{LONGTERMINVESTORS} Larsen & Toubro (LT IN)- Healthy operational performance; Strong order inflow

 

Dear all,

Healthy operational performance; Strong order inflow

Ø  L&T's consolidated net revenue from operations increased moderately by 9% YoY to INR 249bn largely driven by Hydrocarbon, Power, Heavy Engineering and Services segments. Share of international revenue increased by 350bps YoY to 35.7%.

Ø  The company's order book grew by 4% (Domestic – 2% YoY, International – 9% YoY) to INR 2.5tn on the back of strong order inflow (+12%). Domestic order inflow growth largely led by domestic capex picking up in select areas such as domestic Infrastructure and International Hydrocarbon verticals. The large order book provides a multi-year revenue visibility as the order book size is currently equal to twice the size TTM revenue.

Ø  Consequently, the segmental breakup of the order book in 1HFY17 is as follows: Infrastructure – 74%, Hydrocarbon – 8%, Power – 7%, Heavy Engineering – 3%, Electrical & Automation -1% and Others - 7%.  

Valuation: Margin expansion and strong order book growth are the key positives for the company. As the company reports substantial growth in order inflow, focus now shifts to execution. Currently, the stock is trading at a P/E of 21.8 FY18E EPS; we assign a target P/E of 23X on FY18E to arrive at a target price of INR 1,426 and with a MARKETPERFORMER rating. Risks: Pressure on margins, Slowdown of orders from Middle East.

 

Regards,

CSEC Research

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