Standalone numbers impress: For the quarter, L&T reported lower than expected,
6% yoy increase in its top-line to Rs11,973cr. Revenue growth on yoy basis reflects
59.7% increase in Power segment and 14.1% decrease in Others segment. L&T
reported 31bps EBITDA margin expansion to 6.6%. L&T reported Adj. PAT of
Rs597cr, reflecting 5.0% margins, same as the year ago levels.
Consolidated Order inflows grew 14.0% yoy to Rs21,874cr. Order backlog stands
at Rs2,57,427cr, thereby giving revenue visibility for next 10 quarters.
Roll-out of Ind-AS impacts profitability: Roll-out of Ind-AS, led L&T take ~Rs150cr
of provisions towards exp. credit loss (ECL) and ~Rs100cr towards employee
performance linked incentives. These 2 impacted in addition to higher borrowing
costs, re-classification of net actuarial gains, valuation of investments, impacted
profitability. Provision for ECL is in addition to normal provisions undertaken. L&T
took Rs100cr inventory write-down and another Rs180cr towards foreseeable loss
in 1QFY17E. Considering the (1) strong operational performance (mainly in the
Power, Heavy Eng, IT & Tech. Services, Infrastructure), (2) Order Inflow growth
and strong bid pipeline, we expect L&T to have fair chance of attaining FY2017E
guidance on both, the revenue and margin side (even on new Ind-AS).
Key Positives: Strong 14% yoy Order Inflows, Margin improvement, net WC cycle
maintained at 23.5% of sales.
Key Negatives: Below than expected revenues for the quarter.
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 revival in the award activity environment. With
order backlog expected to grow, execution should pick-up gradually. We have
valued L&T using sum-of-the-parts (SoTP) methodology, to capture the value of
all its businesses and investments. Ascribing separate values to its parent business
(on P/E basis) and investments in subsidiaries (using P/E, P/BV and M-cap basis),
we arrive at FY2017E based target price of Rs1,700. We are of the view that L&T
is good proxy play for investors wanting to ride on the revival of Indian Infra
growth story. Given the 13.0% upside, we maintain ACCUMULATE on the stock.

Download Full Report View Full Report in Browser