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Larsen and Toubro 3QFY2013 performance highlights and results update

Contributed by Angel Broking

Larsen and Toubro (L&T) posted a mixed set of numbers for 3QFY2013, with decent growth on the revenue front but a fall in the EBITDA margin (owing to higher input cost). Despite a drop in margins, earnings growth was higher-thanexpected owing to huge surge in other income. As of 3QFY2013, L&T’s order backlog stands at Rs.1,62,334cr, indicating a growth of 11.4% yoy. Order inflow for the quarter jumped by 14.1% to Rs.19,545cr mainly driven by major orders bagged in the Infrastructure, power and hydrocarbon segment.

Drop in margins offset by higher other income: L&T’s top-line at Rs.15,429cr, registering a growth of 10.3% yoy for the quarter, was marginally lower than our estimate of Rs.15,790cr. This growth was mainly on account of pick up in execution in the engineering and construction (E&C) segment. Segment wise, the E&C segment reported an 11.4% yoy growth; however the machinery and industrial products (MIP) and electrical and electronics (E&E) segments’ performance was muted. The company reported an EBITDA of Rs.1,475cr, indicating a growth of 7.8% yoy. EBITDAM came in at 9.6%, a decrease of 22bp yoy, and was below our estimate of 11.2%. PAT grew by 13.2% yoy to Rs.1,122cr owing to surge in other income.

Outlook and valuation: For FY2013, the management has reiterated its guidance of a 15-20% growth for both revenue and order inflow and +/- 50bp on EBITDA margins. We believe given its robust order backlog, healthy order inflows during the past few quarters and strong execution capabilities, the company is well placed to achieve its guidance on both- order inflow and revenue front. We believe L&T is best placed to benefit from a gradual recovery in the capex cycle, given its diverse exposure to sectors and a strong balance sheet. We maintain our Accumulate rating on the stock with a target price of Rs.1,788.