2QFY2012 Result Update | Infrastructure

October 22, 2011

Larsen & Toubro

Performance Highlights
Y/E March (` cr) Net sales Op. profit Adj. net profit 2QFY12 11,245 1,174 738 2QFY11 9,331 1,006 650 1QFY12 % chg (yoy) 9,483 1,126 690 20.5 16.7 13.4 % chg (qoq) 18.6 4.2 6.9

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Infrastructure 81,650 1.1 2,212/1,304 274,018 2 16,786 5,050 LART.BO LT@IN

`1,336 `1,714
12 Months

Source: Company, Angel Research

Larsen and Toubro (L&T) posted good set of numbers for 2QFY2012, which were above our expectations mainly on account of top-line growth. As of 2QFY2012, L&T has an order backlog of `1,42,185cr. Order inflow for the quarter declined by 21.3% to `16,096cr (`20,464cr). Management has significantly cut its order inflow guidance from 15-20% to 5% for FY2012, mainly to factor in the general slowdown faced by the sector, but it has maintained revenue growth guidance of 25% for the whole year, which we believe is aggressive. We believe in the current uncertain times, investors would take a flight to safety and L&T being the market leader and fundamentally the strongest infrastructure company would get a preference over its peers. We maintain L&T as our top pick in the sector and, hence, continue to recommend Buy on the stock. Top line above estimates, margin tad below Higher bottom line: L&T reported decent top-line growth of 20.5% yoy to `11,245cr (`9,331cr), above our estimates of 12.8% growth, mainly on account of pick-up in the E&C segment. On the EBITDA front, performance was below our expectations mainly on account of higher-than-anticipated staff cost and material cost. L&T reported higher than anticipated other income, owing to higher income on its investments. Therefore, the bottom line came in at `798.4cr (8.2% above our estimates). Outlook and valuation: We believe L&T is best placed to benefit from the gradual recovery in the capex cycle, given its diverse exposure to sectors, strong balance sheet and cash flow generation as compared to peers. Further, at current valuations, after an underperformance of ~16.5% to BSE Sensex over the last three months, we believe most of the negatives are factored in and, hence, maintain our Buy view on the stock with a revised target price of `1,714 (`1,857). We have revised downwards our estimates for FY2013 and assigned a lower PE multiple of 18x (earlier 19x) to L&T parents FY2013E EPS of `74.0 and its subsidiaries to factor in macro headwinds faced by the sector and economy.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 0.0 42.9 21.1 36.0

Abs. (%) Sensex LNT

3m

1yr

3yr 57.1 55.2

(9.0) (17.2) (25.4) (34.5)

Key financials (Standalone)

Y/E March (` cr) Net sales % chg Adj. net profit % chg FDEPS (`) EBITDA margin (%) P/E (x) RoAE (%) RoACE (%) P/BV (x) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2010 37,035 9.2 2,893 11.5 47.0 12.9 28.4 18.8 19.7 4.5 2.4 18.3

FY2011 43,905 18.6 3,342 15.5 54.3 12.9 24.6 16.6 18.5 3.7 2.0 15.5

FY2012E 53,503 21.9 3,954 18.3 64.2 11.9 20.8 16.9 17.8 3.3 1.7 14.1

FY2013E 62,568 16.9 4,555 15.2 74.0 12.0 18.1 16.9 18.0 2.8 1.5 12.2

Shailesh Kanani
022-39357800 Ext: 6829 [email protected]

Nitin Arora
022-39357800 Ext: 6842 [email protected]

Please refer to important disclosures at the end of this report

Larsen & Toubro | 2QFY2012 Result Update

Exhibit 1: Quarterly performance (Standalone)

Y/E March (` cr) Net Sales Total Expenditure Operating Profit OPM (%) Interest Depreciation Non Operating Income Extraordinary/Dividend from Subs Profit Before tax Tax Reported Net Profit PAT (%) Reported EPS Adjusted Profit After Tax Adj. PAT (%) Adj. FDEPS
Source: Company, Angel Research

2QFY12 11,245 10,071 1,174 10.4 197 171 274 89 1,169 371 798.4 7.1 13.0 737.6 6.6 12.0

2QFY11 9,331 8,325 1,006 10.8 193 121 279 174 1,144 379 765.0 8.2 23.9 650.2 7.0 10.6

1QFY11 9,483 8,356 1,126 11.9 161 168 240 56 1,094 347 746.1 7.9 12.1 690.1 7.3 11.2

% Chg (yoy) 20.5 21.0 16.7 (40)bp 2.0 41.0 (1.8) (48.8) 2.2 (2.2) 4.4 (110)bp (45.7) 13.4 (40)bp 13.4

% Chg (qoq) 18.6 20.5 4.2 (150)bp 22.2 1.8 14.2 58.9 6.9 6.8 7.0 (80)bp 7.0 6.9 (70)bp 6.9

1HFY12 20,728 18,427 2,301 11.1 358 339 514 145 2,263 718 1,544.5 7.5 25.1 1,428 6.9 58.9

1HFY11 17,216 15,203 2,013 11.7 335 235 456 224 2,122 690 1,431.2 8.3 73.8 1,282 7.4 54.1

% Chg 18.8 18.9 18.6 (60)bp 30.5 44.5 15.2 (133.7) (3.5) 12.4 (9.5) (80)bp (12.3) 9.1 (50)bp 8.9

Exhibit 2: 2QFY2012 Actual vs. estimates

Estimates Net sales OPM (%) Adj. PAT
Source: Company, Angel Research

Actual 11,245 10.4 798.4

Variation (%) 6.9 (36)bp 8.2

10,524 10.8 738.1

Top line above our estimates due to strong execution

L&T reported decent top-line growth of 20.5% yoy to `11,245cr (`9,331cr), above our estimates of 12.8% growth, mainly on account of pick-up in the E&C segment, which recorded 21.3% top-line growth to `9,721cr (`8,015cr). Management has given a guidance of 25% revenue growth for the year and maintains the same as of now, despite numerous headwinds faced by the sector. This guidance implies a run rate of ~28% in the second half of the fiscal, which looks steep especially considering the recent turn of world events. Hence, we believe the company might lower its guidance during the course of the year. However, given the robust order book and excellent execution capabilities at the disposal of the company, we expect L&T to post revenue growth of ~22%, which would be higher than most of its peers.

Order inflow guidance reduced to 5%; implying 18% growth in 2HFY2012 Looks aggressive
Order inflow during 2QFY2012 stood at `16,096, down 21.3% yoy. Management highlighted that order inflows were affected by delays in the tendering process (such as environmental approvals and land acquisition), challenging business outlook with slowdown in capex activity and political issues, in-line with other industry peers. The company is witnessing good traction on the international front (hydrocarbon and T&D space) and sees a huge pipeline. Management has

October 22, 2011

Larsen & Toubro | 2QFY2012 Result Update

reduced its order inflow guidance to 5% from 15-20% earlier, which implies a run rate of 17.9% yoy growth in 2HFY2012, which looks steep considering the macro environment. We pencil in flat order inflow (`79,809cr) in FY2012E, which implies yoy order inflow growth of 8.8% in 2HFY2012E.

Exhibit 3: Stable execution expected going ahead

18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 7.3 3.0 (5.7) 6.4 39.8 40.5 35.0 25.3 17.8 13.2 28.1 20.3 20.5 50.0 40.0 30.0 20.0 10.0 (10.0)

Exhibit 4: Order inflow witnessing a downward spiral

35,000 30,000 25,000 20,000 15,000 10,000 5,000 65.2 14.3 47.5 23.4 (21.8) 63.3 11.4 27.1 3.6 (21.3) 139.5 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 (20.0) (40.0)

(16.9)

(24.9)

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

Sales (` cr, LHS)

Growth (yoy %, RHS)

Order Booking (` cr, LHS)

Growth (yoy %, RHS)

Source: Company, Angel Research

Source: Company, Angel Research

EBITDA margin posts a decline, marginally below our estimates; L&T guidance for higher margin compression
On the EBITDA front, performance was below our expectations mainly on account of higher-than-anticipated staff cost owing to increased employee base and annual salary revision and higher material cost. Therefore, the company reported EBITDAM of 10.4% against our expectation of 10.8%. Going ahead, we believe margins would continue to reel under pressure, given the change in order book mix towards infrastructure projects (which yields lower margins compared to the other segments), enhanced competition witnessed in all segments with no respite in sight and fluctuations in commodity prices all this has been subscribed by the management as well. Therefore, management has guided that margin may be lower by 75-125bp for the year, higher than its earlier guidance of 50-75bp. It should be noted that we have already factored in 100bp lower margins for the next two years.

Exhibit 5: Margins slightly under pressure...

2,500 2,000 1,500 1,000 500 0 8.8 9.1 15.0 11.2 10.6 12.3 15.1 12.8 10.8 10.8 15.2 11.9 10.4 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 -

Exhibit 6: ...but still posting healthy PATM

1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 10.4 8.8 6.0 7.6 7.0 7.6 10.0 8.0 7.0 7.0 10.0 7.3 6.6 12.0 10.0 8.0 6.0 4.0 2.0 -

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

EBITDA (` cr, LHS)

EBITDAM (%, RHS)

Adj. PAT (` cr, LHS)

PATM (%, RHS)

Source: Company, Angel Research

Source: Company, Angel Research

October 22, 2011

2QFY12

2QFY12

Larsen & Toubro | 2QFY2012 Result Update

Segmental performance
Engineering and construction (E&C): The E&C segment, which contributed to the companys revenue, witnessed good traction and recorded growth of yoy for the quarter to `9,721cr (`8,015cr), primarily on account of execution of its order book. On the margin front, the segment faced pressures and witnessed a dip of 60bp both on a yoy/qoq basis to 10.6%. ~85% 21.3% strong severe

Machinery and industrial products (MIP): The MIP segment witnessed pressures of low level of mining activities and slowing industrial capex, resulting into a 2.9%/9.1% on yoy/qoq of decline in the segment to `678cr (`698cr). EBIT margin (at 15.7%) also witnessed some contraction, in-line with pressure on the top line. Electrical and electronics (E&E): The E&E segment witnessed good revenue traction, owing to offtake from the building electrical segment in product business and favorable product mix in project business to record yoy growth of 26.0% to `847cr (`672cr). EBIT margin came in at 8.4%, a dip of 450bp/60bp on a yoy/qoq basis.

Exhibit 7: Segmental performance

Y/E March (` cr) Revenue Engg & Const. (E&C) Mach. & Ind. Products (MIP) Electrical & Electronics (E&E) Others Intersegment revenue EBIT Engg. & Const. Mach. & Ind. Products Electrical & Electronics Others Intersegment margins EBIT (%) Engg. & Const. Mach. & Ind. Products Electrical & Electronics Others Capital Employed Engg. & Const. Mach. & Ind. Products Electrical & Electronics Others Unallocable
Source: Company, Angel Research

2QFY12 11,375 9,721 678 847 222 94 1,260 1,035 106 71 48 11.1 10.6 15.7 8.4 21.5 32,135 9,828 690 1,386 630 19,601

2QFY11 9,578 8,015 698 672 160 133 1,046 900 116 87 17 3 10.9 11.2 16.6 12.9 10.8 30,738 7,334 272 1,157 223 18,763

1QFY12 % chg (yoy) % chg (qoq) 9,578 8,099 746 690 199 157 1,046 810 122 62 42 (9) 10.9 10.0 16.3 9.0 21.2 30,738 8,830 560 1,278 568 19,502 18.8 21.3 (2.9) 26.0 39.1 (29.5) 20.5 15.0 (8.1) (18.2) 177.0 0.0 20 bp 60 bp (90) bp (450) bp 1070 bp 4.5 34.0 153.5 19.8 182.5 4.5 18.8 20.0 (9.1) 22.7 11.6 (40.1) 20.5 27.7 (12.9) 14.0 12.9 (100.0) 20 bp 60 bp (60) bp (60) bp 30 bp 4.5 11.3 23.4 8.5 10.9 0.5

October 22, 2011

Larsen & Toubro | 2QFY2012 Result Update

Subsidiary performance
L&T InfoTech registers decent performance
L&T InfoTech, the companys technology subsidiary, reported a strong performance for 2QFY2012, registering 34.9% yoy and 7.5% qoq growth in revenue. On the profitability front, the subsidiary reported NPM of 13.6%.

Order book analysis

As of 2QFY2012, L&T stands tall on an order backlog of `1,42,185cr. Order inflow for 2QFY2012 stands at `16,096cr, down 21.3% yoy. Orders of ~25% came from the international market, owing to traction on hydrocarbon/T&D space and slowing domestic order inflows. L&Ts order book is majorly dominated by the infra (37%) and power (31%) segments. Process (15%), hydrocarbon (13%) and others (4%) constitute the balance part of the order book. The company has given a guidance of 5% for order booking in FY2012, which is above our expectations.

Exhibit 8: Slowing order booking trend (` cr)

35,000 30,000 25,000 20,000 15,000 10,000 5,000 18,365 14,417 12,517 12,453 9,571 23,843 17,793 30,313 20,464 13,366

Exhibit 9: Order book composition (`1,42,185cr)

160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 -

15,626

16,190 16,096

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

Process

Hydrocarbon

Power

Infrastructure

Others

Total

2QFY12

Process

Hydrocarbon

Power

Infrastructure

Others

Source: Company, Angel Research

Source: Company, Angel Research

Client wise, 39% of L&Ts outstanding order book comes from the public sector, with 47% from the private sector. Captive work orders account for the balance 14%. Notably, there has been a drop in the share of public sector orders.

Key highlights from the concall

Working capital has deteriorated with increasing debtor levels, which increased by ~`1,200cr since FY2011-end levels. Net working capital has increased to `11,400cr from `7,200cr at FY2011-end levels mainly to support sub-contractors in a tough macro environment. The company booked a forex loss of >`100cr from receivables versus loss of `120cr in 2QFY2011. Management has highlighted that it still has to receive the land for the Hyderabad Metro Project and that the appointed data is yet to happen. It does not expect to book any significant revenue from the project in the coming quarters. L&T has spent about `700cr in capex already and expects to end the year with a `1,500cr capex as guided earlier. It has also infused equity investments of `860cr into subsidiaries and developmental projects and expects about `1,500cr of such investments in the full year, which was again in-line with earlier guidance.

October 22, 2011

2QFY12

Larsen & Toubro | 2QFY2012 Result Update

Outlook and valuation

We maintain Buy with a target price of `1,714
We believe L&T will continue to occupy a unique position in the Indian E&C space as a diversified and large engineering play, with exposure to areas ranging from power, defense, nuclear to equipment, in spite of short-term concerns. We have marginally tweaked our estimates to incorporate managements revised guidance and recent developments in the company and sector.

Exhibit 10: Change in estimates Mainly to incorporate change in revenue and other income
FY2012E Earlier estimates Revenue EBITDA margin (%) PAT
Source: Company, Angel Research

FY2013E Variation (%) Earlier estimates 64,569 12.0 4,736 Revised estimates 62,568 12.0 4,555 Variation (%) (3.1) (3.8) 53,503 11.9 3,954

Revised estimates

53,503 11.9 3,954

At the CMP of `1,336, the stock is trading at 18.1x FY2013E earnings and 2.8x FY2013E P/BV on a standalone basis. We have used the sum-of-the-parts (SOTP methodology to value the company to capture all its business initiatives and investments/stakes in different businesses. Ascribing separate values to its parent business on a P/E basis and investments in subsidiaries on P/E, P/BV and mcap basis, our target price works out to `1,714, which provides 28.3% upside from current levels. We maintain our Buy recommendation on the stock. It may be noted here that the L&T stock has historically traded at a premium to the BSE Sensex. At our SOTP target price, the stock would trade at 23.2x FY2013E standalone adj. EPS of `74.0, which is at a premium of ~66% over Angels FY2013E Sensex target P/E multiple of 14x and in-line with the historical premium commanded by L&T over BSE Sensex.

Exhibit 11: L&T Parent historic P/E multiple premium to BSE Sensex
140% 120% 100% 80% 60% 40% 20% 0%
21-Jan-05 21-Jan-06 21-Jan-07 21-Jan-08 21-Jan-09 21-Jan-10 21-Jan-11 21-Apr-05 21-Apr-06 21-Apr-07 21-Apr-08 21-Apr-09 21-Apr-10 21-Apr-11 21-Oct-04 21-Oct-05 21-Oct-06 21-Oct-07 21-Oct-08 21-Oct-09 21-Oct-10 21-Oct-11 21-Jul-05 21-Jul-06 21-Jul-07 21-Jul-08 21-Jul-09 21-Jul-10 21-Jul-11

L&T Premium/(Discount) to Sensex

7YEAR AVG

5YEAR AVG

3YEAR AVG

Source: Company, Angel Research

October 22, 2011

Larsen & Toubro | 2QFY2012 Result Update

On one-year forward P/E basis, historically L&T has traded at an average P/E of 27.3x, 29.3x and 26.7x over the past seven, five and three years, respectively. Thus, our implied target P/E multiple of 23.2x is below its historical average.

Exhibit 12: L&T Parent one-year forward P/E band

70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0
21-Oct-11 21-Jul-11 21-Apr-11 21-Jan-11 21-Oct-10 21-Jul-10 21-Apr-10 21-Jan-10 21-Oct-09 21-Jul-09 21-Apr-09 21-Jan-09 21-Oct-08 21-Jul-08 21-Apr-08 21-Jan-08 21-Oct-07 21-Jul-07 21-Apr-07 21-Jan-07 21-Oct-06 21-Jul-06 21-Apr-06 21-Jan-06 21-Oct-05 21-Jul-05 21-Apr-05 21-Jan-05 21-Oct-04

P/E

7YEAR AVG

5YEAR AVG

3YEAR AVG

Source: Company, Angel Research

Change in target price: There has been a slight lowering of our target price for L&T to factor in lower PE multiples for its parent and subsidiary, considering the overall de-rating of multiples across sectors and change in earnings for the parent.

Exhibit 13: Derivation of SOTP based target price for L&T (FY2013E)
Business Segment L&T- Parent Infrastructure Subsidiaries IDPL (stake - 97.5%) Key Subsidiaries - Services L&T Infotech L&T Finance Key Subsidiaries - Manufacturing Tractor Engineers Associate Companies L&T MHI Boilers and Turbines (stake - 51%) Other Subsidiaries Satyam Stake Other Investments Total Source: Company, Angel Research Mcap P/BV 20% holding company discount 1x FY2013E Book Value, Mcap P/E P/E P/E 8x FY2013E Earnings 8x FY2013E Earnings 8x FY2013E Earnings P/E Mcap Basis 12x FY2013E Earnings 20% holding company discount P/BV L&T acq. 2.36% stake of IDFC at Rs118cr in 1QFY11 Methodology P/E Remarks 18x FY2013E Earnings ` cr 81,986 5,728 5,728 11,040 5,196 5,844 4,472 129 2,000 2,342 2,290 147 2,143 105,516 `/share 1,332 93 93 179 84 95 73 2 32 38 37 2 35 1,714 % to TP 77.7 5.4 5.4 10.5 4.9 5.5 4.2 0.1 1.9 2.2 2.2 0.1 2.0 100

October 22, 2011

Larsen & Toubro | 2QFY2012 Result Update

Exhibit 14: Key assumptions (` cr)

FY2008 Order Inflow Revenue Order Backlog (Y/E) OB/Sales (x) 42,020 24,878 52,680 2.1 FY2009 51,600 33,926 70,300 2.1 FY2010 69,572 37,035 100,239 2.7 FY2011 79,769 43,905 130,217 3.0 FY2012E 79,809 53,503 157,210 2.9 FY2013E 92,236 62,568 186,242 3.0

Source: Company, Angel Research

Exhibit 15: Angel EPS forecast vs. consensus

Angel Forecast FY2012E FY2013E
Source: Company, Angel Research

Bloomberg Consensus 69.7 81.0

Variation (%) 8.5 9.5

64.2 74.0

October 22, 2011

Larsen & Toubro | 2QFY2012 Result Update

Investment arguments
L&T stock underperforms: The L&T stock has underperformed BSE Sensex by ~16.5% in the last three months owing to factors such as slowing order inflows and rising competition (especially in BTG equipment segment) leading to fears of slippage on order inflow guidance. Also, L&T lost the public sector shipyard, Mazagon dock, for defense and naval ships and failed to win the recent ONGC pipeline tenders. which creates an opportunity to Buy for long-term investors: We believe though L&T would find it difficult to meet its revised guidance (growth of 5% in order inflow and 25% in revenue), it is better placed than its peers on a number of counts (such as diversification and balance sheet strength). It should also be noted that we have already factored in slippages on the order inflow front and even after factoring them, we note that order booking is much higher compared to revenue. Therefore, we believe L&T is best placed to benefit from the gradual recovery in the capex cycle, given its diverse exposure to sectors, strong balance sheet and cash flow generation as compared to its peers, which grapple with issues such as strained cash flow, high leverage and limited net worth and technological capabilities. On the valuation front, due to the recent correction in prices, the stock is trading at PE of 12.9x FY2013E earnings, adjusted for subsidiary value, which is lower than its historical PE of 15-20x. Hence, we believe the recent correction provides a good opportunity to Buy. Proxy to India's infra story: We believe L&T is in an enviable position, given the apparent shortage of good-quality constructors in India. L&T's strong balance sheet, a sound execution engine, wide array of capabilities, integrated operations tailored to suit India's infrastructure growth story and multiple, recurring value-unlocking triggers over the medium term lead us to place faith in this default India infrastructure story. L&T has an order book of >`1.4tn, which provides a good revenue visibility. Great infusion-dilution opportunity: Investment in the construction segment is expected to double over the Twelfth Plan Period, and the PPP model is assuming greater significance in delivering and meeting physical targets in the different segments of the infrastructure space. The government, through regulatory changes, is focusing on the construction segment through the PPP mode of investment. The government expects the PPP share in the Twelfth Plan to be at 50%. This has become imperative due to the widening gap between demand for infrastructure and financial resources available with the government to fund the same. Given the high growth opportunities present in L&T's varied business verticals (infrastructure and finance), we feel the company provides a great infusion-dilution opportunity. It should be noted that such moves lead to short-term dilution in equity, leading to the EPS getting temporarily depressed. However, it also shores up the net worth of the company, which fuels its future growth. Further, it serves as a benchmark for valuing the entity.

October 22, 2011

Larsen & Toubro | 2QFY2012 Result Update

Exhibit 16: Recommendation summary

Company CCCL HCC IRB Infra IVRCL JP Assoc. Punj Lloyd NCC Sadbhav Simplex In. Patel Engg Madhucon L&T ITNL CMP 19 26 160 35 70 54 54 127 205 96 70 203 TP Rating FY11 - Neutral - Neutral 193 60 85 82 167 299 106 259 Buy Buy 2,199 4,093 2,438 5,651 7,850 5,074 2,209 4,889 3,499 1,816 4,049 Top-line (` cr) FY12E 2,362 4,152 3,024 5,798 FY13E CAGR (%) 2,646 4,633 3,980 6,994 9.7 6.4 27.8 11.2 13.1 18.3 14.8 13.9 12.4 1.2 17.6 19.4 26.5 2.5 1.2 13.6 5.9 5.5 (5.4) 6.4 8.0 21.5 18.4 5.6 54.3 22.3 EPS (`) 1.5 (1.0) 12.5 4.2 3.7 2.5 5.5 8.7 20.4 17.1 5.8 64.2 23.9 3.6 0.6 14.0 6.1 5.3 4.0 6.7 10.0 29.9 16.7 6.8 74.0 25.3 18.4 (25.8) 1.5 1.6 2.4 12.2 18.1 (4.7) 10.7 6.4 7.4 5.0 3.0 4.0 6.4 9.5 0.8 4.2 1.5 Adj. P/E 12.5 5.4 4.2 18.7 21.7 4.6 5.8 10.0 0.8 4.0 14.8 1.4 5.3 4.8 2.9 13.1 13.4 3.8 5.0 6.8 0.8 3.4 12.9 1.4 OB/ 2.8 4.0 4.2 3.0 3.2 3.2 2.9 2.7 3.5 3.2 5.5 FY11 FY12E FY13E CAGR (%) FY11 FY12E FY13E Sales(x)

Buy 13,832 15,092 17,683 9,585 10,992 5,755 2,602 5,286 3,272 1,959 4,910 6,689 2,865 6,178 3,587 2,512 6,484 Buy Buy Buy Buy Buy

(1.8) 12.7

- Neutral

- Neutral

1,336 1,714

Buy 43,905 53,503 62,568

16.7 17.6

Source: Company, Angel Research

Exhibit 17: SOTP break-up

Company CCCL HCC IRB Infra IVRCL JP Assoc. Punj Lloyd NCC Sadbhav Simplex In. Patel Engg. Madhucon L&T ITNL
Source: Company, Angel Research

Core Const. ` 21 4 101 43 31 72 53 90 299 40 59 1,332 90 % to TP 100 9 52 71 37 100 65 54 100 33 55 78 35 -

Real Estate ` 23 30 2 47 2 % to TP 54 35 2 38 2 ` -

Road BOT % to TP 37 36 10 46 13 31 55

Invst. In Subsidiaries ` 4 17 382 % to TP 2 29 22 ` 18 24 18 19 12 25

Others % to TP 9 29 22 16 12 10

Total ` 21 44 193 60 85 72 82 167 299 122 106 1,714 259

16 70 8 76 16 33 143

October 22, 2011

10

Larsen & Toubro | 2QFY2012 Result Update

Profit & loss statement (Standalone)

Y/E March (` cr) Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (incl pft from Ass/JV) (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT (excl. dividend from Subs) % chg (% of Net Sales) Basic EPS (`) (Reported) Fully Diluted EPS (`) (Diluted) % chg FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 25,187 34,045 36,996 43,886 333 23 41.3 398 280 36.4 321 360 9.2 390 409 18.6 24,855 33,647 36,675 43,496 24,878 33,926 37,035 43,905 22,051 30,094 32,295 38,306 12,963 16,798 17,309 21,272 6,168 1,535 1,386 2,826 58.8 11.4 202 2,624 62.8 10.6 123 488 16.3 2,989 51.5 (166) 3,155 982 31.1 2,173 2,173 1,960 48.9 7.9 74.3 31.9 48.9 9,434 11,144 12,160 1,998 1,864 3,832 35.6 11.4 283 3,550 35.3 10.5 350 643 16.7 3,842 28.5 4,713 1,231 26.1 3,482 3,482 2,595 32.4 7.7 59.2 42.2 32.4 2,379 1,463 4,739 23.7 12.9 380 4,360 22.8 11.9 505 768 16.6 4,623 20.3 6,016 1,641 27.3 4,376 4,376 2,893 11.5 7.9 72.6 47.0 11.5 2,885 1,990 5,599 18.1 12.9 562 5,036 15.5 11.6 647 1,087 19.8 5,475 18.4 (429) 5,904 1,946 33.0 3,958 3,958 3,342 15.5 7.7 65.0 54.3 15.5 53,582 476 53,106 397 53,503 21.9 47,197 26,287 14,870 3,186 2,853 6,306 12.6 11.9 717 5,590 11.0 10.5 750 1,471 23.3 6,311 15.3 6,311 2,048 32.4 4,263 4,263 3,954 18.3 7.4 69.8 64.2 18.3 62,569 556 62,013 555 62,568 16.9 55,113 30,696 17,364 3,721 3,332 7,455 18.2 12.0 894 6,561 17.4 10.6 853 1,607 22.0 7,314 15.9 7,314 2,373 32.4 4,941 4,941 4,555 15.2 7.3 80.3 74.0 15.2

(871) (1,394)

October 22, 2011

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Larsen & Toubro | 2QFY2012 Result Update

Balance sheet (Standalone)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 4,189 1,239 2,950 696 6,922 16,314 964 3,664 11,685 13,684 2,630 3 13,200 5,575 1,418 4,157 1,038 8,264 23,448 775 6,791 15,882 17,842 5,606 0 19,065 7,236 1,728 5,508 858 13,705 26,362 1,432 5,997 18,932 21,243 5,119 25,190 8,897 2,224 6,673 785 14,685 34,951 1,730 8,189 25,032 27,823 7,128 29,271 11,041 2,940 8,101 942 15,685 42,172 1,342 10,261 30,570 33,234 8,938 33,666 13,844 3,835 10,010 1,130 17,185 49,420 561 12,856 36,003 38,385 11,035 39,360 58 9,497 9,555 3,584 61 13,200 118 12,343 12,460 6,556 48 19,065 121 18,191 18,312 6,801 77 25,190 122 21,725 21,846 7,161 263 29,271 122 24,899 25,021 8,381 263 33,666 123 28,698 28,821 10,276 263 39,360 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

October 22, 2011

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Larsen & Toubro | 2QFY2012 Result Update

Cash flow statement (Standalone)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2008 FY2009 3,155 202 377 488 988 1,505 4,713 283 2,049 643 873 1,431 FY2010 5,881 387 (1,143) 768 1,519 5,124 (1,481) (5,442) 768 (6,154) 2,133 168 863 249 1,687 657 775 1,432 FY2011 FY2012E FY2012E 5,904 562 1,711 1,087 1,946 1,723 (1,589) (979) 1,087 (1,482) 347 360 996 345 57 299 1,432 1,730 1,220 1,085 (4) 131 (389) 1,730 1,342 1,895 1,139 (3) 753 (781) 1,342 561 6,311 717 2,199 1,471 2,048 1,310 (2,301) (1,000) 1,471 (1,830) 7,314 894 2,878 1,607 2,373 1,350 (2,991) (1,500) 1,607 (2,885)

(1,622) (1,980) (3,620) (1,329) 488 1,702 1,560 114 (28) 3,119 (130) 1,095 965 643 23 1,922 717 (183) 1,045 (190) 965 775 (4,754) (2,666)

October 22, 2011

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Larsen & Toubro | 2QFY2012 Result Update

Key Ratios
Y/E March Valuation Ratio (x)
P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Order Book to Sales Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROAE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) Working capital cycle (ex-cash) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage

FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 41.9 37.7 8.5 0.9 3.4 29.8 6.4 2.1 74.3 31.9 35.4 12.6 156.5 10.5 0.7 2.6 19.0 3.0 0.2 22.8 24.9 27.6 25.6 7.0 54 94 60 23 0.3 0.9 21.4 31.7 28.3 6.5 0.6 2.6 22.8 4.6 2.1 59.2 42.2 47.1 8.4 204.1 10.5 0.7 2.2 17.2 5.1 0.4 21.8 22.0 23.3 23.6 6.9 54 94 63 35 0.5 1.5 10.1 28.4 24.9 4.5 0.8 2.4 18.3 3.5 2.7 72.6 47.0 53.6 10.2 299.9 11.8 0.7 1.8 15.1 5.5 0.4 18.6 19.7 20.7 18.8 5.8 36 105 73 42 0.3 1.1 8.6 24.6 20.9 3.7 0.9 2.0 15.5 3.0 3.0 65.0 54.3 63.9 12.4 357.8 11.5 0.7 1.7 13.2 6.2 0.3 15.0 18.5 19.6 16.6 5.4 12 98 79 38 0.2 1.0 7.8 20.8 17.5 3.3 1.1 1.7 14.1 2.6 3.0 69.8 64.2 76.5 14.5 409.8 10.4 0.7 1.8 12.6 6.5 0.3 14.2 17.8 18.7 16.9 5.4 12 95 87 44 0.3 1.1 7.5 18.1 15.0 2.8 1.1 1.5 12.2 2.3 3.0 80.3 74.0 89.2 15.1 472.0 10.5 0.7 1.8 12.5 6.2 0.3 14.4 18.0 18.5 16.9 5.0 12 97 89 53 0.3 1.3 7.7

October 22, 2011

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Larsen & Toubro | 2QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

L&T No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

October 22, 2011

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