Larsen & Toubro - 3QFY2016 Result Update - Angel Broking

Standalone numbers disappoint: For 3QFY2016, Larsen & Toubro (L&T) reported 1.5% yoy decrease in its top-line to Rs. 14,774cr, reflecting revenue de-growth across Infrastructure and Others segments. The EBITDA margin for the quarter is down 368bp yoy to 6.8%, on account of surge in SAO and employee expenses. The PAT came in at Rs. 791cr, down 25.3% yoy, reflecting poor operational performance. Order inflows for the consolidated entity in 9MFY2016 declined 13.2% yoy to Rs. 93,524cr. The order backlog stands at Rs. 2,56,458cr, thereby giving revenue visibility for over the next 10 quarters.

Hydro-carbon reports minimal losses: Despite completion of legacy projects in the international business, strong execution of ongoing projects helped the Hydro-carbon segment report revenues of Rs. 2,184cr in 3QFY2016. For the quarter, this segment reported a turnaround in its EBIT to Rs. 39cr vs a loss of Rs. 137cr in 3QFY2015. On the whole, this segment ended 9MFY2016 with an EBIT level profit of Rs. 77cr.

Key Positives: Surprise on the order inflow numbers for the quarter, turnaround in the Hydro-carbon segment; net WC cycle at 24% of sales.

Key Negatives: Lowering of order inflow guidance for FY2016, revenue degrowth in 3QFY2016.

Outlook and valuation: L&T's diversified presence and an anticipated recovery in the capex cycle coupled with the company's strong balance sheet comfort us that it is well positioned to benefit from a revival in the award activity environment. With order backlog expected to grow, execution should pick-up gradually. We have valued the company using the sum-of-the-parts (SoTP) methodology, to capture the value of all its businesses and investments. Ascribing separate values to its parent business (on a P/E basis) and investments in subsidiaries (using P/E, P/BV and M-cap basis), we arrive at FY2017E based target price of Rs. 1,310. We are of the view that L&T is a good proxy play for investors wanting to ride on the revival of the Indian infrastructure growth story. Given the 16.7% upside potential in the stock from the current levels, we maintain our BUY rating on the stock.

Shares of LARSEN & TOUBRO LTD. was last trading in BSE at Rs.1139.65 as compared to the previous close of Rs. 1136.05. The total number of shares traded during the day was 241754 in over 9586 trades.

The stock hit an intraday high of Rs. 1151 and intraday low of 1127.65. The net turnover during the day was Rs. 275023835.

Source : Equity Bulls

Keywords