L&T - 3QFY13 Results Update - Motilal Oswal

Operating performance below expectations: While Larsen and Toubro's (LT) operating performance for 3QFY13 was significantly below expectations, the key positives are continued strong order inflows (INR195b; up 14% YoY) and positive cash flow from operations. Adjusted EBITDA margin declined 84bp YoY in 3QFY13, impacted by lower sales and poor fixed cost absorption. Adjusted net profit declined 7.8% YoY to INR10.4b (below our estimate of INR11.4b).

Order intake - key positive surprise: Order intake at INR195b (up 14% YoY), in line with the quarterly run-rate of INR200b during the last four quarters, supported by robust 22% contribution from overseas business (v/s 23.7% in 2QFY13), surprising positively as the announced order intake (through press releases) was just INR98b. Management mentioned about improving order pipeline while strategy on overseas business seems to be playing out.

E&C revenue moderated due to slower order inflow during FY12: E&C revenue in the domestic market declined 6.2% in 3QFY13 against 13.3% growth in 1HFY13 due to (1) sluggish order inflow during FY12 , impacting execution with a lag of ~4 quarters, (2) passing of peak execution of large hydrocarbon orders in the domestic E&C business, (3) increasing share of slow moving orders (largely domestic) from 10% in mid-FY12 to ~14% now.

Management maintains FY13 guidance: The management maintained its guidance of 15-20% growth in revenue/order intake and +/-50bp change in E&C EBITDA margin in FY13.

Valuation and view: We maintain Buy with a revised SOTP-based target price of INR1,870 (18% upside). We value L&T standalone at 14x FY15E earnings and subsidiaries at INR377/share.

Source : Equity Bulls

Keywords