L&T

27 Jan

Bagged largest EPC Order – L&T

Update on the Indian Equity Market:

On Wednesday Nifty closed 1.9% lower at 13,568. Among the sectoral indices, FMCG (+0.3%) was the only sector that closed higher. PVT Bank (-3.1%), Bank (-2.9%), and FIN Services (-2.8%) led the indices that closed in the red. Tech M (+2.6%), SBI Life (+2.3%), and Wipro (+2.0%) closed on a positive note. Tata Motors (-4.4%), Tata Steel (-4.3%), and Titan (-4.2%) were among the top losers.

Excerpts from an interview of Mr. SN Subrahmanyam, MD & CEO, L&T with CNBC-TV18 dated 27th January 2021:

  • Speaking about the Q3FY21 results, Mr. Subrahmanayan said the company received a record order inflow of Rs 73,000 crores.
  • L&T bagged it’s largest EPC order of Mumbai – Ahmedabad high speed 2 packages at Rs 32,000 crores and India’s largest bridge order for Rs 2,900crores.
  • Speaking about sales, he said the company touched previous years same quarter number (Q3FY20), the number fell short of Rs 600-700 crore.
  • Looking at the growth in orders the momentum is back.
  • The high margins are sustainable as there are levers to save ahead.
  • Working capital has fallen and cash inflows have improved. The company has total debt of Rs 1,85,000 crores. The company has paid Rs 10,000 crores in Q3FY21 and the debt has now come down to Rs 1,75,000 crores. Out of this Rs, 91,000 crore is L&T Finance Holdings debt.
  • The company has not utilized its entire debt, the board at the start of the year took a decision to keep cash of Rs 35-45,000 crores due to uncertainties.
  • Speaking about the realty sector, he said properties in Bangalore, sea woods, and Mumbai had done well in December 20. The company will not invest inland, but only in the construction part.

 

 

Consensus Estimate: (Source: market screener and Investing.com websites)

  • The closing price of L&T was ₹ 1,358 as of 27-January-2021.  It traded at 20x/18x/16x the consensus Earnings per share estimate of ₹ 67.9/73.7/86.8 for FY21E/FY22E/ FY23E respectively.
  • The consensus average target price for L&T is ₹ 1,481/- which implies a PE multiple of 17x on FY23E EPS of 86.8/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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16 Sep

Infra development imperative to revive economic activity – L&T

Update on the Indian Equity Market:
On Tuesday, NIFTY was up by 82 pts (+0.7%) at 11,521.
Among the sectoral indices, REALTY (-0.7%), MEDIA (-0.42%), and FMCG (-0.2%) were the top losers and PHARMA (+1.9%), PVT BANK (+1.9%), and BANK (+1.7%) were the top gainers.
Among the stocks, INDUSINDBNK (+4.7%), CIPLA (+2.9%), and UPL (+2.8%) were the top gainers. TITAN (-1.4%), MARUTI (-1.1%), and HDFCLIFE (-0.9%) were the top losers.

Infra development imperative to revive economic activity – L&T

Edited excerpts of an interview with Mr. S.N. Subrahmanyan, Chief Executive Officer and Managing Director of Larsen & Toubro Ltd with The Hindu dated 12th September 2020:

Engineering conglomerate Larsen & Toubro Ltd. (L&T) recently completed divestment of its electrical and automation (E&A) business to Schneider Electric for ₹14,000 Crs. The company is also planning to divest or dilute certain concession businesses as part of the strategic review of its business portfolio, said CEO and MD S.N. Subrahmanyan.

• When asked about the next move after divesting in E&A he informed that they keep conducting a strategic review of our business portfolio from time to time and take a call on the basis of consistent, long-term planning process. As per this, they may divest or dilute certain concession businesses such as L&T Metro Rail (Hyderabad) and Nabha Power Ltd.
• When asked about the plans for E&A sale proceeds, he stated that they are in middle of an unprecedented pandemic which has caused considerable uncertainty to business during the past five months. In such times, it is necessary to strengthen the balance sheet and stay adequately liquid. Accordingly, the sale proceeds will be utilised partly for deleveraging the consolidated debt and also to strengthen the liquidity buffer warranted by the current economic environment. As business conditions improve post-COVID-19, some of the equity unlocked by the divestment will also be invested for growing the business at the group level. A certain part will also be used to reward the stakeholders.
• His comments on business operations coming back to normal: As the country unlocks, means of transport open, supply chains resume and labor returns, operations at about 90% of project sites and all manufacturing facilities have resumed and are gradually moving into normality. They remain positive.
• When asked about the workers coming back to work, he commented that Pre-pandemic, they had around 2.7 lakh labourers on rolls. This came down to 70,000 by end-May when the lockdown was lifted. Most of the labourers and workers went back to their villages and towns. But, L&T have all the reasons to be positive now as about 2.2 lakh are back on rolls and most of the sites are back to more or less normality. The amount of steel and cement L&T is purchasing is going up and that indicates better progress.
• His comments on getting new business: Infrastructure development is imperative to revive economic activity, create employment and infuse more liquidity into the system. Additionally, funded projects by the World Bank, Japan International Cooperation Agency and Asian Development Bank, among others, should start moving faster. L&T, therefore, is optimistic that sectors such as hospitals, power transmission and distribution, water, railways, roads, renewable energy and defence will start showing greater traction.
• When asked how is L&T readying for the fourth industrial revolution i.e. Digital, he said that over the last few years, L&T has deliberately and slowly enhanced its technology footprint and is charting a course in recent years that will see its technology portfolio increase its contribution vis-a-vis its traditional businesses. In FY15, the world was seeing a tectonic shift with digital technologies. These emerging technologies were creating new processes, new business models and entirely new businesses. Digitalisation and digital transformation were sweeping the business world. L&T was seeing and experiencing this first-hand from the clients of IT services companies.
• He further added that L&T saw the opportunity of digital as twofold. First, to digitally transform its own operations and use these new technologies to get better at what it was already doing well; and second, to look at digital as a new business opportunity that could shape its future portfolio. L&T started doing both and it acted swiftly with determination.

Consensus Estimate: (Source: market screener website)

• The closing price of L&T was ₹ 915/- as of 15-Sep-2020. It traded at 28x/24x/21x the consensus EPS estimate of ₹ 95.8/111/127 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 2467/- implies a PE multiple of 19.4x on FY23E EPS of ₹ 127/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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10 Jun

May have to give incentives to bring labor back: L&T

Update on the Indian Equity Market:

On Tuesday, NIFTY ended down 120 pts (-1.2%) at 10,047 level amid see-saw trade as traders booked profit in recent gainers like banking shares. Lower opening of European shares also weighed on sentiments.
Among the sectoral indices, PHARMA (+1.8%) and FMCG (+0.8%) were among the gainers while MEDIA (-3.3%), BANK (-2.2%) and PVT BANK (-2.0%) were among the top losers.
Among the stocks, DRREDDY (+3.8%), INDUSINDBK (+2.7%) and SUNPHARMA (+1.9%) were the top gainers. ICICIBANK (-3.7%), WIPRO (-3.69%) and GAIL (-3.68%) were the top losers.

Edited excerpts of an interview with Mr. SN Subrahmanyan, Managing Director, Chief Executive Officer, Larsen & Toubro’s L&T with CNBC TV-18 dated 9th June,2020:

• Construction engineering major Larsen & Toubro’s (L&T) Managing Director and CEO, SN Subrahmanyan, on June 8, said that he did not expect any major private investments in India over the next 1-1.5 years. It is maybe a tough statement to make, but that is the way he looks at it. Existing capital expenditure on projects that are already in play will move on, but he doesn’t see any fresh capital induction.
• The company announced a final dividend of Rs 8 per share of the face value of Rs 2 each.
• Mr Subrahmanyan said that the company had seen normalcy come back to some extent in the last three weeks i.e. from Mid-May-2020.
• He also informed that all the factories are back in operation. On the project size, L&T have currently about 950 odd sites and about 90 percent of the sites have started working.
• He, however, said during COVID they had kept around 1,60,000 laborers in labor camps which went down to 70,000 around the month of May-20 and currently the company has only 1,20,000 laborers compared to the 2,20,000 in the pre-COVID period.
• He stated that to get back to normal working L&T needs about 220 thousand laborers. L&T is working on bringing the laborers back to work and expects in another 15-30 days labor availability should be there and it should get back to some kind of normality.
• Normally the laborers go and come back to work 3-4 times during a year for Holi season, Kharif season, marriage season, and Diwali festival season. But this time the situation is different and might be difficult for L&T to bring back the laborers.
• L&T has an app where it has mapped down the names, addresses, phone number and other details of more than 2 mn laborers and are constantly messaging and trying to get in touch with the laborers to get them back.
• Normally Q2 is monsoon season which is relatively low for L&T but this time L&T has put in systems where it can double up the work to compensate the work lost at least partially.
• Mr Subrahmanyan said that fear psychosis and herd mentality had led to labor exodus and further the psychological pressure may hold the workers back. He further added that L&T might have to give some incentives to bring labor back.
• Talking about the impact of COVID-19 on the business, he further added that some billing has taken place in April-20 and May-20 but not to that extent. He expects some recovery in the month of Jun-20.
• He said that overall L&T have backlog of ₹ 15,000 crs of sales, so in the balance 9-10 months of the year L&T needs to catch that up and see how to make it up.

Consensus Estimate: (Source: market screener, investing.com websites)

• The closing price of L&T was ₹ 951/- as of 09-Jun-20. It traded at 18.3x/13.5x the consensus EPS estimate of ₹ 52.5/71.3 for FY21E/ FY22E respectively.
• The consensus target price of ₹ 1160/- implies a PE multiple of 16.3x on FY22E EPS of ₹ 71.3/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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