1%
22.6%
12.4%
0.5%
101.8%
50.7%
59.3%
-14.7%
-3.1%
7.5%
-3.0%
4.8%
10.8%
19.2%
11.9%
0.0%
-8.9%
-3.1%
15.2%
12.7%
14.6%
12.8%
22.1%
17.4%
13.2%
57.7%
16.2%
-21.2%
21.2%
-16.5%
Source: Company, MOSL
Margin improvement supported by infrastructure and power segment
performance
E&C margins at 7.9% during the quarter were up 90bps primarily due to margin
improvement in the Infrastructure segment (9.2%, +30bps YoY). The
management highlighted that margin improvement during the quarter was led
by execution efficiency and lower commodity prices.
Power segment margins were at 5.8% (460bps YoY) led by a sharp 60% jump in
the sales. Margins improvement was led by: a) large international power
projects reaching the margins threshold level. B) Successful close out of couple
of domestic jobs
Heavy Engineering margins at 14.9% (8.9% in 4QFY15) improved by 600bps YoY
led by execution of better margin orders. 1QFY16 margins were impacted by
cost overruns and under recovery of overheads. Management indicated that
~15% margins are sustainable margins for the segment.
Margins in IT&TS at 21.9% (+350bps) were primarily driven by a favorable
currency impact, higher manpower utilization and operational excellence.
Hydrocarbon margins in 1Q17 stood at 2.0% vs. the 2.3% margin in 1QFY16.
Margins got impacted by 30bps YoY led by close out of legacy projects; our
estimate indicates incremental provisioning of INR1b.
30 July 2016
4

Larsen & Toubro
Exhibit 3: Segment wise EBITDA and margins
1Q
Net Revenues
Infrastructure
Hydrocarbon
Power
Metallurgical & Material Handling
Heavy Engineering
E&C total
Electricals & Automation
IT&TS
Financial Services
Development Projects
Others
Total Revenues
% YoY
Infrastructure
Hydrocarbon
Power
Metallurgical & Material Handling
Heavy Engineering
E&C total
Electricals & Automation
IT&TS
Financial Services
Development Projects
Others
83,100
21,200
10,800
0
6,200
121,300
9,600
20,500
17,817
9,900
19,400
198,517
FY16
2Q
106,400
19,300
14,000
5,600
6,200
151,500
11,200
22,900
18,438
13,600
16,300
233,938
3Q
117,200
21,700
22,800
5,800
8,600
176,100
12,100
22,700
18,980
12,900
15,600
258,380
4Q
180,500
24,800
21,700
7,600
9,500
244,100
13,400
22,900
19,960
13,700
18,400
332,460
FY17
1Q
90,700
21,300
17,200
0
6,500
135,700
9,300
23,500
20,910
11,500
16,200
217,110
16.8%
36.5%
10.2%
-100.0%
-24.5%
6.6%
0.1%
18.0%
20.2%
-54.2%
55.0%
10.9%
7.2%
20.7%
-27.3%
-22.5%
7.3%
-2.6%
23.8%
18.8%
38.8%
13.2%
1.7%
22.6%
101.8%
-14.7%
7.5%
10.8%
0.0%
15.2%
12.8%
13.2%
-21.2%
19.8%
12.4%
50.7%
-3.1%
-3.0%
19.2%
-8.9%
12.7%
22.1%
57.7%
21.2%
9.1%
0.5%
59.3%
0.0%
4.8%
11.9%
-3.1%
14.6%
17.4%
16.2%
-16.5%
Source: Company, MOSL
Consolidated E&C: Performance improvement supported by execution of
international orders
During 1QFY17 - international E&C revenues were up 17% YoY and domestic up 8%
YoY. Pick-up in international execution is supported by key large projects like Riyadh
Metro and Doha Metro that Larsen had booked in FY14-15 is getting smoothly
executed. There have not been any delays which are being faced by L&T in the
execution of its large projects in the overseas markets despite the sharp fall in oil
prices.
Exhibit 4: L&T - Key infrastructure project wins in overseas market have started contributing to revenues
Award
2QFY14
2QFY14
4QFY14
4QFY14
1QFY15
1QFY17
Project Details
Al Bathinah Expressway, Package 4
Riyadh Metro Project
Bidbid Sur Section Road
Al-Wakrah Bypass
Doha Metro Project
Hasbah Gas field project
INR m
20,850
82,500
15,500
36,550
45,100
67,000
Country
Oman
Saudi
Oman
Qatar
Qatar
Saudi
Source: MOSL, Company
30 July 2016
5

Larsen & Toubro
Exhibit 5: Domestic E&C execution growth picks up,
given orders received in 4QFY15 enters execution phase
Domestic Revenues (% YoY)
Exhibit 6: Overseas E&C revenue growth supported by good
execution of Riyadh and Doha metro projects
Overseas Revenues (% YoY)
Source: MOSL, Company
Source: MOSL, Company
1QFY17 intake below expectation; Management maintains 15% YoY growth
guidance for FY17
During 1QFY17, consolidated intake stood at INR297b (+14% YoY). This stood
below our estimates of INR350b. Unannounced orders were at INR48b (15% of
total order intake) excluding the services business and IDPL. Order inflow was
primarily driven by large orders in the infrastructure (Bangladesh based gas
power project and Telangana barrage order and hydrocarbon segment (Hasbah
project from Saudi Aramco) getting finalized.
For FY17, the management has issued an guidance for consolidated intake 15%
YoY growth (INR1.6trn). Management guided that incremental order inflow
growth would be supported by pick up in ordering activity in the power,
railways, hydrocarbon and defense segment.
The management remains optimistic on achieving its guidance, and highlighted
that the bid pipeline remains robust at INR4.3t comprising of Infrastructure
projects, Power projects, Hydrocarbons and defence.
Exhibit 7: 1QFY17 consolidated intake below estimates (INR b)
E&C
- Domestic
- Overseas
Electrical
Services
Others
Cons. Intake
1QFY15
246
121
125
13
53
20
334
2QFY15
323
283
40
16
42
17
398
3QFY15
272
234
38
13
47
20
346
4QFY15
386
306
80
20
44
21
476
FY15
1,227
944
284
62
186
78
1,554
1QFY16
181
135
47
11
50
21
264
2QFY16
207
127
80
12
54
11
286
3QFY16
300
226
74
15
54
14
385
4QFY16
352
246
105
17
60
8
433
1QFY17
213
114
99
13
56
15
297
Source: Company, MOSL
30 July 2016
6

Larsen & Toubro
Exhibit 8: E&C consolidated intake (INR b): Announced
orders at INR193b
Order Announced
Un Announced Orders
Exhibit 9: E&C consolidated intake registers decent growth
in 1QFY17 (INR b)
Average intake
INR170B
INR250B
INR330B
Source: MOSL, Company
Source: MOSL, Company
Exhibit 10: Large project wins (INR15b+) of INR410b in FY15; INR133b in FY16
Period
1QFY15
2QFY15
2QFY15
2QFY15
2QFY15
2QFY15
3QFY15
3QFY15
4QFY15
4QFY15
4QFY15
4QFY15
4QFY15
1QFY16
2QFY16
4QFY16
4QFY16
4QFY16
4QFY16
1QFY17
Project Description
Optical Fibre Cable network for Defence
EPC 1320MW, Shree Singaji
Well Head Platforms
Boilers, 1320MW Tanda
Six lane Expressway
Statue of Unity
Electrification
Classified Contract
Barapullah Elevated Corridor
Offshore Patrol Vessels
EPC 1320MW Khargone
MP Road Projects
3.5msf Mixed Use Development, Mumbai
Offshore contract for Bassien Development
Water Supply order from Telangana an d Rajasthan
Turnkey order for the residential project
Turnkey for a mixed use project in Delhi
JV order for constructing 6 Lane bridge across Patna on river Ganga
Two orders from PDO, Oman-EPC to overcome pressure depletion
Barrage Construction order
Customer
BSNL
MP Genco
ONGC
NTPC
UP
Gujarat
Western DFCC
PWD Delhi
Coast Guard
NTPC
NHAI
ONGC
INR B
24
51
13
19
16
30
26
~90#
17
14
56
27
28
27
15
20
15
31
24
19
Telangana Govt
#MOSL Estimate; Source: MOSL, Company
Exhibit 11: Overseas E&C ordering driven by single large
order of Saudi Aramco of INR67b
Domestic
Overseas
Domestic E&C: base orders supports the inflow in 1Q17;
large orders continues to remain weak INR b
Base Orders
Large Projects (INR15b+)
Source: MOSL, Company
Source: MOSL, Company
30 July 2016
7

Larsen & Toubro
Exhibit 12: Key Projects win announced by L&T during 1QFY17
Key Projects
Sewer Network and STP for 105MLD
INR m
57
50
41
33
85
71
40
2
121
117
117
112
13
47
185
104
39
31
670
Source: MOSL, Company
NHAI order for 4 laning of Mukkula to TN border of NH47
L&T Saudi Arabia order for EPC of 132kv lines in Saudi and PGCIL orders
Midrise residential project in Mumbai for 15 towers from 10 to 21 floors
Order from DFCCIL for a consortium of L&T and Instalaciones, Spain for electrification of 417kms of EDFC
EPC orders from Gujarat Water Infra for design and construction of 146kms of steel pipelines and 26km of iron
pipelines. Also order from Rajasthan Urban Drinking and Sewerage Infra for STPS and Sewerage Pumping Stations
PGCIL order for construction of 400kv DC line from Tumkur to Hiryur and Karnataka Solar Power for construction of
220/69kv substation
Ongoing jobs in MMH
Al Rayyan Stadium in Qatar for 2022 World Cup - 40,000 seater with JV partner Al Balagh Trading.
Order from IOC for a coke drum systems package of 1.7MMMTPA delayed coker unit at Haldi refinery, RIL refinery at
Jamnagar for MEG, LDPE and
Prestigious high rise from a developer in Mumbai. Another order for a mixed use development for a customer in
Kolkata - for 2 towers of 15 and 7 storeys respectively
Overseas EPC order from M East for transmisison line, domestic orders from UP board for 33kv substation in Ghaziabad
under IPDS and feeder separation under DDUJY
Order from RajComp Info, a govt of Rajasthan undertaking for establishing and commissioning control centres at
Bikaner, Bharatpur and Jodhpur under the surveillance and response project
2x1000MW power plant in Indonesia
L&T along with PES Engineers has won an order from the Irrigation and Command Area Development, Govt of
Telengana.
EPC orders from various customers - order from Water resources dept, MP for construction of balancing reservoir,
distribution chamber and pumping stations at Tikamgarh district, Another order from Ahmedabad Municipal
Corpporation for construction of 30MLD effluent treatment plant
Order from a reputed IT major for construction of software development blocks
EPC in overseas markets from M. East - construction of 2 HV substations and MV substation in Malawi, Africa
L&T awarded the offshore gas field contract along with EMAS- Chiyod Subsea for the Hazbah gas field
NWC stable at 24% of sales
NWC has been sustained at 24% of sales which is flat sequentially.
We believe that the changes in net working capital are led by cyclical factors of
customer advances/retention money; thus, with improved intake, these factors
should correct in FY17.
Exhibit 13: Working capital has been stable for four quarters
Segmental Working Capital (% of sales)
23
21 22
25 26 25 25 25 25 24
24
8
8
10
13 13 12
17 16 17 18
15 17
FY15 data points are consolidated; Source: MOSL, Company
30 July 2016
8

Larsen & Toubro
Exhibit 14: Customer Advances (% of order book) has
improved
Customer Advances (% of OB)
Exhibit 15: Retention Money (% of revenues) remains at
elevated levels
Retention Money (% of Revenues)
Source: MOSL, Company
Source: MOSL, Company
Management maintains FY17 guidance
L&T has maintained its 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 50bps YoY to 10% from 9.5% under IND AS; earlier guidance under
IGAAP was for an increase from 10.5% to 11%. This is brought down to 10% due
to IND AS changes and another 50bps on inclusion of corporate overheads.
Revenue guidance at 12-15% growth.
Exhibit 16: L&T issues FY17 Guidance on orders revenues and margins
(% YoY)
Revenues
Order Intake
Margins
1QFY15
+15%
+20%
-150bps
2QFY15
+10-15%
+20%
-150bps
3QFY15
+10-15%
+15-20%
-200bps
FY15A
8.1%
22.4%
-218bps
FY16
Guidance
+15%
+15%
+100bps
2QFY16
10-15%
5-7%
+100bps
3QFY16
10-15%
Flat
+++
FY16A
FY17
Guidance
12%
12-15%
15%
50bps
-12%
-30bps
Source: MOSL, Company
L&T’s Guidance Composition: A Recap
Revenue and Order Intake guidance is for consolidated entity.
EBIDTA margin guidance is for consolidated entity, excluding IT Services,
Financial business and Developmental projects. Thus, this largely captures the
margins in E&C business, Products (including electrical, machinery),
Manufacturing business (including Ship building, Power BTG,), Real Estate, etc.
Valuation and view
L&T is exposed to several levers across business/geographic segments and has
emerged as the E&C partner of choice in India, which provides a robust
foundation to capitalize on the next leg of investment cycle.
Under its new five-year strategic plan, LT aims to: (a) grow sales at a 12-15%
CAGR to reach INR2t by 2021; (b) increase margins to 11.2%, +120bp over FY16,
driven by higher profitability in key manufacturing verticals (power, process,
forgings and Kattupalli yard) and hydrocarbons; (c) unlock value via asset sales
to drive ROE to 18% from 12% in FY16; and (d) reduce working capital to 18% of
sales from 24% currently.
30 July 2016
9

Larsen & Toubro
Manufacturing businesses (like Shipyard, Power BTG, Forgings etc) also present
interesting possibilities in the longer term. Many of these businesses are difficult
to replicate and L&T is strongly positioned as a dominant player.
Target price of INR1, 670; maintain Buy cut our estimates and TP
We maintain
Buy
with a revised SOTP based price target of INR1,660/sh (E&C
business at 22x FY18E). We cut our consolidated earnings by 7%/6% for FY17/18
respectively. We assign a 22x multiple to the standalone business.
We believe that a our target price is justified, given near term weakness in the
ordering activity however we believe that in the medium term strong pipeline of
projects is building-up in segments like Metro Rails, Hydrocarbons, Fertilizers,
Nuclear Power, Defence, Power BTG, etc.
Manufacturing businesses like Power BTG, Shipbuilding and Special Forgings are
expected to witness sharp improvement in order intake in FY17, led by pick-up
in project awards in Power BTG, Defence and Nuclear segments.
Exhibit 17: Revision in estimates
(INR m)
Sales
EBITDA
EBITDA (margins %)
PAT
EPS
FY16A
1,026,317
123,339
12.0%
50,905
54.6
New Estimates
FY17E
FY18E
1,093,553
1,243,684
124,181
151,666
11.4%
12.2%
52,372
64,940
56.2
69.7
Old Estimates
FY17E
FY18E
1,099,877
1,258,857
129,050
156,649
11.7%
12.4%
55,767
69,858
59.9
75.0
Change in estimates
FY17E
FY18E
-1%
-1%
-4%
-3%
-0.4%
-0.2%
-6%
-7%
-6%
-7%
Source: MOSL, Company
30 July 2016
10

Larsen & Toubro
Exhibit 18: L&T SOTP value
Method
Construction Business
L&T Standalone
L&T Hydrocarbons
International Ventures (L&T FZE)
Service Segments
L&T Infotech
L&T Technology Sevices
Finance Sevices
Sapura Shipping
L&T Realty
Asset Ownership / Project Developer
Infrastructure Development Projects
FY18E PER (x)
FY18E PER (x)
FY18E PBV (x)
FY18E PER (x)
FY18E PER (x)
FY18E PBV (x)
FY18E PBV (x)
FY18E PER (x)
FY18E PBV (x)
Valuation Value Value
Rationale
multiple (INR b) (INR/sh)
22.0
22.0
1.0
13.0
13.0
1.5
1.5
15.0
0.5
1.0
15
1.0
1.0
1,141
54
0
141
79
134
0
33
35
31
27
29
6
1,220
57
0
135
84
92
0
35
38
33
29
31
7
-97
1,670
Valued at last ten year average P/E multiple
At par to mid-tier IT companies; excl. stake sold via OFS
At par to mid-tier IT companies
At discount to peer group given relatively lower ratios
At 0.5x Book Value to capture the macro volatility & losses
At Book Value, given Case 2 bid
Expect industry project awards to sustain at 15-18GW pa
Increased possibility of Defence (Naval) orders
Possibility of Nuclear project awards to commence in FY17
Power Development Projects
FY18E PBV (x)
Manufacturing Ventures
Power Equipments
FY18E PER (x)
Shipbuilding / Container Port
FY18E PBV (x)
Special Steel and Heavy Forgings
FY18E PBV (x)
Less: Holding Company Discount of 20%
Total
Source: MOSL, Company
30 July 2016
11

Larsen & Toubro
Operating metrics (INR b)
FY12
Consolidated E&C Business, incl Hydrocarbons
Order Intake
- Domestic
- Overseas
Order Intake, % YoY
- Domestic
- Overseas
Revenues
- Domestic
- Overseas
Revenues, % YoY
- Domestic
- Overseas
Analyzing Domestic Intake
Large Projects (INR15b+)
Base Orders (sub INR15b)
Consolidated Order Intake
% YoY
Consolidated Revenues
% YoY
EBIDTA Margins
E&C, Consolidated
E&C, Standalone
Standalone EPS*
Consolidated EPS
Cons. EPS Composition (INR/share)
Infotech
Finance
Manufacturing - BTG, Forging,Shipbuilding
Developmental Business
E&C / Electrical Products, etc
ROE (%) [Standalone]
ROE (%) [Consolidated]
Wkg. Capital (% of sales) - Adj for Subs Adv
689
536
153
-6.4%
-19.9%
128.1%
465
419
46
23.4%
23.1%
26.0%
536
143
393
842
642
FY13
815
670
145
18.3%
25.0%
-5.0%
597
467
130
28.6%
11.4%
184.3%
670
145
525
1,029
22.2%
745
15.8%
11.9%
12.1%
38.3
51.8
FY14
1,020
628
383
24.1%
-6.2%
163.7%
624
471
153
7.4%
4.2%
19.0%
628
67
561
1,272
23.6%
851
14.2%
12.0%
13.1%
43.7
49.3
FY15
1,227
943
284
21.4%
50.2%
-25.8%
619
457
162
-0.8%
-3.0%
6.0%
943
411
532
1,554
22%
920
8.0%
8.4%
11.6%
41.1
47.2
FY16
1,039
731
308
-15.3%
-22.5%
8.5%
698
476
223
12.8%
4.2%
37.3%
731
159
572
1,369
-12%
1,026
11.6%
9.5%
11.0%
40.0
50.6
FY17E
1,180
877
303
13.6%
20.0%
-1.7%
762
519
244
9.2%
9.0%
9.5%
877
327
550
1,624
19%
1,094
6.5%
9.5%
10.8%
44.1
56.0
FY18E
1,191
965
226
0.9%
10.0%
-25.4%
857
597
260
12.4%
15.0%
6.9%
965
415
550
1,694
4%
1,244
13.7%
10.2%
11.4%
55.4
69.4
13.1%
11.3%
44.9
49.1
4.7
6.2
6.9
11.9
14.8
17.2
19.7
4.7
5.8
4.0
4.9
5.3
5.7
6.5
-1.1
-3.0
-7.2
-6.5
-6.0
-6.2
-4.8
-2.9
-2.9
-4.5
6.0
-6.4
-4.2
-0.5
43.9
45.6
50.0
30.9
42.9
43.5
48.6
16.8
14.2
15.6
13.3
12.2
11.6
13.0
17.0
15.3
12.8
11.2
11.1
11.4
12.9
17.0
26.5
25.5
22.7
21.3
21.3
21.3
* Standalone EPS, excluding dividend received from subsidiary companies
30 July 2016
12

Larsen & Toubro
Financials and Valuations
Income Statement
Y/E March
Net Revenues
Growth Rate (%)
Manufacturing Expenses
Staff Cost
S G &A Expenses
EBITDA
Change (%)
Adj EBIDTA
EBITDA Margin (%)
Depreciation
EBIT
Net Interest
Other Income
Profit before Tax
Tax
Effective Tax Rate (%)
Reported Profit
Less:Addl tax on dividend by Subs
Less: Minority Interest
Add: Profits of Associates
EO Adjustments
Adjusted Profit
Growth (%)
Cons. Profit (Reported)
Cons. Profit (Adj)
Growth (%)
2012
642,307
23.4
472,185
49,950
33,577
86,885
13.2
86,885
13.5
15,803
71,082
11,019
8,290
68,353
22,826
33.4
46,095
87
348
462
568
45,555
9.0
46,123
47,730
8.7
2013
744,980
16.0
546,888
62,446
36,359
99,287
14.3
99,287
13.3
16,371
82,917
21,243
10,557
72,231
23,790
32.9
51,808
130
722
384
3,368
47,973
5.3
51,341
49,327
3.3
2014
851,284
14.3
616,948
80,276
46,517
107,543
8.3
107,543
12.6
14,458
93,085
31,414
9,819
71,490
26,076
36.5
48,817
208
-382
93
3,402
45,680
-4.8
49,083
40,244
-18.4
2015
920,046
8.1
672,937
79,222
54,531
113,356
5.4
113,356
12.3
26,225
87,131
28,507
10,072
68,696
22,836
33.2
49,337
0
1,710
21
3,477
44,171
-3.3
47,648
44,867
11.5
2016
1,026,317
11.6
749,463
92,048
61,467
123,339
8.8
123,339
12.0
27,472
95,867
30,412
11,830
77,286
25,487
33.0
55,380
0
4,450
-25
3,581
47,324
7.1
50,905
47,324
5.5
2017E
1,093,553
6.6
773,417
130,461
65,494
124,181
0.7
124,181
11.4
18,894
105,286
25,057
11,978
92,207
30,407
33.0
61,799
0
3,888
-5,540
0
52,372
10.7
52,372
52,372
10.7
(INR Million)
2018E
1,243,684
13.7
869,161
148,372
74,485
151,666
22.1
151,666
12.2
20,750
130,916
34,384
11,200
107,732
36,604
34.0
71,128
0
4,578
-1,610
0
64,940
24.0
64,940
64,940
24.0
Balance Sheet
Y/E March
Equity Capital
Reserves and Surplus
Net Worth
Debt
Deferred Tax Liability
Minority Interest
Capital Employed
Gross Fixed Assets
Less : Depreciation
Add : Capital WIP
Net Fixed Assets
Investments
Inventory
Sundry Debtors
Cash & Bank
Loans & Advances
Other Current Assets
Current Assets
Current Liabilities
Net Current Assets
Capital Deployed
E: MOSL Estimates
2012
1,225
287,811
289,036
471,501
44,995
17,535
827,898
255,174
61,380
149,127
342,921
87,895
42,299
204,054
35,221
74,922
153,396
757,623
360,755
396,869
827,898
2013
1,231
337,366
338,597
619,936
1,837
26,529
986,899
379,822
75,670
113,068
417,220
87,675
51,874
230,149
35,715
84,536
201,930
924,213
442,209
482,004
986,899
2014
1,854
375,262
377,116
801,529
3,375
31,792
1,213,812
411,347
88,824
143,237
465,760
81,090
55,275
263,846
40,966
134,755
254,934
1,150,574
483,612
666,962
1,213,812
2015E
1,859
407,232
409,091
905,714
-1,847
49,986
1,362,944
454,711
107,331
155,237
502,618
96,121
65,182
300,894
57,562
193,020
246,883
1,335,860
571,655
764,206
1,362,944
2016E
1,863
438,054
439,917
1,013,066
-3,918
67,688
1,516,753
562,967
130,152
174,899
607,715
100,800
53,620
359,899
59,016
280,946
289,061
1,558,702
750,465
808,238
1,516,753
2017E
1,863
476,529
478,392
921,697
-3,918
71,576
1,467,747
(INR Million)
2018E
1,863
524,698
526,561
929,678
-3,918
76,153
1,528,475
570,608
169,796
174,899
575,712
100,800
64,976
419,087
76,834
340,449
350,282
1,788,640
909,408
879,233
1,555,745
515,608
149,046
174,899
541,461
100,800
57,132
368,497
92,923
299,351
307,998
1,652,385
799,629
852,756
1,495,018
30 July 2016
13

Larsen & Toubro
Financials and Valuations
Ratios
Y/E March
Basic (INR)
Standalone EPS Adj
Growth (%)
Consolidated EPS Adj
Growth (%)
Con. EPS (Fully Diluted)
Growth (%)
Cash EPS
Book Value
Dividend Per Share
Div. Payout (Incl. Div Tax ) %
Valuation (x)
P/E (Standalone)
P/E (Consolidated)
P/E (Consolidated) (Fully Diluted)
Price / CEPS
EV/EBITDA
EV/ Sales
Price / Book Value
Dividend Yield
Return Ratio (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Inventory (Days)
Asset Turnover (x)
Leverage Ratio
Current Ratio (x)
D/E (x)
2012
47.5
22.1
49.1
9.0
49.1
9.0
66.2
311.8
11.1
22.5
2013
49.3
3.7
51.8
5.3
51.8
5.3
69.4
365.3
11.5
22.2
2014
52.9
7.4
49.3
-4.8
49.3
42.8
64.9
406.9
14.2
28.9
2015E
50.2
-5.1
47.2
-4.2
47.2
-4.2
75.2
437.3
13.0
27.5
2016E
50.8
1.1
50.6
7.1
50.6
7.1
80.0
470.2
13.6
26.9
2017E
53.3
4.9
56.0
10.7
56.0
10.7
76.2
511.4
12.8
22.8
2018E
65.5
23.0
69.4
24.0
69.4
24.0
91.6
562.9
15.7
22.7
32.8
32.6
32.6
24.2
22.1
3.4
6.0
0.7
17.0
8.8
31.6
30.9
30.9
23.0
20.8
3.0
5.1
0.7
15.3
8.3
29.4
32.5
32.5
24.7
20.9
2.8
4.4
0.9
12.8
7.2
31.0
33.9
33.9
21.3
20.7
2.6
3.9
0.8
11.2
6.5
30.7
31.6
31.6
20.0
19.9
2.5
3.7
0.9
11.1
6.9
29.3
28.6
28.6
21.0
18.7
2.4
3.4
0.8
11.4
8.1
23.8
23.0
23.0
17.5
15.5
2.1
3.1
1.0
12.9
9.4
116.0
24.0
0.8
2.1
0.9
112.8
25.4
0.8
2.1
1.0
113.1
23.7
0.7
2.4
1.2
119.4
25.9
0.7
2.3
1.2
128.0
19.1
0.7
2.1
1.1
123.0
19.1
0.8
2.1
0.8
123.0
19.1
0.8
2.0
0.7
Cash Flow Statement
Y/E March
PBT before EO Items
Add : Depreciation
Change in diff tax liability
(Inc)/Dec in WC
CF from Operations
(Inc)/Dec in FA
Free Cash Flow
(Pur)/Sale of Investments
Advances to subs
CF from Investments
(Inc)/Dec in Net Worth
(Inc)/Dec in Debt
Change in Minority Interest
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2012
46,123
15,803
-3,231
-134,620
-75,925
-77,087
-153,012
4,263
-73,037
9,155
143,215
7,275
-11,916
147,729
-1,233
36,455
35,222
2013
52,057
16,371
-43,158
-84,641
-59,372
-90,670
-150,042
220
-90,237
5,057
148,436
8,994
-12,385
150,102
493
35,222
35,715
2014
49,020
14,458
1,538
-179,708
-114,692
-62,998
-177,690
6,585
-56,413
4,821
181,593
5,263
-15,322
176,355
5,251
35,715
40,966
2015E
47,648
26,225
-5,221
-80,647
-11,995
-63,083
-75,078
-15,032
-78,114
-1,571
104,185
18,194
-14,103
106,705
16,596
40,966
57,562
2016E
50,905
27,472
-2,071
-42,578
33,727
-52,641
-18,914
-4,679
-57,320
-5,263
107,352
17,702
-14,815
104,975
81,382
57,562
86,286
2017E
52,372
18,894
0
-10,611
60,655
(INR Million)
2018E
64,940
20,750
0
-42,566
43,124
-55,000
-11,876
0
-55,000
0
7,981
4,578
-16,771
-4,213
-16,089
92,923
76,834
47,359
108,014
0
47,359
0
-91,369
3,888
-13,896
-101,377
6,637
86,286
92,923
30 July 2016
14

Larsen & Toubro
Corporate profile: Larsen & Toubro
Company description
Larsen and Toubro (LT) is India's largest E&C
company. Apart from core construction activity, LT
has made significant inroads into a diverse range of
products and services through its subsidiaries and
manufacturing JVs in power BTG, forging and
shipbuilding. The company is also involved in
various developmental projects in roads, ports,
railways and power. Overseas contributes ~18-20%
of the business.
Exhibit 27: Sensex rebased
Exhibit 28: Shareholding pattern (%)
Jun-16
Promoter
DII
FII
0.0
38.7
18.7
Mar-16
0.0
38.3
18.3
Jun-15
0.0
36.7
21.4
41.9
Exhibit 29: Top holders
Holder Name
Life Insurance Corporation Of India
L&T Employee Welfare Foundation
Administrator Of The Specified Undertaking Ofthe
Hdfc Trustee Company Limited-Hdfc Equity Fund
General Insurance Corporation Of India
% Holding
15.7
12.3
8.2
2.2
1.8
Others
42.6
43.4
Note: FII Includes depository receipts
Exhibit 30: Top management
Name
A M Naik
S N Subrahmanyan
Designation
Group Chairman
Deputy Managing Director
Exhibit 31: Directors
Name
A M Naik
S N Subrahmanyan
M M Chitale*
M Damodaran*
Adil Zainulbhai*
Subodh Bhargava*
Vikram Singh Mehta*
Akhilesh Krishna Gupta*
Sushobhan Sarker
Name
Sunita Sharma
Swapan Dasgupta
Subramanian Sarma
Ajay Shankar*
Bahram N Vakil*
Thomas Mathew T*
R Shankar Raman
D K Sen
Shailendra Roy
*Independent
Exhibit 32: Auditors
Name
Deloitte Haskins & Sells LLP
Sharp & Tannan
R Nanabhoy & Co
Type
Statutory
Statutory
Cost Auditor
Exhibit 33: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
MOSL
forecast
56.0
69.4
Consensus
forecast
57.3
68.6
Variation
(%)
-2.3
1.1
30 July 2016
15

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