MOSL: LARSEN & TOUBRO (Buy)-Strong beat to estimates on all fronts
Larsen & Toubro: Strong beat to estimates on all fronts
(LT IN, Mkt Cap USD25.3b, CMP INR1286, TP INR1610, 25% Upside, Buy)
- Sales increased 24% YoY to INR357b, ahead of our estimate of INR323b, driven by Hydrocarbon (+22% YoY), Infrastructure (+24% YoY), IT (+29% YoY) and Finance (+20% YoY) segments. EBITDA increased 27% YoY to INR40b (our estimate: INR36b), with the margin coming in at 11.2%. EBITDA beat was driven by the Others and IT/TS segments. We highlight that (a) Infrastructure segment includes INR4b of provisions relating to time and cost overruns and (b) Others segment had INR5.5b of sales and profit relating to the sale of a commercial tower in 3QFY19. PAT increased 37% YoY to INR20.4b, ahead of our estimate of INR18b. NWC stood at 19.8% of sales (-70bp YoY). For 9MFY19, sales/EBITDA/PAT grew 22%/31%/31% YoY.
- E&C sales grew 22% YoY (our estimate: +18%). Domestic E&C segment grew by 37% YoY, driven by Infrastructure (+42% YoY), Heavy Engineering (+72%) and Hydrocarbon (+48% YoY), partly offset by Power (-47% YoY). There is a clear push from the government (central + state) to complete projects ahead of elections, which is reflected in the pick-up in execution. Overseas E&C segment grew by 13% YoY, driven by Power (+41% YoY) and Heavy Engineering (+110% YoY).
- E&C EBITDA margin shrank 160bp YoY to 6.3% (our estimate: 8%), primarily as Infrastructure margin contracted (-250bp YoY to 5.4%) on account of: (a) INR4b provision booked for cost and time overruns in projects where claims have been raised but yet to be received, (b) adverse job mix and (c) higher raw material prices on fixed priced contracts. Adjusted for the provisions, E&C margins stood at 7.9% (flat YoY).
- 3QFY19 orders declined 12% YoY to INR422b, primarily driven by Infrastructure and Hydrocarbons segments. 9MFY19 orders stood at INR1,202b (+16% YoY) - we maintain our FY19 orders estimate at INR1.7t, which implies 11% growth for the fiscal (mid-point of company guidance). 4QFY19 orders are estimated at INR493b (flat YoY).
Larsen and Toubro is engaged in the following business segments: Engineering & Construction; Electrical & Electronics; Machinery & Industrial Products; and Other. Engineering and construction segment comprises execution of construction projects in civil, mechanical and electrical engineering. Electrical and electronics segment comprises the manufacture and sale of switchgear, petroleum dispensing pumps, and medical equipment. Machinery and industrial products segment comprises the manufacture and sale of industrial machinery and equipment. Other segment includes property and software development, generation of power for consumption by Haldia Petrochemicals Limited, and financial services.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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