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MOSL: Morning India (27/July/21): 1. Larsen & Toubro (Minor miss in core E&C EBITDA; order inflows disappoint); 2. Kotak Mah. Bank; 3. Axis Bank; 4. SBI Life Insurance; 5. Tata Motors; 6. Vedanta; 7. United Spi

MOrning India (27/July/21): 1. Larsen & Toubro (Minor miss in core E&C EBITDA; order inflows disappoint); 2. Kotak Mah. Bank; 3. Axis Bank; 4. SBI Life Insurance; 5. Tata Motors; 6. Vedanta; 7. United Spirits; 8. Crompton Gr. Con.

 

Today’s top research idea

Larsen & Toubro: Minor miss in core E&C EBITDA; order inflows disappoint

• Though L&T's adj.PAT missed our estimates by 19% (owing to higher tax rate and lower other income), the miss in core E&C EBITDA was lower at ~6%. Also, given that 1Q earnings typically contribute <15% to FY earnings, we refrain from reading too much into the current quarter's headline numbers.
• Notably, L&T has maintained its full-year guidance for low to mid-teen growth in order inflows and revenue as well as core E&C margins to be maintained at FY21 levels.
• The balance sheet continued to improve with working capital as a percentage of sales at 22.9% (v/s 26.8% last year), aided by favourable settlement of pending receivables for a power project. De-growth in the loan book of L&T Finance Holdings led to gross D/E and net D/E to 1.4x and 0.9x respectively (from 1.5x/1x at FY21-end).
• Overall order inflows grew 13%, while core E&C order inflows were up just 11% despite the weak base of last year - a key negative. With strong bid pipeline at ~INR9t for remainder of 9MFY22, the faster conversion of prospects into final awarding is key for the stock's performance, in our view.
• We increase TP to INR1,835, driven by MTM of the CMPs of the listed subsidiaries. Adj. for the subsidiaries' valuation (~INR740/sh), the core E&C business trades at an FY22/FY23E PE multiple of 18.0x/15.7x v/s the historical one-year fwd avg. PE multiple of 22x. L&T remains the best play on the capex cycle in India. Maintain Buy.

Piping hot news

Govt's net tax collection rises 86% to Rs 5.57 lakh crore in Q1

The government's total tax collection in the April-June quarter grew about 86 per cent to more than Rs 5.57 lakh crore, Parliament was informed on Monday. Out of the total amount, collection of net direct tax stood at Rs 2.46 lakh crore and of indirect tax was at Rs 3.11 lakh crore.