Larsen & Toubro Ltd (Q3 FY16): Operating margin disappoints but Order inflow surprises Positively
BUY : CMP ₹1,102, Target ₹1,532, Upside 39.0%
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About Larsen & Toubro (L&T)
Larsen & Toubro Limited, commonly known as L&T, is an Indian multinational conglomerate having its headquarter in Mumbai, India. L&T was founded by Danish engineers taking refuge in India, as well as an Indian financing partner. L&T provides a major services in the field of technology, engineering, construction, manufacturing and in finance. View more at official site of L&T.
Key ratios;
- FACE VALUE (RS) : 2.00
- MARKET CAP (RS CR): 106,155.99
- P/E: 21.97
- INDUSTRY P/E : 16.47
- BOOK VALUE (RS) : 397.96
- DIV (%) : 812.50%
- DIV YIELD.(%) : 1.43%
- EPS (TTM) : 51.88
- PRICE/BOOK: 2.86
- DIV YIELD.(%) : 1.43%
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L&T's FY16- Q3 Numbers highlights;
- Poor operating margin: Operating results failed once again to meet estimates due to sustained margin pressure.
- Positive increase in order inflow: However, the company registered 11% yoy increase in order inflow, positively surprising the street.
- Domestic and international market revenue cracked: Topline growth was marginally lower than estimate due to slower execution in the domestic market. Domestic market revenue was lower by 3% yoy. This was offset by 39% yoy jump in international revenues.
- Operating Profit Margin: OPM of 10.3% was lower than our estimate of 11.2% due to a sharp decline in infrastructure margins as many large projects were in designing phase and some provisions in heavy engineering segment.
- Lower margin a big concern: Lower margins in the core E&C division is a big concern. The management indicated that the sharp fall in margins is largely due to job mix status.
- PAT growth was led by higher other income (higher treasury gains) and profit from sales of Astra Microwave and Chandigarh Mall.
- Order inflow beats expectations: Consolidated order inflow of ₹ 38,500cr was quite higher than our expectations. Order book at the end of Q3 FY16 stood at ₹ 256,500cr, higher by 13.6% yoy
- Slower pickup in execution: Company has reduced its order inflow guidance from 5-7% yoy to 0-5% due to slower pickup in execution in domestic market.
What IIFL says on Larsen & Toubro Ltd (L&T) after Q3 FY16
- "Revenue guidance was maintained at 10-15% (9M FY16 @ 9%), while lowering its margin expansion guidance to flat to marginally higher." So IIFL Maintains BUY rating with a revised price target of ₹1,523.
- Buy Larsen and Toubro; target of Rs 1528: Axis securities
- Add Larsen & Toubro to portfolio, says Bhavin Desai
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