Larsen & Toubro Ltd - Q2FY21 Result Update - YES Securities

Big picture looks good; Retain 'BUY'

An order backlog worth ~Rs3trn (2.2x TTM sales) and healthy pipeline worth ~Rs6.3trn in H2FY21 will help maintain L&T's execution momentum through the near-term uncertainties around weak macro, fiscal deficit and liquidity challenges. L&T's focus on cash flows has been evident for the past few quarters we expect that to aggressively continue. Execution & operating cash flow are expected to improve further in H2FY21. Order book diversification, global competence, technology differentiation, proven track record and cost efficiencies bode well in this regard. The stock is currently trading at 1yr forward EV/EBITDA of 13x vs long term avg. of 14x, implying attractive valuations. We broadly retain our estimates & BUY rating with SOTP based price target of Rs1,203.

Beat on margins: Revenues declined 12% yoy (-1.6% vs our est.) as core revenues (ex-services) were down 18.4% yoy while IT services posted 5% yoy growth. EBITDA came in at Rs33.4bn (+10% vs our est.), down 17% yoy. Adjusted PAT came in at Rs11bn, down 52% yoy (-8% vs our est.) due to higher depreciation (+13% yoy) & tax outgo of Rs6.7bn. Reported PAT stood at Rs55.2bn, up 118% yoy Order inflow stood at Rs280.4bn, down 42% yoy (vs our est. of Rs250bn). International orders were at Rs89bn (36% of the total order inflow). Infrastructure segment secured orders of Rs145bn, down 7% yoy. International orders at Rs40bn constituted 28% of the total. Consolidated Order Book stands at Rs2,989bn with international order book constituting 24% of the total.

Net cash inflow of Rs110bn from E&A deal closure: Gross consideration for deal was at ~Rs140bn. However, net consideration received by L&T stood at ~Rs110bn as, i) L&T incurred Rs2.5bn expenditures on the account of closure of deal & parting bonuses to employees, ii) Retention money Rs4bn, iii) Debt & working capital obligation Rs3.5 & iv) Rs20bn net tax outflow. Utilization of funds received from E&A deal: i) Special dividend: Rs25bn to investors, ii) Debt repayment: Rs50bn, iii) Investments in services: Rs20bn, iv) Fund infusion in Hyderabad metro project: Rs20bn

Impairments (post tax) of Rs37.3bn: i) Nabha Power: Invested equity was Rs27bn. Carried value present equity at Rs38bn Equity valuation at Rs22bn (assuming favorable outcome from pending arbitrations regarding taxes/duties), so it took impairment of Rs16bn in Q2FY21. L&T is in a process of divestment with PSPCL, ii) Singoli-Bhatwari Hydro Power project: Revaluated carried equity value Rs18.9bn. L&T took write off of ~Rs10bn & iii) Nuclear forgings JV with NPCIL (L&T's stake: 73% & NPCIL: 27%): Grappling with low utilization as nuclear power has taken backseat in the country as renewables are picking up. L&T took write off ~Rs11bn.

Shares of LARSEN & TOUBRO LTD. was last trading in BSE at Rs.929.6 as compared to the previous close of Rs. 934.6. The total number of shares traded during the day was 233186 in over 11248 trades.

The stock hit an intraday high of Rs. 947.15 and intraday low of 924.15. The net turnover during the day was Rs. 217832632.

Source : Equity Bulls

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