30 November 2012
Update | Sector: Capital Goods
Larsen & Toubro
BSE SENSEX
S&P CNX
19,171
5,825
CMP: INR1,662
TP: INR1,795
Buy
Gearing up the overseas juggernaut
Overseas business at inflexion point; could contribute 1/3rd of FY14 PAT
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
LT IN
608.9
1,720/971
-3/24/11
1,011.9
18.9
Stock performance (1 year)
We expect FY13/FY14 to be an inflexion point in Larsen and Toubro's (L&T) attempt
to diversify geographically and thus reduce the concentration risk of depending on
the domestic economy. We estimate the overseas business would contribute ~28%/
32% of profits in FY13/FY14 respectively, up significantly from ~21% in FY12.
This shall be driven by: i) increased contribution of overseas service business from
10% of consolidated profits in FY12 to 14% in FY14 and ii) incremental growth from
new geographies (Middle East, Australia, SE Asia)/new segments (hydrocarbons, large-
sized projects).
L&T has continuously adapted and evolved across economic cycles, which led to a
strong 'delivery', even in a turbulent environment. In this note, we analyze the
possible inflexion point in overseas business.
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 solid foundation to
capitalize on the next leg of investment cycle. Thus, despite a very strong near term
performance, we remain positive on L&T and believe triggers still exist to accumulate
the stock on declines.
L&T's overseas business:
At an inflexion point
#1
#2
#3
#4
E&C, MIP, Electricals
Share in Cons PAT
FY12
8%
| FY14
12%
PAT CAGR 37%
(FY12-14)
FZE
Share in Cons PAT
FY12
3%
| FY14
6%
PAT CAGR 56%
Engineering Services
Share in Cons PAT
FY12
2%
| FY14
5%
PAT CAGR 66%
Infotech
Share in Cons PAT
FY12
9%
| FY14
9%
PAT CAGR 16%
#1
#4
#2
NOTE:
To accelerate growth in the technology
space, L&T has restructured the businesses:
L&T Infotech
has been reorganized around two
clusters, "Industrial" and "Services".
L&T Integrated
Engineering Services
has been rebranded as
L&T Technology
Services.
#3
Satyam Agarwal
(AgarwalS@MotilalOswal.com); +91 22 3982 5410
Deepak Narnolia
(Deepak.Narnolia@MotilalOswal.com); +91 22 3029 5126
Investors are advised to refer through disclosures made at the end of the Research Report.
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