ULTRATECH CEMENTS LTD : ACCUMULATE AT EVERY LEVELS !!!

Scrip Code: 532538 / ULTRACEMCO

CMP:  Rs. 1705.70; Accumulate at every levels.
Short Term Target : Rs. 1790; Medium to Long term Target: Rs. 1875; STOP LOSS – Rs. 1569.24; Market Cap: Rs. 46,775.40 Cr; 52 Week High/Low: Rs. 2069.05 / Rs. 1402.35

Total Shares: 27,42,29,957 shares; Promoters : 16,98,87,299 shares –61.95 %; Total Public holding : 10,43,42,658 shares – 38.05 %; Book Value: Rs. 545.54; Face Value: Rs. 10.00; EPS: Rs. 74.12; Dividend: 90.00 % ; P/E: 23.01 times; Ind. P/E: 14.82; EV/EBITDA: 12.12.

Total Debt: 4,462.68 Cr; Enterprise Value: Rs. 52,981.91 Cr.

ULTRATECH CEMENT LIMITED: ULTRACEMCO was incorporated in 2000 and is based in Mumbai, India. It was formerly known as Ultra Tech Cemco Limited and changed its name to ULTRATECH CEMENT Ltd on October 2004. It’s a subsidiary of Grasim Industries Ltd from Aditya Birla Group. The Company is engaged in the business of cement and cement related products. It manufactures and markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzalana Cement. UltraTech Cement Limited, together with its subsidiaries, primarily engages in the manufacture and sale of cement in India and internationally. Its products include ready mix concrete; building products, including waterproofing solutions, polymer modified mortar, lightweight autoclaved aerated concrete blocks, thin layer jointing mortar, and ready mix plaster; and white cement. The Company also manufactures ready mix concrete (RMC). UltraTech Cement is an exporter of cement clinker. The Company has an annual capacity of 23.1 million tons. The Company has 11 integrated plants, one white cement plant, one clinkerisation plant in the United Arab Emirates, 15 grinding units - 11 in India, two in the United Arab Emirates, one in Bahrain and Bangladesh each and five terminals - four in India and one in Sri Lanka. In the 2011, its wholly owned subsidiary, UltraTech Cement Middle East Investments Limited (UCMEIL) acquired ETA Star Cement together with its operations in the United Arab Emirates, Bahrain and Bangladesh and acquired management control. On July 1, 2010, Samruddhi Cement Limited (Samruddhi) amalgamated with the Company.  The Company's subsidiaries include Dakshin Cement Limited, UltraTech Cement Lanka (Pvt.) Ltd. and UltraTech Cement Middle East Investments Limited. In India the company has 11 Integrated Plants, 11 Grinding Units, 5 Bulk Terminals, 4 Jetties. It has only 1 bulk terminal at Sri Lanka. In UAE, company has 2 Grinding Units, 1 Clinker production, 1 star cement head office. UltraTech has 1 Grinding unit each at Bahrain and Bangladesh. The company is compared to Ambuja Cements Ltd, ACC Limited, Shree Cement Ltd, Grasim Ind Ltd and Rain Commodities Limited domestically and Globally compared with Holcim of Germany, Ashaka Cement Plc of UAE, Bamburi Cement of UAE, Oman Cement Company of UAE, Kuwait Cement Company of UAE, Qatar National Cement Company of UAE, Asia Cement Corp of China, Chia Hsin Cement Corp of China, Krosaki Harima Corp of Tokyo, Ssangyong Cement Co of Japan, Taiwan Cement Corp of Taiwan, West China Cement of Hong Kong, Lafarge Cement of Germany, Vulcan materials Co of USA, US Concrete Inc of USA, United States lime & Minerals of USA, Grupo Argos S.A of USA, Cemex Latam Holdings S.A of USA .

Investment Rationale:

UltraTech’s inception can be traced back to the mid-1980s with the establishment of Grasim’s first cement plant at Jawad in Madhya Pradesh. In 2001, with the objective of increasing its reach, Grasim acquired a stake in L&T Cement Ltd. The stake was further increased to a majority stake in 2003 thereby giving Grasim a pan-India presence and an increased market share. In 2004, the demerger of L&T’s cement business was completed and Grasim acquired a controlling stake in L&T Cement Ltd and the name was subsequently changed to UltraTech cement. The cement business of Grasim was demerged and vested in Samruddhi Cement Limited in May 2010, with Samruddhi Cement Limited consequently being amalgamated with UltraTech Cement Limited in July 2010. UltraTech Cement now is a subsidiary of Grasim, a part of the Aditya Birla Group. Post-merger of Grasim’s cement business, it is the largest cement company in India with a total cement capacity of 61.5mt (by 1QFY16) with a pan-India presence. It is the largest exporters of cement and clinker from India. Post-merger, it would be the largest cement company in India and 10th largest in the world. UltraTech has a potential to increase without incurring major capex by increasing utilization and blending, along with locational advantage, gives it the flexibility to either export or sell in the domestic market. Company’s allied businesses of white cement and RMC has lender stability to company’s overall performance. UltraTech’s management expects long-term cement demand to grow around 8 % while in the near term it could be challenging. In Jul’13 it commissioned a 3.3m-ton clinker plant in Karnataka, adding to its earlier commissioning in Mar’13 of similar capacity in Chhattisgarh. In Oct’13 it commissioned a 1.6m-ton grinding unit in Jharsuguda, Orissa, adding to its earlier commissioning of similar capacity in Hotgi, Maharashtra. The balance five associated grinding units will be set up in 4QFY14 and FY15. During 2Q, Ultratech acquired JaiPrakash Associates’ 4.8m-ton unit in Gujarat, lifting its capacity to 59m tons, while ongoing expansions would further that to 70m tons by Mar’15. The transaction was at an Enterprise Value of Rs. 3,800 Cr (US$125 a ton) and is expected to be completed only by 1QFY15 given multiple approvals required. Looking at the current quarterly results which showed high operating leverage, especially post commissioning of new capacities in 1QFY14, could result in volatile earnings. Post weak pricing environment during monsoon, cement prices and demand are expected to pick-up post monsoon. Structural increase in cost base (both capex and opex) would necessitate into higher cement prices. Revival in cement demand would be key catalyst for the stock performance.

Outlook and Valuation:

UltraTech is the 10th largest cement manufacturer in the world making it a significant global player. It has grinding units, jetties, bulk terminals and integrated plants all across the world. UltraTech Cement is the country’s largest cement and clinker exporter, catering to export markets in countries across the Indian Ocean, Africa, Europe and the Middle East. Such diverse presence across the countries has helped UltraTech to leverage economies of scale and enable it to become a name to reckon within the international market. UltraTech reported its Q3, and reported an average realization of Rs. 4,650 a ton down by 2 % yoy. At 10.3m tons, volumes of grey and white cement, clinker, wall putty rose by 1 % yoy and 8 % on qoq. The Grey cement sales were up 0.6 % yoy and 8 % qoq, those of white cement including wall putty were up 10 % yoy. RMC revenue was at Rs. 450 Cr and that of white cement and wall putty it was Rs. 420 CR. UltraTech reported its EBITDA/ton, at Rs. 745, despite its lower-than-expected realisations. The benefit of lower coal prices (net of rupee devaluation) and optimisation of the fuel mix led to an 8 % yoy dip in power & fuel costs a ton. Freight inched up 4 % yoy chiefly due to a hike in diesel prices and a rise in freight charges. Higher other income, lower interest, depreciation and tax rate of 27 % led to better PAT. The outlook on UltraTech continuous to remain challenging, with demand growth in FY14 is likely to be around 5 %, though over the long run it is likely to be over 8 %. The key value drivers could be housing demand and infrastructure spending. UltraTech has commissioned 25 MW thermal power plants in Andra Pradesh. Overall, the company is investing around Rs. 13,700 Cr in 12.7mt capacities, CPP, marketing and logistic infrastructure, modernization/ up-gradation and in RMC business. The clinkerization plant of 3.3MT in Karnataka has been commissioned in 2QFY14, followed up with 1.6mt grinding unit at Orissa. Further, the company’s planned capacity of 2.9mt at Rajasthan plant including 2 split grinding units with capex of Rs. 2,100 Cr would commission by Mar-15, and this would take total capacity in India to 68mt. On Consolidation of Jaypee's Gujarat plant, UltraTech’s current valuations largely factors in for potential recovery in FY15, benefit of which would be diluted due to initial impact of Jaypee's Gujarat plant acquisition by 1HFY15. At the current price of Rs. 1705.70, the stock is trading at a P/E of 24.05 x on FY14E and 18 x on FY15 estimates. UltraTech could report and EPS of Rs. 70.90 for FY14E and Rs. 94.80 for FY15E. Ultratech Cements has good potential for upside and can touch price of Rs. 2092, One can continue to ACCUMULATE the stock and would advise investors to use declines in the stock to buy with a long term view. One can buy ULTRATECH with a target price of Rs. 1875.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 1790.00.

KEY FINANCIALS	FY13	FY14E	FY15E	FY16E
SALES (₹ Crs)	20,017.90	20,070.00	23,030.00	26,390.00
NET PROFIT (₹ Cr)	2,655.40	1,940.00	2,600.00	3,130.00
EPS (₹)	96.80	70.90	94.80	114.10
PE (x)	17.80	24.30	18.10	15.10
P/BV (x)	3.10	2.80	2.50	2.20
EV/EBITDA (x)	9.70	12.70	10.10	8.30
ROE (%)	18.90	12.10	14.50	15.30
ROCE (%)	21.40	14.20	16.80	18.70

I would buy ULTRATECH CEMENT LTD for the short term would be Rs. 1790 and for the Medium to Long term for target of Rs. 1875. 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 ₹ 1569.24 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

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LARSEN & TOUBRO : IT's NOT ONLY ENGINEERING, ITS ALSO INVESTEERING!!!

Scrip Code: 500510 / LT

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

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

L&T on 1^st 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 28^th 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.

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

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

VIEW THE POWER POINT PRESENTATION ON

RETURN ON CAPITAL

Larsen & Toubro : Grab Great Business at Great Price !!!

Scrip Code: 500510 / LT

CMP:  Rs. 1131.80; Buy at current levels & on Dips.

Short term Target: Rs. 1155, 6 month Target – Rs. 1400; STOP LOSS – Rs. 1040;  Market Cap : Rs.  69,171.21 Cr; 52 Week High / Low: Rs. 2001.70 / Rs. 969.15

Total Shares: 61,11,61,097 shares; Promoters : 26,18,94,131 shares –42.85 %; Total Public holding : 34,92,66,966 shares – 57.15 %; Book Value: Rs. 351.07; Face Value: Rs. 2.00; EPS: Rs. 66.62; Div: 725.00 % ; P/E: 16.98 times; Ind. P/E: 12.81; EV/EBITDA: 10.55.

Total Debt: 7,161.11 Cr; Enterprise Value: Rs. 77,282.67 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 names, such as 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 switchgear, 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 joint venture company to produce special steels and ultra heavy forgings. On January 22, 2010, Larsen & Toubro Ltd. formed a joint venture with Sapuracrest Petroleum Bhd to undertake installation of pipelines and construction of offshore rigs and platforms in India, West Asia and South East Asia. 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 Ssangyong Engineering & Construction, Aker Solutions ASA and JTEKT Corporation.

Investment Rationale:

Larsen & Toubro’s (L&T) construction arm has bagged various orders aggregating to Rs. 1,000 cr in 3QFY2012. In the buildings and factories segment, the company has secured a Rs. 200 cr order from GMR Group for the construction of an air traffic control tower and associated works at Delhi International Airport. In the power Transmission & Distribution segment, the company has obtained new orders adding up to Rs. 334 cr from reputed clients for the construction of transmission lines and substations across India. An international order valued at Rs. 185 cr has been secured in Kuwait for the construction of a substation and associated overhead transmission line works. Orders valued at Rs. 282 cr were secured from Greater Mohali Area Development Authority for the construction of utility facilities such as water supply network, waste-water collection network, storm water network, road works, electrical works and other associated development works in Aerocity, Mohali. With these orders in hand, the company’s outstanding order book stands at whopping Rs. 1,50,553cr (3.4x FY2011 revenue), which provides good revenue visibility. This order booking takes the company’s total declared orders to Rs. 8,364 cr until now in this quarter against orders received worth Rs. 13,336cr in 3QFY2011. The drying up of order inflows is one of the major concerns for the stock and has led to underperformance in the recent past. L&T retained its revenue growth guidance at 2 5% for FY12E on the back of a robust order backlog and stable execution therefore giving optimistic assumption with higher probability of downward revision in ensuing quarters. However it sharply revised down guidance for EBITDA margins and order inflows; it is expected that EBITDA margins could decline by 0.75 % -1.25 %; there could be change in revenue mix and sharp increase in raw material prices. It is expected that growth in order flows could be muted by 5 % against 15 % – in view of 11 % yoy decline in H1FY12, This sector see no signs of revival in investment spends and continued postponements in order finalizations, but as said earlier that LARSEN & TOUBRO has an order book at whopping Rs. 1,50,553cr its is easily possible for L&T to bring its revenue on track as L&T is in better placed than its peers on a number of counts (such as diversification and balance sheet strength). L&T is best placed to benefit from the gradual recovery in the capex cycle, given its diverse exposure to sectors, strong balance sheet and cash flow generation as compared to its peers, which grapple with issues such as trained cash flow, high leverage and limited net worth and technological capabilities

Outlook and Valuation:

I initiate my coverage on L&T with Buy, on the back of its robust core businesses, infrastructure opportunities and potential for value unlocking in its subsidiaries. Core business would drive earnings, as it has robust order book and good revenue visibility. Subsidiaries like IT Services, and Infra would be valuation triggers. The infra-led growth would also be backed by growing portfolio and geographical reach via JVs & acquisitions giving good revenue visibility. L&T has underperformed BSE Sensex and being in trading range from Rs. 970 – Rs. 1100, owing to factors such as slowing order inflows and rising competition (especially in the BTG equipment segment), leading to fears of slippage on order inflow guidance. Also, L&T lost the public sector shipyard, Mazagon dock, for defense and naval ships and failed to win the recent ONGC pipeline tenders. It is believed that though L&T would find it difficult to meet its revised guidance for FY2012 (growth of 5 % in order inflow and 25 % in revenue), but still it is better placed than its peers on a number of counts (such as diversification and balance sheet strength). L&T is best placed to benefit from the gradual recovery in the capex cycle, given its diverse exposure to sectors, strong balance sheet and cash flow generation as compared to its peers, which grapple with issues such as trained cash flow, high leverage and limited net worth and technological capabilities. On the valuation front, due to the recent correction in prices, the stock is trading at PE of 14.85x and 12.63 for FY2012E and FY2013E earnings respectively, adjusted for subsidiary value, which is lower than its historical PE of 15-20x gives an excellent opportunity to grab such a fantastic business at such a low price & Hence, any further price correction provides a good opportunity to accumulate. Larsen & Toubro to declare its Q3 results ended 31st Dec 2011 on 23rd Jan 2012.

KEY FINANCIALS	FY10	FY11	FY12E	FY13E
SALES (Rs. Crs)	43,698.90	52,099.10	61,061.50	67,581.40
NET PROFIT (Rs. Crs)	3,374.50	4,179.00	4,566.20	5,269.20
EPS (Rs.)	56.20	68.90	76.20	89.60
PE (x)	23.80	19.40	17.50	14.90
P/BV (x)	3.80	3.30	2.80	2.40
EV/EBITDA (x)	14.00	12.10	11.70	10.40
ROE (%)	19.30	18.20	17.30	17.60
ROCE (%)	15.60	14.30	12.90	13.10

I would buy LARSEN & TOUBRO LTD with a price target of Rs. 1400 for Medium to Long term and Rs. 1155 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. 1040 on every purchase.


READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

LARSEN & TOUBRO :GREAT BUSINESS

Scrip Code: 500510 / LT

CMP:  Rs. 1556.10; Buy at Rs. 1450 - 1500
Short term Target: Rs. 1800
Market Cap: Rs. 94,764.5  cr.
52 Week High/Low: Rs. 2212.70 / Rs. 1410

Total Shares: 60,78,05,009 shares. Public holding – 21,41,87,305 – 35.24 %

Book Value: Rs.300.50; Face Value: Rs. 2.00; EPS: Rs. 61.04; Div: 625 %.

P/E: 25.50 times; Ind P/E: 16.56; EV/EBITDA: 14.44
Total Debt: Rs. 6,863.95 cr; Enterprise Value: Rs. 1,02,511.17 cr

 LARSEN & TOUBRO – L&T is India’s largest conglomerate. One of the largest company diversified into Power, Nuclear, Hydrocarbons, Cements, Critical Engineering’s, Procurement, Construction (EPC) businesses. It also operates & handles roads, railways metros, bridges, ports, airports infrastructure projects. Company is also into power Transmission & Distribution (T&D) , equipment manufacturing (switch gears), Finance & IT software.

  

I initiate my coverage on L&T with Buy, on the back of its robust core businesses, infrastructure opportunities and potential for value unlocking in its subsidiaries. Core business would drive earnings, as it has robust order book and good revenue visibility. Subsidiaries in IT Services, Financials and Infra would be valuation triggers. The infra-led growth would also be backed by growing portfolio and geographical reach via JVs/acquisitions. Good revenue visibility. L&T is geared to meet growth guidance of 20% in sales in FY11, given its robust order book of Rs. 1.1trn (3.1x FY10 standalone sales; up 26% yoy), orders (Rs. 494bn; up 8% yoy in 9MFY11), and pick up in execution. JVs/acquisitions to expand portfolio and market reach. Increased presence in key infra segments (thermal, nuclear power, oil & gas, ports), power equipment manufacturing and geographies would complement core competency in EPC. Value unlocking in subsidiaries. Revival in IT business and high growth in financial services and infra development would be

catalysts for valuations upside. L&T’s financial services arm is likely to get listed by FY12, followed by other subsidiaries.

Valuation -  

My long term target price is Rs. 2,040 –core business at Rs. 1,564 based on 22x FY12e EPS; subsidiaries and other businesses at Rs. 476. The only key risks are lagging in execution of orders and slow revival in industrial Capex and exports.

YE31 MARCH	FY09	FY10	FY11E	FY12E	FY13E
SALES (Rs. crs)	40,511.1	43,969.8	53,082.8	64,773.2	79471.6
NET PROFIT (Rs. crs)	2,907.8	3,324.4	4,174.4	5081.9	6,399
EPS (Rs.)	47.9	54.8	68.8	83.7	105.4
PE (x)	34.8	30.4	24.2	19.9	15.8
PRICE/BOOK	6.7	4.6	4.0	3.4	2.9