Larsen & Toubro
Deep dive into subsidiary annual reports
Investments into subsidiaries/JVs curtailed
31 August 2017
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
1223 / 864
Financials Snapshot (INR b)
2017 2018E 2019E
1,100 1,213 1,341
110.7 129.2 154.0
Adj PAT *
EPS Gr. (%)
358.8 322.9 358.5
Shareholding pattern (%)
Jun-17 Mar-17 Jun-16
FII Includes depository receipts
Stock Performance (1-year)
Larsen & Toubro
Sensex - Rebased
We pored over ~4,600 pages of Larsen & Toubro’s (LT) subsidiary annual reports.
Key highlights of our analysis:
Investments in subsidiaries/JVs were contained at INR197b (+3% YoY, 35% of
This is in line with LT’s strategy to limit further investments
in subsidiaries/JVs and make them self-funding. Some major changes were
seen at the subsidiary level in FY17 – i) Hyderabad Metro was taken over by LT
from IDPL for a consideration of INR21b. ii) LT took INR9.5b write-down in its
investment in IDPL, iii) Hydrocarbon had INR2.6b of preference shares being
issued by the parent during the year (see exhibits 15 and 16 for details).
Kattupalli Port demerged from L&T Shipbuilding in FY17.
According to the
company, the sale of the port to Adani Ports should be complete by 2QFY18 –
an advance of INR14.3b was already received in 3QFY17. Ex-ports, the
shipbuilding business reported a loss of INR5.9b – the yard is targeting a few
large naval orders, which are expected to be finalized in FY18, and
subsequently, improve profitability FY19 onward.
Performance of Heavy Steel & Forgings and MHPS TG JV was below par.
was another weak year for the Heavy Steel and Forgings segment, with
EBITDA/PAT loss of INR254m/INR2.5b, primarily due to low capacity utilization.
Within the MHPS partnership, the boiler JV recorded PAT of INR2.2b, driven by
a 46% rise in sales, but the TG JV reported a loss of INR60m at the PAT level
(despite EBITDA coming in at INR1.95b, with a 22% margin, PBT positive). The
boiler JV received an order for the 1.98GW NLC Ghatampur project, but no
domestic orders were bagged by the TG JV. Export orders worth USD200m
were won by the power JVs in FY17.
Losses at Infrastructure Development (P) narrowed, helped by
termination/restructuring of three road projects.
Two road projects – PNG
Tollway and Chennai TADA Tollway – have given a notice of termination to the
NHAI, while Halol Shamlaji Tollway has seen a strategic debt restructuring.
Lower losses from these projects, coupled with lower interest costs during the
year, helped restrict losses at IDPL to INR2.7b in FY17 v/s INR7.3b in FY16.
Hyderabad Metro is likely to commission two stretches in FY18.
incurred till date stands at INR125b, of which LT’s equity contribution is
INR21b, debt is INR87b and VGF is INR9.6b. The 72km metro line has been
divided into six stages, of which two – the Miyapur to SR Nagar (12km) and
Nagote to Mattuguda (8km) – are likely to be commissioned in FY18 with
expected ridership of 1.2m/day.
Nabha Power reported a loss in FY17 led by ECL provision.
INR2.5b/INR2b in FY16, Nabha Power’s EBITDA/PAT fell to INR80m/-INR261m,
primarily due to ECL provision of INR1.4b for the delay in receipt of receivables.
The company has disputed the non-allowance of coal washing and transport
charges from Punjab State Electricity Board; the matter is currently sub-judice.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Ankur Sharma – Research Analyst
(Ankur.VSharma@MotilalOswal.com); +91 22 6129 1556
Amit Shah – Research Analyst
(Amit.Shah@MotilalOswal.com); +91 22 6129 1543