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Lower raw material (commodity) prices and operating efficiencies helped the E&C business report an increase of 120 basis points in profit margins to 13.4 per cent.

The company’s electrical & electronics (E&E) and machinery and industrial products (MIP) businesses, together accounting for 15 per cent of revenues, saw revenues grow 11 per cent on the back of an ongoing industrial recovery and higher demand for construction and mining equipment.

Notably, the MIP business reported a robust 650 basis points improvement in profit margins to 21.9 per cent, helped by better realisations and cost control.

So far, for the nine months ending December 2009, L&T’s standalone revenues were up 1 per cent whereas net profit rose18 per cent, partly helped by the 130 basis points improvement in operating profit margins to 12.4 per cent. Considering its ninemonth performance and L&T’s revenue guidance of 10 per cent for 2009-10, it will have to clock a growth of 25-27 per cent (revenues of about Rs 13,000 crore in the fourth quarter to meet its guidance).

Analysts, however, expect the company to fall short of its guidance and estimate the full-year revenue growth at about 8 per cent and net profit growth at 8-10 per cent. Even if L&T achieves its new guidance, its move to cut revenue guidance for 2009-10 is likely to prompt analysts to lower their estimates for 2010-11.

The good part is that L&T’s order book showed an improvement and was up 32 per cent year-on-year for the nine months to Rs 91,100 crore - the company expects to close the year with an order book of over Rs 100,000 crore. At Rs 1,524.35, analysts believe the stock is marginally expensive considering that it is trading at a price to earnings P/E of about 25 times and 20 times its estimated 2009-10 and 2010-11 earnings, respectively.
source - BS

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Going ahead, analysts suggest that orders from bulk tendering by NTPC for boilers in the coming months are expected to significantly boost the company’s order book. “We expect L&T to bag orders worth Rs 4,000-5,000 crore from NTPC,” states a report from Sharekhan.
However, the stock has underperformed the BSE Sensex during the last six months, primarily on account of the company’s poor quarterly performance. The company reported a fall of 6.2 per cent in operating income and a50 per cent dip in net profit for the third quarter ended December 2009.

Over FY10-12E, Angel Securities expects the company to post a compounded annual growth rate of 23.5 per cent in revenues to Rs 55,496 crore with stable margins, which will primarily be driven by a robust order backlog and good order inflows.
“L&T’s growth momentum, along with better pricing power, superior margins and opportunities in the infrastructure sector, will justify superior valuations and lead to outperformance,” states an Angel Securities report.

At Rs 1,640 levels, the stock trades at around 23.3x FY12E consensus analysts’ earnings estimates and 4xFY12E P/BV on a standalone basis.
source - Business Standard

Larsen & Toubro Ltd (updated - 22 Jan 2010)
The share price of Larsen & Toubro (L&T), India’s largest engineering company, fell 6.85 per cent on Thursday after it announced disappointing standalone results for the quarter ended December 2009. While the company’s net profit halved to Rs 758.8 crore after adjusting for non-recurring items, the profit was actually up 15 per cent to Rs 696 crore, partly helped by lower interest costs.

The disappointment, analysts say, is the 5 per cent decline in the company’s comparable revenues to Rs 8,071 crore, which was on account of deferment of some orders in infrastructure and hydrocarbon sectors as well as execution impediments. Secondly, the company halved its revenue growth guidance for 200910 to 10 per cent, which again dampened sentiments.

L&T’s largest business segment, engineering and construction (E&C), was the main culprit as its revenues fell 8.7 per cent on account of execution bottlenecks and delays in projects. Increased orders from the power sector helped L&T’s order inflow rise 23 per cent to Rs 16,400 crore; however, orders from export markets declined.

Larsen & Toubro Ltd (updated - 18 May 2010)
After a disappointing performance in the first three quarters of FY10, the engineering major Larsen & Toubro reported solid numbers in the quarter ended March 2010. The impact on the share price was obvious; the stock gained 5 per cent outperforming the benchmark indices. Sales, including other operational income, jumped 28 per cent year-onyear (y-o-y) to Rs 13,585 crore — the highest in the past five quarters.

A strong pick-up in execution in the engineering and construction division added to this. However, mechanical and industrial products division lagged, as order flows to the key industrial valves business was affected on account of global slowdown. Operating profit margins were flat at about 15 per cent, as total expenditure rose 28 per cent due to an increase in raw materials, construction expenses and employee costs.

Net profit, excluding extraordinary items like stake sale in Bangalore International Airport, rose just 17 per cent to Rs 1,337 crore. The 40-per cent rise in other income on account of higher dividends from subsidiaries and profit from Satyam stake sale was unable to compensate tripling of interest costs and 79 per cent higher tax provisions.

With an order-book size of more than Rs 1 lakh crore, the company is expected to remain on the growth track. However, rising input costs and higher interest rates will be prime concerns for L&T, as these can put operating margins and profits under pressure. Also, competition — especially in businesses like power generation, power equipments and road buildoperate-transfer — will keep margins under check.

While outlook for core business has sharply improved with revenue-visibility, the performance of key subsidiaries in FY10 could repeat. At 18 times and four times price to estimated earnings and book value for FY12, L&T is seen to be a fairly-valued scrip.
source - Business Standard

Larsen & Toubro Ltd (updated - 31 Mar 2010)
It has been good going for Larsen and Toubro (L&T). The company has bagged orders worth Rs 2,526 crore in the past two days. Indian Oil Corporation placed a Rs 1,400-crore order for supply of a 4.17-million-tonne a year fluidised catalytic cracker reactor regenerator. It also secured another Rs 1,126crore order related to metallurgical, material handling and water sector projects.

In the current quarter, the company has announced orders of Rs 15,242 crore (Rs 91,104 crore in the first nine months of the current financial year), with the infrastructure sector leading with a41.5 per cent contribution. Order inflows from hydrocarbon, process and power sectors stood at 19.9 per cent, 14.1 per cent and 18 per cent, respectively, with the defence sector accounting for the rest.

Larsen & Toubro Ltd (updated - 30 Sept 2010)
Larsen & Toubro’s (L&T’s) decision to list finance and infrastructure assets subsidiaries in the second half of 2010-11 and 2011-12, respectively, will unlock immense value, as both the businesses have extensive growth potential.

According to reports, L&T Finance Holdings, the recently formed holding arm of L&T Finance and L&T Infrastructure Finance, proposes to file for an initial public offer to raise `1,500 crore by diluting 15-20 per cent stake. This values the entire finance vertical at `10,000 crore compared to analysts’ estimates of `3,500 crore.

Consequently, the share of the finance business in L&T’s total market capitalisation comes to about eight per cent, compared to analysts’ fair value estimate of 2.4 per cent.

During 2007-10, the combined loan book, revenue and net profit of the finance vertical grew at a compounded annual growth rate of 57 per cent, 70 per cent and 58 per cent to `10,949 crore, `1,416 crore and `267.6 crore, respectively. Even in the June quarter, while L&T’s core business exhibited a muted performance, revenues from the finance companies jumped 53 per cent year-on-year to `435 crore and net profit more than doubled to `106 crore.

L&T, which holds around 86.5 per cent in Infrastructure Development Projects (IDPL), plans to buy the remaining 13.5 per cent from IDFC Private Equity and JP Morgan Chase for `740 crore, valuing the company at `5,300 crore, or 4.3 per cent of L&T’s market capitalisation. With assets worth `40,000 crore, IDPL is looking to expand in high-potential sectors like railways and water.

L&T’s standalone business is in a sweet spot, with all its businesses witnessing strong traction. The company has already cornered about 40 per cent of the targeted order inflows for 20102011 and is confident of 25 per cent growth. Analysts advise investors to accumulate the stock as it is trading close to its fair value of `2,113.
source - business standard

Larsen & Toubro Ltd (updated - 28 July 2010)
India’s leading engineering and construction company Larsen & Toubro (L&T) is well on its way to meet the management guidance made in April, which stated that order inflow would grow around 25 per cent in the current financial year.
The order inflow in the June quarter was Rs 15,626 crore, a growth of 63 per cent over the corresponding quarter of the previous year. With the order book at Rs 1,07,816 crore as on June 30, the company has managed to maintain the growth momentum.

However, the key will be to maintain profit margins. Earnings before interest, tax, depreciation and amortisation (Ebitda) margins stood at 12.8 per cent, as compared to 11.2 per cent recorded in the year-ago period. The improvement has been on account of strong performance in the engineering & construction (E&C) segment and lower manufacturing and operating expenses. Operating expenses were 75 per cent of the sales value, a two percentage point improvement from the previous year’s quarter. The E&C segment, which contributes around 83 per cent to revenues and 80 per cent to Ebitda, saw margins improve by around 170 basis points — hence the traction.

Going ahead, the company has capacity-expansion plans of around Rs 36,300 crore. Funding should not be a problem for the company, since it has a favourable debt-to-equity ratio of around 42 per cent. The management also mentioned that it would not be looking at additional funding.

The power sector is likely to drive order inflows in the second and third quarters, as key tenders, including that of NTPC, open up. According to analysts at Antique Securities, L&T’s orders from the power sector have more than doubled in the last financial year, while that of BHEL remained constant. This buoyed the overall order inflow growth for L&T, as compared to BHEL’s stagnating order inflow, point analysts. With execution rate and order-book-to-sales ratio improving from 1.5 times to 2.7 times, momentum may continue to be strong.
source - business standard

The September 2010 quarter was, however, challenging compared to the June quarter though sales growth has been better. In the first quarter of FY11, sales grew 6.4 per cent y-o-y despite a low base of 7.3 per cent growth in June 2009. The company had to grapple with higher costs in the September 2010 quarter as total expenditure surged 17.5 per cent.

There has also been some slowdown in the growth of the order book (41.4 per cent down from 50.5 per cent in the first quarter of FY11) and order inflows (11.4 per cent versus 63.3 per cent), which investors need to keep a watch on. However, with further pick up in operations in the second half of the current financial year, analysts believe the company can meet its guidance of 20 per cent and 25 per cent growth in revenue and order intake, respectively, for 2010-11.

The stock staged a smart recovery as it closed with a gain of 1.2 per cent at `2,013.15 after falling as much as three per cent intraday. With the company’s stretched valuation of 24x FY12 estimated earnings, its plan to list finance (L&T Finance Holdings) and infrastructure subsidiaries in the second half of FY11 and FY12, respectively, will act as positive trigger.
source - business standard