MOSL: LARSEN & TOUBRO (Buy)-FY18 guidance a dampener

​Larsen & Toubro: FY18 guidance a dampener

(LT IN, Mkt Cap USD25.9b, CMP INR1788, TP INR2000, 13% Upside, Buy)

• 4QFY17 operational performance marginally below estimates: LT's 4QFY17 consol. EBITDA of INR43.4b (-4% YoY) was marginally below our estimate of INR44b. EBITDA, adjusted for INR6.3b of accelerated provisions at L&T Finance Holdings, stood at INR50b. Revenues increased 12% YoY to INR368.3b, in line with our estimate of INR370b. Reported PAT of INR33b (+45% YoY) was significantly ahead of our estimate of INR24b. FY17 orders rose 5% (v/s guidance of +10%) to INR1,430b, sales grew 8% (v/s guidance of +10%) to INR1,100b, while EBITDA margin expanded 50bp (in line with guidance) to 10% (ex services). NWC stood at 19% of sales v/s 21% in 3QFY17.
  
• EBITDA margin shrunk 190bp YoY to 11.8%. EBITDA at INR43.4b (-4% YoY) was marginally below our estimate. However, there were one-offs relating to a) INR6.3b accelerated provisions in L&T Finance Holdings, b) INR2.4b additional impairment for Seawoods and Hazira yard and c) write-back of INR1.5b of losses in a road project. Adjusting for the multiple one-offs, PBT at INR44b was ahead of our estimate of INR38b (Exhibit 3).
  
• Order intake misses our estimate: Consol. intake stood at INR473b (+10% YoY) v/s estimate of INR550b (FY17 at INR1,430b). Order inflow was primarily supported by Hydrocarbon, Heavy Engineering, Infrastructure and Water segments. Unannounced orders were at INR98b v/s our estimate of INR150b. Order book stood at INR2,613b (+5% YoY) post cancellation of INR180b of slow-moving orders.