Scrip Code: 500510 / LT
L&T
on 1st of April 2013 announced to have secured India’s first ever
complete EPC order for 2 x 660 MW Super-critical Thermal Power Project on a
complete Engineering Procurement & Construction (EPC) basis from Rajasthan
Rajya Vidyut Utpadan Nigam Ltd worth Rs. 5689 Cr. This order involves designing,
engineering, manufacture, supply, erection and commissioning of two coal-fired
thermal units of 660 MW each with super-critical parameters at Chhabra in Baran
District in Rajasthan. This project has a stringent completion schedule of 42
months for unit 1 and 45 months for unit 2. With this contract, L&T now has
orders for supply and installation of 26 Super-critical Steam Generators and
Steam Turbine Generators of 660 MW, 700 MW and 800 MW. L&T on 28th
March 2013 completed its acquitions of Audco India Ltd – India’s leading
manufacturer of Industrial valves and a JV with Audco UK a wholly owned
subsidiary of Flowserve Corporation, USA (Flowserve). This acquisition is in
line with L&T’s overall portfolio rationalization, this deal will help grow
L&T’s Valve business globally with comprehensive range of valve offerings. L&T
looks good buy looking at its strong order book, infrastructure opportunities
and potential of value unlocking in its subsidiaries. Its core business would
drive earnings, as it has robust order book and good revenue visibility.
Subsidiaries like IT Services, and Infra would be lead to better valuation. The
infra-led growth would also be backed by growing portfolio and geographical
reach. L&T is expected to clock in a 20 % CAGR over FY12-15E in revenues
keeping the Book-to-Bill ratio (2.1-1.8x) trend more or less the same. However,
any adverse mix in terms of order inflow may alter the margins. L&T is
expected to have a 10 % CAGR in standalone earnings for the period of FY12-15E
which is again not an out-of-reach of any one’s assumption. Order wins in Jan-Feb 2013 were close to Rs. 3,900
Cr which were a mix of B&F (Government), Defence, Hydrocarbon and Power.
Further, with the impetus given to DMIC, DFC and other BOT projects in
transportation (Budget 2013-14), along with a strong financial backing, L&T
is expected to be able to secure sizable orders. With just a month away from
end of FY13E, order inflow stands at Rs. 64,000 Cr, implying Rs. 17,100 Cr order inflow in
March 2013. Historically, Q4 has been a strong period where the order inflows
are sizable. The fair value of L&T on
stand-alone basis using DCF comes at Rs. 1,361.53/share, while the valuation of
its investments in subsidiaries comes at Rs. 403.5/share totaling to value of Rs. 1764.90/share. On the valuation front, L&T could post EPS of Rs. 77.36 for FY14E & Rs. 88.55 for FY15E. Any further price correction provides
a good opportunity to Buy L&T at at a target price of Rs. 1500 for shorter term and for long term it would be Rs. 1765.00.
CMP: Rs. 1425.40; Accumulate at Rs. 1370 - Rs. 1400 levels.
Short term Target: Rs. 1500, Medium to Long term Target: Rs. 1765; STOP LOSS – Rs. 1311.36; Market Cap: Rs. 87,682.40 Cr; 52 Week High/Low: Rs. 1720.00 / Rs. 1106.05
Short term Target: Rs. 1500, Medium to Long term Target: Rs. 1765; STOP LOSS – Rs. 1311.36; Market Cap: Rs. 87,682.40 Cr; 52 Week High/Low: Rs. 1720.00 / Rs. 1106.05
Total Shares: 61,51,42,429 shares;
Promoters : 26,50,96,686 shares –42.85 %; Total Public holding : 35,00,45,743
shares – 56.90 %; Book Value: Rs. 409.54;
Face Value: Rs. 2.00; EPS: Rs. 81.95; Div: 825.00 % ; P/E: 17.39 times; Ind. P/E: 13.80;
EV/EBITDA: 11.42.
Total Debt: 9,895.77 Cr; Enterprise Value: Rs. 94,158.17 Cr.
LARSEN & TOUBRO LTD: LARSEN & TOUBRO LTD was
founded in 1938. Larsen
& Toubro Limited operates as a technology, engineering, construction, and
manufacturing company worldwide. Larsen’s divisions include Engineering and
Construction Projects (E&C), Heavy Engineering (HED), Engineering
Construction and Contracts (ECC), Electrical and Electronics (EBG), Machinery
and Industrial Products (MIPD), and Information Technology & Engineering
Services. These divisions undertake engineering design and construction of
infrastructure and industrial projects, including civil, mechanical, and
electrical & instrumentation engineering. The customer profile includes Samsung, Chevron, Bechtel, Kvaerner, Pirelli, Siam Michelin, and
Goodyear. The Heavy Engineering (HED) division manufactures and supplies custom
designed and engineered critical equipment and systems to the needs of
core-sector industries and the defense sector. It is the preferred supplier of
equipment for a select range of products, globally. The Division has entered
into Shipbuilding business and engages in construction of specialty commercial
vessels and warships for the navy, as well as the coast guard. The Engineering Construction and Contracts (ECC)
division delivers engineering, procurement, and contract solutions in the oil
and gas, petrochemicals, power, and water space industries. The Electrical and
Electronics (EBG) division offers solutions in low & medium voltage
categories. Its businesses consists of switch-gear, switchboards for different
applications, including marine, meters, automation systems, petroleum
dispensing pumps, medical equipment and tooling solutions and has operations at
different locations in India (two in Mumbai and one each in Ahmednagar, Mysore,
Faridabad and Coimbatore) and one unit for manufacturing operations in China.
The Information Technology and Engineering Services Information and Technology
Services division offers e-Engineering solutions, including product design and
engineering analysis, engineering process support, production and plant
engineering, asset information management, and design automation to high end
technology verticals, such as automotive, aerospace, marine and ship design,
plant engineering, and industrial products. This division also provides
embedded systems and solutions comprising supply of hardware, application
software, and enclosure design for electronics product design and development
in automotive, medical, semiconductor, and industrial products. On November 30,
2009, Nuclear Power Corporation Of India Limited and Larsen & Toubro Ltd.
announced the formation of a JV company to produce special steels and ultra
heavy forgings. On January 22, 2010, Larsen & Toubro Ltd. formed a JV with
Sapuracrest Petroleum Bhd to undertake installation of pipelines and
construction of offshore rigs and platforms in India, West Asia and South East
Asia. In July 2012, L&T’s subsidiary Tamco Switchgear acquired Henikwon
Corporation Sdn Bhd. L&T does business in Malaysia, the United States, the
Unite Kingdom, Brazil, Saudi Arabia, the United Arab Emirates, Qatar,
Bangladesh, and Sri Lanka. L&T LTD is compared
globally with Hyundai Development Company Ltd of South Korea, Daelim Industrial
Company Ltd of South Korea, Nippo Corporation of Japan Ssangyong Engineering
& Construction, Aker Solutions ASA and JTEKT Corporation.
Investment Rationale:
Larsen & Toubro’s (L&T) has a strong
order growth from the Buildings and Factories (B&F) segment and this helped
to offset weak order inflows from other segments such as power, oil & gas
and process. As the order inflows from other segments have dried up, L&T has
turned aggressive in the buildings segment which was previously less focused
area for L&T. L&T has emerged as a preferred contractor in the premium
residential segment which has helped the company in growing its order book, and incrementally the company is shifting its focus into mid-income
housing also, to maintain order inflow growth. The real estate contracting
business is a fragmented industry with the presence of many organised and
unorganised players. Some of the larger companies operating in this business
are namely Shapoorji Pallonji; Simplex; Nagarjuna Construction; Ahluwalia
Contractors; Gammon India; Pratibha Industries; IL&FS Engineering &
Construction (formerly Maytas Infra); Man Infra; Vascon Engineers; Supreme
Infrastructure; and Ramky Infra. L&T has recently bagged orders from
premium clients. The competitive landscape has turned favorable for L&T as
other real estate contracting companies have been battling with stressed
balanced sheets and increasing receivables that limit their ability to bid for
new projects. Some large players in real estate contracting, like, Gammon
India, Nagarjuna Constructions and Simplex Infra, were inflicted by the
increasing debt burden due to their asset-heavy balance sheets. Given L&T’s
well capitalized balance sheet with well-respected execution abilities in the
industry, it was one of the obvious choices for developers like DLF and Godrej
Properties to outsource their construction contracts to best managed
contractors like L&T which helped L&T to gain market share in Building
& Factories segment. L&T has also forayed into the real-estate segment
as a developer for some projects, eg, Emerald Isle in Powai, Mumbai, Crescent
Bay in Parel, Mumbai, Eden Park, Chennai and as a co-developer for Omkar Veda,
Parel, Mumbai
Outlook and Valuation:
1 x 388.5 MW Combined Cycle Power Plant in Andhra Pradesh |
Business Subsidiary FY13E
|
Rs/Share
|
---|---|
L&T Financial Holding Ltd
|
177.37
|
L&T Infotech
|
87.00
|
L&T International FZE
|
25.00
|
L&T MHI Boilers
|
2.00
|
L&T MHI Turbine Generators
|
2.00
|
L&T Special Steels and
Heavy Forgings Pvt Ltd (NPCIL JV) |
11.00
|
EWAC Alloys
|
5.00
|
L&T Power Ltd
|
3.00
|
L&T Power Development Ltd
|
29.00
|
L&T IDPL
|
65.00
|
L&T Real Estate Projects
|
29.00
|
---|---|
L&T Shipbuilding
|
14.00
|
Other manufacturing sub. , JV
|
10.00
|
Loans and Advances to subsidiaries
|
45.00
|
TOTAL
|
504.37
|
Less:20% Holding Company Disco.
|
100.87
|
GRAND TOTAL
|
403.50
|
KEY FINANCIALS | FY12 | FY13E | FY14E | FY15E |
---|---|---|---|---|
SALES (Rs. Crs) | 53,170.50 | 60,875.20 | 67,840.20 | 77,302.70 |
NET PROFIT (Rs. Crs) | 4,456.50 | 4,733.20 | 4,737.60 | 5,423.10 |
EPS (Rs.) | 71.11 | 77.29 | 77.36 | 88.55 |
PE (x) | 19.20 | 17.70 | 17.60 | 15.40 |
P/BV (x) | 3.30 | 2.90 | 2.60 | 2.30 |
EV/EBITDA (x) | 14.50 | 13.40 | 12.50 | 10.80 |
ROE (%) | 18.90 | 17.60 | 15.60 | 16.00 |
ROCE (%) | 9.20 | 8.60 | 8.20 | 8.60 |
I would
buy LARSEN & TOUBRO LTD with a price target of Rs. 1765 for Medium to Long
term and Rs. 1500 for the Short term players. As I always say, I am a long term
believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs.
1311.36 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here
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