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.
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