26 Outlook Money March 2018 http://www.outlookmoney.com
Stock Pick
F
or any infrastructure
company, new order inflows
and execution of existing
orders determine how the
company will fare. On both counts,
Larsen & Toubro seems to be on a
firm wicket. The company reported
an order inflow growth of 71 per
cent Y-o-Y in the December quarter
of the current fiscal. In the first
six months of FY18, order inflows
declined by nine per cent to `55,100
crore. But there are clear signs of a
recovery in the second half of the
year, and the next year is expected
to be even better. Brokerage firm
Jefferies pegs the potential of fresh
order inflows at $19 billion in FY19.
The brokerage believes that the
domestic order flow growth will
set the stage for L&T’s engineering
and construction margin recovery.
This will be further supported by
domestic execution.
Larsen & Toubro
x CMP: 1290.45 x PE: 43.10Riding on robust
order inflows
Revenue growth will be driven by
big contracts, says MALInI BHuPTA
*As on 20 Feb 18
Expected deals
In the December quarter, L&T
posted an 11 per cent growth in
infrastructure revenues. Domestic
infrastructure revenue growth hit
a six quarter high at 20 per cent,
despite the challenges in the real
estate sector. Even heavy engineering
and hydrocarbons reported a healthy
revenue growth in the quarter,
suggesting a broader recovery in
the economy and investments in
infrastructure. Edelweiss Securities
expects L&T’s earnings to grow
at 18 per cent CAGR in FY17-20
estimates. The brokerage is factoring
in 150 basis points jump in margins
and 14 per cent growth in execution,
both far from cyclical peak levels.
The Street expects the company
to win a raft of orders: $3 billion
from defence (Landing Platform
Dock), $2 billion from railways
(Dedicated Freight Corridor) and$12 billion from defence (Tactical
Communications Systems) in FY19.
The company’s revenue growth
will be driven by execution of large
orders in FY18 and FY19. Motilal
Oswal Securities is building in a
revenue growth of eight per cent for
FY18 against a guidance of 10-12
per cent. Despite the slowdown
in execution after rollout of GST,
L&T’s execution has improved in the
December quarter.
Analysts also expect the
company’s net working capital to
remain at 20 per cent of sales in the
near future, given the time taken to
process input credit under the new
GST regime. Under its strategic
plan called Lakshya, the company
proposes to bring down its net
working capital to 18 per cent of
sales by FY21. Overall, L&T will be
a key beneficiary of the uptick in
capex cycle, believe analysts.Why Buy?
n The company’s focus on defence
orders, heavy engineering and factory
orders will improve return ratios.
n As the largest infrastructure
player, L&T will be a key beneficiary
of economic recovery in FY19 with the
pickup in capex cycleWatch Out For
n Slowdown in government spending
and sharp fall in global crude prices
could affect company negativelyFinancials
FY15 FY15
OP: Operating profit; PAT: Profit after tax;
EPS: Earnings per share; Source: Ace EquityNet sales (` crore)101122.489200 4.58PAT (` crore)OP (` crore) EPS (`)FY17 FY17FY17 FY17FY16 FY16FY16 FY16FY15 FY15109311.81 6738.815582.664964.0018143.04166 10.8116758 .2764.7545.4451.26Base value taken as 1001 Jan 2015 20 Feb 2018Larsen & Toubro
BSE Sensex150100500note : Larsen & Toubro had announced bonus in 2017 in the ratio
of 1:2.The share has been quoting ex-bonus from July 13, 2017.122.5285.90