L&T - Robust order inflows and operational performance.. - KR Choksey

L&T registered strong net sales growth of 17.1% on a YoY basis as net sales increased to Rs 13,196.2 cr, on back of growth in E&C segment. Operating margins increased by 22 bps to 10.7% on account of lower SGA expenses. Interest cost increased in line with our expectation to Rs 235.0 cr as net working capital requirement increase to 16.5% of sales. L&T registered extra ordinary items of Rs 214.2 cr and 52.89 cr on account of gain on divestment of stake in subsidiary company and reversal of provision respectively. Adjusted PAT increased by 11% to Rs 915 cr. Order inflows during the quarter increased by 30% YoY to Rs 20,967 cr. Order backlog at the end of the Q2FY13 stands at Rs.158,528 cr, 2.75x TTM sales.

Robust order execution lead by E&C segment

Net Sales increased by 17.3% YoY, led by strong order execution in E&C segment. Revenues from E&C segment increased by 20.2% to Rs 11,583 cr from Rs 10,388 cr in Q2FY12. For FY13E, the company maintained its 15% to 20% sales growth guidance.

Positive surprise in operating margins

The company registered operating margins of 10.7%, which was above expectation. A 22 bps YoY growth in OPM margins was on back of lower sales and admin expense. Sales and admin exp declined by 130 bps to 4% of sales, which offset a 100 bps increase in raw-material cost. Lower sales and admin expense was on account of lower non linear provision, lower forex loss (Rs30 cr vs Rs 100 cr in Q2FY12) and expense control.

Vendor Credit stretches NWC to 16.5% of sales

Net Working capital stretched to approx 16.5 % of sales mainly to support the supply chain. Debt increased to Rs. 12,000 cr in Q2FY13 vs Rs 9,900 cr in Q4FY12. Interest cost increased by 19.3% to Rs. 235 cr. Adjusted PAT consequently grew by 11% to Rs 915 cr vs a EBIDTA growth of 20%. The company expects net working capital requirement to stabilize at current levels.

Strong growth in order inflow of 30% on a YoY basis

Order inflow increased by 30% to Rs. 20,967 cr vs Rs. 160,960 cr in Q2FY12. Building & Factories followed by Hydrocarbons, Power, Railways, Road and nuclear sectors supported order inflow. Consequently current order backlog stands robust at Rs. 158,528 cr vs Rs. 142,185 cr in Q2FY12. Management maintained its FY13 order inflow guidance.

Our View & Valuation

L&T delivered the results ahead of estimates. The company has demonstrated strong execution and is best placed among its peers to benefit from revival in industrial capex. However, considering recent run up in stock price we change our recommendation on the stock to "HOLD" from "ACCUMULATE" with price target of Rs 1,711 ( based on SOTP based valuation and by assigning multiple of 16 times to its FY14E stand alone EPS of 85.8).

Source : Equity Bulls

Keywords