This action might not be possible to undo. Are you sure you want to continue?
LARSEN & TOUBRO LIMITED
Submitted to: Prof. T. Vishwanathan
Submitted from :
Amritesh (05) Anshul Pandey (07) Madhu Vinita (40) Pankaj Kumar Bothra (53) Prachi Agarwal (55) Rajnish Kumar (65)
[ Larsen & Toubro Limited ]
Qualitative and Quantitative Analysis
The satisfaction that the successful completion of the task would be incomplete without mentioning all those guidance and encouragements which crown the efforts with success. First and foremost we would thank the lord Almighty for His grace, mercy without which nothing would have been possible. We sincerely bow with reverence to the sanctum of KIAMS for giving us an opportunity to pursue our PGDM course. We are indebted to the Director, Dr. Gopal Iyengar, for facilitating a congenial academic environment in the college. We will be obliged to Mr.T.Viswanthan who has given us the opportunity to make a report on “Report on Larsen & Toubro-A Quantitative & Qualitative Analysis based on Crisil Framework”. We would like to say thanks to each other for being patient while doing the group activity and avoiding any type of plagiarism. Last but not the least we would like to thank our parents and friends.
FROM: Amritesh (05) Anshul Pandey (07) Madhu Vinita (40) Pankaj Kumar Bothra (53) Prachi Agarwal (55) Rajnish Kumar (65)
1. Company Overview………........................................................ 2. Business Risk Analysis of Larsen & Toubro.........................
3. PESTAL Analysis....................................................................... 10 4. SWOT Analysis……………..…………………...…………...... 13 5. Company Overview………....................................................... 6. Ratio Analysis of Larsen & Toubro.......................................
14 15 05 06 08
A. Profitability Ratios............................................................... B. Liquidity Ratios.................................................................... C. Gearing/ Solvency Ratios....................................................
Conclusion for Ratio Analysis .....................................................10 7.
Larsen & Toubro Limited (L&T) is a technology, engineering, construction and manufacturing company. It is one of the largest and most respected companies in India's private sector L&T has an international presence, with a global spread of offices. A thrust on international business has seen overseas earnings grow significantly. It continues to grow its overseas manufacturing footprint, with facilities in China and the Gulf region. The company's businesses are supported by a wide marketing and distribution network, and have established a reputation for strong customer support. A commitment to community welfare and environmental protection are an integral part of the corporate vision.
2. HISTORY OF LARSEN & TOUBRO The evolution of L&T into the country's largest engineering and construction organization is among the most remarkable success stories in Indian industry. L&T was founded in Bombay (Mumbai) in 1938 by two Danish engineers, Henning Holck-Larsen and Soren Kristian Toubro. Both of them were strongly committed to developing India's engineering capabilities to meet the demands of industry. Beginning with the import of machinery from Europe, L&T rapidly took on engineering and construction assignments of increasing sophistication. Today, the company sets global engineering benchmarks in terms of scale and complexity. In 1938, the two friends decided to forgo the comforts of working in Europe, and started their own operation in India. All they had was a dream and the courage to dare. Their first office in Mumbai (Bombay) was so small that only one of the partners could use the office at a time! In the early years, they represented Danish manufacturers of dairy equipment for a modest retainer. But with the start of the Second World War in 1939, imports were restricted, compelling them to start a small work-shop to undertake jobs and provide service facilities. Germany's invasion of Denmark in 1940 stopped supplies of Danish products. This crisis forced the partners to stand on their own feet and innovate. They started manufacturing dairy equipment indigenously. These products proved to be a success, and L&T came to be recognised as a reliable fabricator with high standards. The war-time need to repair and refit ships offered L&T an opportunity, and led to the formation of a new company, Hilda Ltd., to handle these operations. L&T also started two repair and fabrication shops - the Company had begun to expand. Again, the internment of German engineers (because of the War) who were to put up a soda ash plant for the Tatas, gave L&T a chance to enter the field of installation - an area where their capability became well respected. In 1944, ECC was incorporated. Around then, L&T decided to build a portfolio of foreign collaborations. By 1945, the Company represented British manufacturers of equipment used to manufacture products such as hydrogenated oils, biscuits, soaps and glass. By 1964, L&T had widened its capabilities to include some of the best technologies in the world. In the decade that followed, the company grew rapidly, and by 1973 had become one of the Top-25 Indian companies. Today, L&T is one of India's biggest and best known industrial
4 | KIAMS
Milan. Railway projects. The company has manufacturing facilities in India. Built the world's largest continuous catalyst regeneration reactor. Built Asia's highest viaduct . high quality of products and services. Oman and Saudi Arabia. L&T has a global presence. London. It is also taking steps to grow its international presence. A thrust on international business over the years has seen overseas revenues growing steadily. and Seoul. Achievements of L&T Built India's first indigenous hydrocracker reactor. China.Panvalnadi for the Konkan Railway. including Houston. Engineering services. The L&T vision reflects the collective goal of the company. Built the world’s longest cross country conveyor. Engineering services. Power. Shanghai. and strong customer orientation. It has a global supply network with offices in 10 locations worldwide. Engineered products and systems 5 | KIAMS . Built the world's longest product splitter. Built the world's biggest fluid catalytic cracking regenerator.[05/12/2012] [ ] organisations with a reputation for technological excellence. International products . Building products. Infrastructure concessions. Built the world's longest LPG pipeline. Key Products of L&T: Turnkey projects Hydrocarbon. worldwide. It was drafted through a large scale interactive process which engaged employees at every level. Customers include global majors in over 30 countries. Construction Construction services. Cement and allied machineries.
Metering systems and relays. Machinery valves and industry consumables Financial services 1. Embedded systems. Oil and gas. Electrical solutions. Cement Electrical and electronic product and systems Switchgears. Mission and Core Values: There is clear accord & harmony among Vision. Fertiliser. L&T is implementing a strategic plan (Lakshya) for 2010-15. constantly creating value. Coal gasification. Congruency between Vision.[05/12/2012] [ ] Refinery. Create long term value for the customers through superior product structuring by capitalizing on our knowledge pool. Control and automation . Mission & Core Values. Engineering services. Defence. meeting . Tooling solutions IT and engineering services IT services. Medical equipment . Nuclear power plant. Thermal power plant. Equipment finance Shipbuilding Mission of L&T: To compete and grow in a globalised business environment. Core Value: Performance Driven Vision: 6 | KIAMS Attaining global benchmarks. Aerospace. It has set ambitious growth target for each business. Petroleum dispensers and systems . Infrastructure finance 2. The plan has been drawn up in consulation with a leading international strategy consultant. Petrochemicals.
stakeholder’s and society. continous learning. foster a culture of caring. high corporate governance standards & constantaly creating value. partnering our customer by offering solutions. proffessionaly managed and committed. creat long term value by setting new standard & through superior product structuring. meeting expectation of society. Mission: Capitalizing on our knowledge Core value : Customer Focus & Mutual Respect Vision: of Customer satisfaction. trust.[05/12/2012] [ ] expectations of employees. deep understanding of Indian sector and full range of financial products. Entrepreneurial and empowered team. Mission: capitalizing. Mission: To compete and grow. fostering a culture caring. employees and shareholders Mission: Create long term value for our customer through superior product structuring. 7 | KIAMS . enhancing shareholder value. professionally managed. shall foster a culture of caring. trust (show uprightness and honesty as an important part of integrity). L&T-ites shall be innovative. Core Value: Integrity Vision : Enterpreneurial and empowered team. ambitious target setting for each sector Core value: Innovation & Excellence Vision: Indian Multinational. enhancing shareholder value. on our knowledge pool & consulation with the leading international strategy consultant Included are the opportunity of diversifaction. total customer satisfaction.
[05/12/2012] [ ] SECTORS SERVEDED: • • • • • • • • • • Hydrocarbon Heavy Engineering L&T Construction Power Electrical & Automation Machinery & Industrial Products Information Technology Financial Services Shipbuilding Railway Projects 8 | KIAMS .
[05/12/2012] [ ] 2. BUSINESS RISK ANALYSIS 9 | KIAMS .
196.8 per cent in 2011-12. L&T registered extra ordinary items of Rs 10 | KIAMS . slow environmental clearances and so on. growth would have to accelerate till around 15 per cent CAGR. This project flow should sustain the construction industry over the next five years at the least.but. To create garbage-free villages. L&T registered strong net sales growth of 17. L&T have adequate order book for next 5-6 years . the historic growth rate for the construction industry is around 9 per cent CAGR and it underperformed GDP in the past three fiscals. The Foundation builds libraries and has also build an art centre for accelerating rural sociocultural development.0 cr as net working capital requirement increase to 16. The structural problems won’t sort out easily though financial liquidity should ease as the business cycle turns. shortage of skilled labour. to preserve margin in spite of disproportionate increase in raw material costs. Increased fiscal.2 cr. Financial uncertainty and moderation in demand.5% of sales. However. an investor with a long timeframe should see acceptable growth rates LEGISLATION REGARDING POLLUTION CONTROL MEASURES: To create an environmental friendly and pollution free environment . OPERATING PERFORMANCE: L&T has taken several steps to improve operational efficiency. That implies construction growing at almost twice the GDP rate. However. the Foundation sets up garbage management units using proper garbage handling mechanism. the L&T Foundation builds model villages by developing rural infrastructure complete with roads and drainage system. Operating margins increased by 22 bps to 10. high interest rates. The constraints for the construction industry included slowdown in real estate. it creates sanitary facilities for providing effective disposal of solid waste. Interest cost increased in line with our expectation to Rs 235. They are also focusing on enhancing the backward integration in order to reduce cost. The Foundation also sensitizes rural eco-friendliness through enhanced tree planting. It probably cannot ramp up to those levels of efficiency. To minimize waste produced the Foundation has introduced scientific recycling and reusing technologies. To improve living standards. It takes utmost care to create rural awareness on the importance of hygiene and the crucial role people can play to make that a reality. industry risk is at vulnerable level. on back of growth in E&C segment. unless the current slowdown persists for an unprecedented period.[05/12/2012] [ ] It is formulated on following parameters: INDUSTRY RISK: Recovery in construction and infrastructure Industry has been slower than expected due to tighter bank lending. compared to 8 per cent growth in 201011. However.7% on account of lower SGA expenses.1% on a YoY basis as net sales increased to Rs 13. To fully capitalise on the opportunities. the construction sector grew at 4.
Robust order execution lead by E&C segment Net Sales increased by 17. 20.158. Management maintained its FY13 order inflow guidance. Sales and admin exp declined by 130 bps to 4% of sales.528 cr vs Rs.583 cr from Rs 10. 2) A management communiqué on value unlocking such as the Dhamra port could have dual benefits: a) raise consensus earnings by 7-8% and b) allow L&T IDPL to be valued higher than 1x P/B. Order backlog at the end of the Q2FY13 stands at Rs. Order inflows during the quarter increased by 30% YoY to Rs 20. Order inflow increased by 30% to Rs. L&T's competitive strength vis-à-vis peers has widened to the extent that it is unlikely to reverse (at least in the near term). A 22 bps YoY growth in OPM margins was on back of lower sales and admin expense. led by strong order execution in E&C segment. the company stated its intention to sell the 50% 11 | KIAMS .75x TTM sales. which was above expectation. For FY13E.[05/12/2012] [ ] 214. Power.185 cr in Q2FY12. which offset a 100 bps increase in rawmaterial cost. Among infrastructure players.967 cr vs Rs. making it virtually impossible for peers to participate in new orders.Building & Factories followed by Hydrocarbons.7%. L&T has typically been the most opportunistic company in unlocking value.388 cr in Q2FY12.3% YoY. 142. 160. Average NWC/sales of peers are 40% v/s L&T at 15-18%. Railways.2 cr and 52. Revenues from E&C segment increased by 20. 158.528 cr. Road and nuclear sectors supported order inflow. 2. Lower sales and admin expense was on account of lower non linear provision.967 cr. lower forex loss (Rs30 cr vs Rs 100 cr in Q2FY12) and expense control. Adjusted PAT increased by 11% to Rs 915 cr. Consequently current order backlog stands robust at Rs. Positive surprise in operating margins The company registered operating margins of 10.89 cr on account of gain on divestment of stake in subsidiary company and reversal of provision respectively.960 cr in Q2FY12. the company maintained its 15% to 20% sales growth guidance.2% to Rs 11. In its latest communiqué. 3) There are rising hopes of a railway capex kick start as the rail ministry is led by the ruling party for first time in 15 years.
2011. could unlock value as well as improve consolidated earnings (please note that the Dhamra port pulled FY12 consolidated EPS down by 5%). Machinery & Industrial Products (MIP) Segment The Segment recorded Gross Revenue of Rs 666 crore during the quarter ended June 30. it has ensured that order inflows are maintained at USD14-16bn per year despite of weak macro environment. Outlook Global economic concerns. As per Deustche estimate. This. To recap. The Segment earned Operating Margin of 20. Execution of several jobs on hand is on schedule.9% during the quarter ended June 30. however. Indian economy. 2011 registering a y-o-y growth of 23%. heightened competitive pressures restricting the avenues for price increase and lower volumes. the segment succeeded in bagging orders totaling to Rs 14416 crore during the quarter. We believe the guidance of 15-20% YoY growth in order inflow for FY13E is unlikely to be revised. 2011. implying achievement of 46% of the target/guidance for the fiscal year. Gross Revenue was Rs 695 crore for the quarter ended d June 30.The Order Book of the Segment stood at ` 133739 crore as at June 30.8% during the quarter was under pressure with steep increase in input prices.1% during the quarter even on a higher sales volume. Execution efficiencies and tight cost monitoring strategies have enabled the segment achieve an Operating Margin of 11. Engineering & Construction (E&C) Segment The E&C Segment achieved Gross Revenue of Rs 8018 crore for the quarter ended June 30. if and when it materializes. 2011. L&T would be able to secure INR342bn worth of orders by H2FY13E. Certain high value jobs are yet to reach the threshold level for margin recognition and hence. registering a growth of 25% over the corresponding quarter of the previous year. spiraling inflation and hardening interest rates are likely to impact the growth prospects in the economy. has withstood such cycles in 12 | KIAMS . could not contribute to the operating margin during the quarter. Despite the sluggish pace of investments seen in the various key sectors of the economy. 2011.[05/12/2012] [ ] stake held in Dhamra port. with the diversified capabilities of Larsen across segments. Electrical & Electronics (E&E) Segment Sluggish growth in exports and low demand from domestic market constrained the revenue growth of the segment during the quarter. The Segment margin at 10.
However. The Company is confident of sustaining the growth momentum in the medium term with its proven track record. Attempts of deleveraging are likely to be perceived positively by investors. are not factoring this in line with the company guidance. besides providing good revenue visibility. • Any orders from the upcoming USD6bn capex from Reliance Industries could also be a positive. While L&T has taken this to arbitration. With expanded capacities. Any move on this can be a big positive.[05/12/2012] [ ] the past and emerged resilient with its strong fundamentals. the Company is in a good position to harness the available opportunities. Any further market share gains in this segment and visibility on margins from cost reduction initiatives is an important trigger to watch for. The oil & gas segment is an area in which L&T has lost market share in the last 18-24 months to local and Korean competition. including Deutsche Bank. new organisation structure and presence in diverse sectors. Issues wherein slow moving orders (like the order from Visa power) result in damage claims from L&T. What can be potential surprises? • Can the company maintain margins – A lot of investors and analysts. the GCC countries of the Middle East hold opportunities in the areas of Hydrocarbon. Big ticket orders in this segment could start in Q4FY13E or Q1FY14E. • • 13 | KIAMS . • • Start of railway ordering – The first of the orders in this space have already come in 2Q. Order inflows in 2H are below that of 1H by more than 10-15%. On the global front. these developments are typical of a downcycle. strong order book and execution excellence. they have bagged a few orders in this quarter.5bn against L&T. Power Transmission & Distribution. What are the potential pitfalls? • A tight credit scenario for more than one year could result in the delay of reversal in the NWC/sales ratio for L&T as it might be needed to maintain support to vendors. dated 27 August 2012) suggest that Visa power has encased guarantees amounting to INR2. underscores its leadership position. That could be taken as a sign of a serious economic slowdown for the next two to three years. Selling IDPL stake – Management guides for this in the next six months. The large order book of the Company. and infrastructure development. Speedy implementation of various initiatives by the Government for industrial and infrastructure development holds the key to an accelerated growth momentum. Recent news articles (DNA.
While Mr. there are significant risks of either dilution or the inability of the EPC players to take new orders. This could propel Indian railways to move faster on the much needed infrastructure investments in the sector. The parameter to evaluate L&T and its peers is a matrix of order book to net worth as well as EBITDA/interest. even the core EPC business working capital ratios at 40% are very high. 10% of the project value is assigned as risk for contingent liability of the project. The latter is self explanatory. Accordingly. Peers in the construction industry have elevated levels of NWC/Sales (50% on average) vs 18% for L&T at the parent company level (and 15% of sales for the E&C division). a b/s of INR100 – the EPC company would not be able to take orders worth INR800 to INR1000 – suggests an upper cap of 8x-10x of order book to net worth. dated 24 September 2012) suggest that the ministry is likely to remain with a member from the ruling party for the first time in the last 15 years. With most of the EPC companies operating at order book to net worth ratios of 8x to 10x. press reports (Indian Express. the operating cash ratio is likely to improve upwards of 15% (vs 5% in FY12). When any EPC players get an award. 14 | KIAMS . Joshi is temporarily in charge.[05/12/2012] [ ] Would passing the mantle of rail ministry to ruling party make a difference to ordering in the segment? The recent resignation of the railway minister Mukul Roy following political developments has resulted in the railways ministry portfolio coming back to the ruling party – congress. Good news: rail revenues growing at a fast pace With railways now generating strong cashflows as a result of the steep 25% increase in freight rates. while the former is very critical for project qualification purposes. Essentially.While part of this rise in working capital requirements is attributable to these players growing their development business disproportionately. C.P. this is likely to play to the advantage of L&T.
Current margin guidance factors in these margins. 1 The company maintained Order inflows guidance in the range of Rs. For H1 L&T declared orders worth Rs 40.000 cr. Likewise. it has exited two highway projects. respectively. one port project and an airport redevelopment project).” L&T has a track record of exiting from infrastructure projects when they reach the operational stage (to date. | KIAMS 1 15 .561 cr. Power to contribute to order inflow. the company indicated that it will not bid for any further build-operatetransfer road and Metro rail projects over the next few months.[05/12/2012] [ ] L&T-IDPL has been asked to fund its own growth through Asset Churn In the recent AGM. if revenue from engineering projects is 10% above/below our expectations. 80. In second half the company expects orders from hydrocarbon (Middle East). the company made it clear that it will not bid for projects on a BOT basis as it already has 44 projects worth INR844bn in its kitty (L&T infra) and wants to contain equity funding from parent to subsidiaries. International orders are intensely bid. if E&C margins are 1% below our estimates. earnings could be lower by 10% for FY13 and 10% for FY14. infrastructure. standalone EPS could shift by 15% and 16% in FY13 and FY14. Risk is largely from serious execution slowdown Key downside risks stem from poor order inflows and margin pressure resulting in quarterly earnings disappointment. 84. Also. It noted that it was “watchful for attractive exit opportunities to ensure availability of capital to meet our growth requirements. Orders from Middle-east are fixed price orders. margins in these orders in which L&T is bidding are ~1 to 2% below threshold margins. Based on our earnings model.000 cr to Rs.
SE Asia)/new segments (hydrocarbons.[05/12/2012] [ ] 1 Building & factories segment constitute significant portion of orders received (30% to 35%). Current Average execution cycle of the order backlog is 24 months vs 27 months earlier. Australia.89 cr on account of gain on divestment of stake in subsidiary company and reversal of provision respectively.L&T’s BTG facility would be under utilized as early as in FY14.5% account of higher interest rate regime. L&T charges a premium of ~10% to developers. 158.500 cr for FY13. Balance sheets of competition have become stretched in the current environment and there is lack of presence of foreign players in this segment which has worked well for L&T in this segment. if company does not receive orders in this segment. From current order backlog of Rs. approx 10% are slow moving orders. We estimate the overseas business shall contribute ~28%/32% of profits in FY13/FY14 respectively. Cost of borrowing stands at 8% to 8. These are not margins dilutive orders. This would be driven by: i) increased contribution of overseas service business from 10% of consolidated profits in FY12 to 14% in FY14 and ii) incremental growth from new geographies (Middle East. 1. L&T operates on negative working capital in real-estate orders.2 cr and 52.During the quarter L&T registered extra ordinary items of Rs 214.000 to 1. Company plans to restrict capex to Rs. 16 | KIAMS .528 crore. 1 1 L&T: Gearing up the overseas Juggernaut We expect FY13/FY14 to be an inflexion point in L&T's attempt to diversify geographically and thus reduce the concentration risk of depending on the domestic economy. large-sized projects). up from ~21% in FY12.
order book grew by only 12 per cent y-o-y in 2011-12 because of muted order inflows. L&T's order inflows primarily included orders from roads and power segment. Order book to turnover 17 | KIAMS . revenue for the period increased 26 per cent y-o-y to Rs. However. Also.457 billion in 2011-12.[05/12/2012] [ ] Subdued growth in Order Book The order book of L&T has grown at a CAGR of 28 per cent over the last 3 years to Rs 1.196 billion. L&T's order inflows fell 12 percent y-o-y to Rs 705 billion in 201112 . The company's order inflow during the first quarter Q1 of 2012-13 increased by 21 per cent y-o-y to Rs.119 billion. Overall execution of projects continues to be healthy with revenue growth of 21 per cent y-oy in 2011-12.
EBITDA . PAT . ROE. Revenue with Nearest Competitor BHEL :- 18 | KIAMS .[05/12/2012] [ ] Comparative Analysis of Order Book.
[05/12/2012] [ ] 19 | KIAMS .
with projects ranging from complex turnkey engineering. the company has a good mix of Public (35%). The orders are also diversified across industries like power. Private (48%)and Developmental projects (17%). This diversification ensures that slowdown in one sector does not affect the company's performance.[05/12/2012] [ ] Diversification in order book de-risks the business The company's order book is well diversified. urban infrastructure). procurement and commissioning (EPC) to simple construction activities. which immunizes it against sector specific laggardness. infrastructure (ports. roads. rail. Trends in Order Book Mix 20 | KIAMS . Also. process industries like refineries and chemical complexes and oil & gas.
Shapoorji Pallonji & Co 5. Unitech 6. Tata Projects 3. DLF 2. Nagarjuna Construction Company 7.[05/12/2012] [ ] MAJOR COMPETITORS: Oil & Gas HHI Samsung NPCC JR Mcdermott Power BHEL GB Engg-Ansaldo JSW-Toshiba Construction HCC Gammon GMR Electrical & Electronics Schneider Siemens ABB - Bharat Forge . Sobha Developers Ltd 4.Alstom IVRCL Other competitors: 1. Punj Lloyd Technology: 21 | KIAMS .
The engineering services provided by L&T's Engineering Design Research Centres at Chennai and Kolkatta include feasibility studies. technology is the key enabler. failure analysis and trouble shooting. L&T-Ramboll Consulting Engineers provides civil engineering and consultancy services for a wide range of projects in the transportation sector . Vadodara and Delhi carry out process design and simulation. project reports. architectural. L&T's technology capabilities include a strategic mix of in-house strengths and the expertise of its joint venture partners.ports.[05/12/2012] [ ] In every sphere of L&T's operations. and sustaining its competitive strengths. technology represents endless possibilities. technology is a means to an end. analysis of computational fluid dynamics. Engineering Centres at Mumbai. Engineering & Construction In engineering and construction. An engineering centre in Sharjah is an extended arm in the Gulf. reinforcing its leadership position. to undertake oil and gas related projects as well as engineering and consultancy services. mechanical design. L&T-Chiyoda for the mid and downstream sectors. L&T has set up an engineering and project management centre in Abu Dhabi. While for some. structural and civil design for infrastructure development projects. highways and bridges. and L&T Sargent & Lundy for the power sector. system engineering. Manufacturing 22 | KIAMS . airports. for L&T. This is supplemented through collaborations with key partners: L&T-Valdel for engineering services in the upstream hydrocarbon sector.
L&T's Electrical & Electronics Division has applied for and secured 409 patents .design.[05/12/2012] [ ] L&T's design & engineering capabilities in manufacturing enable it to set new benchmarks in terms of scale.5 bar. Two 'Technology Development Centres' have been set up to develop new products and manufacturing technologies. Technology Services L&T provides its global clients with the winning edge through the development of optimal solutions. defence and nuclear power. above 221.a landmark for an Indian company. the division filed applications for over 100 patents. L&T's Electrical & Electronics Division. and has leveraged its R&D strengths to develop a host of new products and features. sophistication and speed. i. Cumulatively. The Company has dedicated engineering centres at the manufacturing locations. improving its previous years score of 101 patents. maintenance. It has built further on this experience. Supercritical technology In L&T power The term "supercritical" refers to main steam operating conditions.e. L&T also collaborates with the organisations like ISRO to bolster its capabilities in the strategic sectors of aerospace. medical products. Above the critical pressure there is no distinction between steam and water. The Embedded Systems unit provides technological assistance across a broad spectrum . is a pioneer in the design of switchgear and switchboards that are engineered for tropical conditions. water is a fluid. In 2008-09. reengineering.5 bar). testing. prototyping and industrial design. Patent applications cover innovations made on a variety of low voltage indigenously developed switchgear products like the air circuit breakers (ACBs) and moulded case circuit breakers (MCCBs). 23 | KIAMS . L&T's e-engineering services leverage the Company's own engineering heritage and experience. tooling solutions and switchboards. The significance of the critical point is the difference in density between steam and water. being above the critical pressure of water (221. petroleum dispensing pumps.
Partnering with financial institutions for funding future PPP projects. infrastructure funds and developing domain expertise in ports. Customer-centric marketing offering 'total solutions' in water business focusing on large projects backed by tie-up with major pipe/pump/equipment suppliers is expected to result in better competitiveness. In the bulk material handling sector it intends to introduce some new product lines for mines and special conveyors with technology tie-ups with global majors. Rewards & Recognitions. airports. ADB. etc. The company's focus on providing EPC solutions for cross-country pipelines would get a further boost with technology upgradation and automation in pipeline operations. hydel and water supply projects are some aspects that would be pursued actively. 24 | KIAMS . Prudent mix of Energy and Experience of the Employees.[05/12/2012] [ ] Supercritical steam cycle with one reheat. Effective financial Communication. a − b : Condensate cycle up to Deaerator c : Boiler feed pump discharge c − d : Feed water heating d − e : Main steam generation e − f : Expansion in turbine f − g : Reheat steam generation g − h : Expansion in turbine Technology partnerships L&T intends to continuously scan the opportunities and proactively enter strategic pre-bid tie-ups with global players having the best mix of technology and competitiveness. sourcing long-term finances from IFC. Human Resources: All the process of a successful Human Resource policy is followed by L&T like Mentoring Young Trainees.
innovation is driven by its skilled R& D team. Product and Grade development.[05/12/2012] [ ] An effective structure of Communication followed in the Company is shown below: Research & Development: At L&T. pump operation. R&D activities are focused on Plant performance improvement. It works to redefine national and Global benchmarks in Iron & Steel manufacture. The innovation-centric mindset at the company is reflected in its investment in R&D – The company invested Rs 320 Crores in 2010-2011 Corporate Social Responsibilities: Environment: To create an environmental friendly environment. 3. its efforts are facilitated by a full-fledged R&D centre equipped with contemporary infrastructure. it creates sanitary facilities for providing effective disposal of solid waste. the Foundation sets up garbage management units using proper garbage handling mechanism. the Foundation builds model villages by developing rural infrastructure complete with roads and drainage system. To create garbage-free villages. It takes utmost care to create rural awareness on the importance of hygiene and the crucial role people can play to make that a reality. mechanical & electrical maintenance. Pilot Testing and Simulation facilities. new process development. driving job etc. To minimize waste produced the Foundation has introduced scientific recycling and reusing technologies. To improve living standards. The result has improved productivity and has consistently decline costs. •Livelihood: To create livelihoods for rural women by providing revolving fund. The Foundation also sensitizes rural eco-friendliness through enhanced tree planting. to strengthen its infrastructure. PESTAL Analysis Political Factors: (i) SEZ Act to Boost infrastructural Development 25 | KIAMS . The R&D team comprises 44 Qualifies members who work along with shop. skill training and other linkage services to empower rural women to reduce gender-based discrimination. women are being trained and placed in other unorthodox jobs like power-tiller operation. For Ex: To provide more earning options by breaking the barrier of gender division of jobs. The Foundation builds libraries and has also build an art centre for accelerating rural sociocultural development.floor teams to design and implement shop-floor processes.Energy conservation and Waste management.
Opening of FDI in construction and allowing developers to raise capital in international market has led to development of larger projects benchmarked against international standard. ECONOMIC FACTORS: Growth in Construction Activity Stimulating GDP Growth: India is witnessing tremendous growth & expansion of construction activities and construction is largest component of GDP. (ii) Cement Prices Reduced for State Infrastructure Projects: The continued thrust on the infrastructure development will provide impetus to the healthy growth in demand. There has been strong growth in demand supported by rising disposable incomes. offices & warehouses. IT SEZ should be developed and made operational within the period of six months from the date of notification. (iv)REITs (Real Estate investment trusts) to Positively affect real Estate Business The proposed introduction of REMF(Real Estate Mutual Fund) and REIT will boost real estate investment from the small investor’s point of view. (iii) FDI Liberalization to Augment Industry Growth: Recent amendments by the government have made accessibility to the required capital much easier. Currently 150 SEZs are approved out of 85 SEZs are in the IT/ITES area and the 10-15 SEZs in the electronics area. railways. The reduction in the CST and in Freight rates on diesel and limestone will be marginally positive for some companies. (i) Rate Hikes Unlikely to Slow down Growth: It has been analyzed that the residential prices has been increased by about 1520% on average in the last one year. low interest rates. shopping centre’s.[05/12/2012] [ ] SEZ is the new destination for real investor. 130 approved SEZ would result in investment of US$ 12bn immediately. It has been growing at a rate over 10% in the past few years when GDP growth is around 8%. sector such as roads. 130 SEZs are developed by real estate developers which constitute of about 50% of the total SEZ area. Thus. 26 | KIAMS . protecting the bottom-line of cement companies to an extent. and fiscal incentives on both interest and principal payment and increasing urbanization. housing and power have been keen drivers. The concept of REIT is on the verge of entering India and would be structured as company dedicated to owing and in most cases operating income producing real estate such apartments. Within construction.000. This will allow small investors to enter real estate market with the contribution as less than Rs 10.
Increased exposure to western lifestyle has altered the consumption pattern of Indian people. and environmental regulation. Upgrading of technology is required both in the manufacturing of construction material and in construction activities. TECHNOLOGICAL FACTORS: (i) Low Technology Adoption to Hinder Growth: The poor state of technology adopted by the construction sector adversely affects its performance. There is tremendous potential for construction of green building in India. We expect the share of discretionary items to consistently rise given the rising affordability and changing aspiration levels. sewage systems. apart from poor or substandard quality of construction and time overruns in projects. urban transport. effective monitoring and regulation of the production of these material to ensure proper quality become difficult. but steady change. The share of food and beverages. The estimated market potential for green building will be about $ 400 million in 2010. primary health services. Use of low grade technology in the construction sector lead to low value addition and low productivity. (ii) Rising Urbanization to Boost Industrial Growth: Urban infrastructure consist of drinking water.[05/12/2012] [ ] SOCIAL FACTORS : (i) Shifting Consumption Pattern to Fuel industry Growth The consumption pattern of Indian households is undergoing a gradual. As a large number of construction materials are manufactured in the unorganised sector. (iii) Green Building in India: The green building movement has gained tremendous momentum during 3 to 4 years. which used to constitute almost 50% of household spend until 2003 is fall to 45% by FY08. The urban population in India will grow by 85 million over the next 10years. sanitation. The Platinum rating for green building has sensitized the stakeholders of construction industry. electricity and gas distribution. ever since the Green Business centre embarked on achieving the prestigious LEED rating for their own centre at Hyderabad. Many of these services are in the nature of local public goods with the benefits from improved urban infrastructure. (ii) Construction As Per Indian Requirements: 27 | KIAMS .
phased and conductive growth of the Indian infrastructure sector. the small space for roads. Infrastructure such as roads and bridges affect the many sector such as automobile sector etc. hence reduce losses and increase profitability With the entry of global companies into the Indian market. many of the MNC enter into Indian market Environmental situation affect the infrastructure sector. Ready Mix concrete business uses around 2% of total cement production. are used in engineering & Construction. increasing slums.[05/12/2012] [ ] The construction needs to be done as per Indian standards and requirements which will demand considerable changes from the international requirements. Indian government infrastructure policy aimed at promoting an integrated. The Infrastructure requirements of India are much different as the population spread. advanced technologies. ENVIORMENTAL FACTORS: Technological solutions helps in integrating the supply chain. Confirms the government’s intention on harmonizing the regulatory standards with the rest of the world Establish an international hub for engineering & construction companies so that new technology can be used. LEGAL FACTORS Ensure a balanced transition to open trade at minimal risk to the Indian economy and local industry. The increasing use of ready mix not only saves time but also improves quality. Here in India. For example. (iii) Ready-Mix-Concrete being Experienced With: The Ready mix concrete business in India is in its infancy. the water problems are more. With the development or evolution of infrastructure sector. increasing urbanization. 28 | KIAMS . 70% of cement produced in a developed country like Japan is used ready mix concrete business there.
It has created international presence by operating supply network offices in 10 locations worldwide. The company has a strong pipeline of projects in domestic as well as international markets.[05/12/2012] [ ] Legal provisions relating to safety measures SWOT ANALYSIS Strengths Larsen and Toubro (L&T) is India's largest engineering and construction company. which is likely to ensure a steady revenue growth Weaknesses In spite of having a diversified expertise. Mitsubishi Heavy Industries and A. including Houston. London. as well as provide it with avenues to generate additional revenues and also leverage 29 | KIAMS . L&T has created a strong brand name by building worlds largest Tubular Reactor for a petrochemical plant and has also built world's longest Product Splitter and longest LPG pipeline. Milan. These joint ventures boost and strengthen the operational efficiency of the company.A. Turki Contracting & Trading Corporation (ATCO) of the Kingdom of Saudi Arabia. Shanghai and Seoul. Larsen and Toubro's order book has reported continuous growth. the revenues of the company are highly concentrated Opportunities The company has acquired the switchgear business of TAMCO Corporate Holdings of Malaysia in April 2008 With TAMCO the company will be able to offer a comprehensive range of MV switchgear and become a significant player in the MV segment in India L&T has also entered into various joint ventures in the recent past. L&T has joint venture agreement with Tamil Nadu Industrial Development Corporation Limited.
000 crores Brand name of Larsen & Toubro An experienced employee base Diversified business group Strong financial results Weakness Slowdown in middle east Average experience employee age nearing retirement Huge attrition rate Low employee satisfaction Week Global Reach Lack of Innovation 30 | KIAMS . Threats Larsen & Toubro faces stiff competition in the international market with construction majors in the Middle East including ABB of Sweden and Bechtel of the US. Rising interest rates would put pressure on the margins of the company Strengths Strong Economic growth of country L&T’s experience in India Order book of over 100.[05/12/2012] [ ] its strong presence in order to exploit the growing capital goods and infrastructure industry Growing Indian capital goods and infrastructure industry as the government has planned a series of measures to encourage private sector participation and increase spending on infrastructure. Airports and Urban infrastructure to sustain the momentum of double digit growth in the industrial sector. Roads. Stiff competition could erode the company's market share and reduce its profitability. which would impact its profit before tax (PBT). Engineering and construction companies such as Larsen & Toubro (L&T) are facing pressure on their earnings due to the high interest rates on working capital. L&T's interest costs increased more than three-fold in the first six months of FY2009. Capacities are being ramped up in Railways. Ports.
40 31 | KIAMS .[05/12/2012] [ Threats ] Opportunities Major Infrastructure projects coming up (govt.) India’s growth rate above 10% Opportunities from Other south Asian Countries (less dev) Global economic recovery Investment in Defense sector Inflationary and cost pressures Threat of a second Global Financial Turmoil Vendor issues Government policies Competitors Taxation policies RATIO ANALYSIS A.6 Interpretation: March 2011 9. PROFITABILITY RATIOS: 1) Profit Margin Profit Margin = Profit after Tax/ Sales March 2010 11.0 March 2012 8.
2) Asset Turnover Ratio Asset Turnover Ratio = Net sales / Total Assets March 2010 6.6 respectively as the Profit after tax has increased at faster rate & also during this period raw material cost or COGS was lower there by reflecting good PAT .96 Crore This shows that the company has been able to utilize its assets but not in same proportion as previously maintained there was a minute decrease in 2011 as well as 2012 compared to 2010.67692. while the total assets has been continuously increasing from Rs.The reason for lower Asset Turnover Ratio for current period can be attributed to Market Scenario which is passing thru recession currently impacting sales & new order flows. 25501.74 Crore to Rs.0 March 2011 5.5 March 2012 5. The fall in the profit margin suggests that the company should keep a check on its increasing expenditure as well as try to convert Order Book realization as sales in current year.0 and 11.6 Interpretation: The Asset turnover Ratio is the measure of efficiency with which the assets are utilized.[05/12/2012] [ ] Profit margin Ratio for the year 2012 was 8. The reason for the same was due to the tremendous increase in operating profit of the company.057 mn.e.40 because of the reason of low volume of order execution & also increase in prices of raw material cost in the current year thereby impacting Net Profit Margin i.0 because of the bad market scenario as due to recession the new contracts where even after allotment were put on hold for execution. The net sales in the corresponding year amounted to Rs. 3) Return on Equity 32 | KIAMS . Rs 44562 mn. While for year 2011 the ratio decreased to 9. There was an increase in net sales of the company from the year 2010 after which it had fallen not very much but still same should be the matter of concern for the company. but for the year ending march 2010 as well as 2011 the ratio was 9. 531.
89 Interpretation: March 2011 18. March 2011 3.26.4375. Also.52Crore to Rs. 18311.25100.17882.12 March 2012 17. This implies that the shareholder’s funds has been utilised more efficiently even though profit has gone down during the same period. Also. But.53 March 2012 2.64 Crore whereas the value for the year ended march 2011 was Rs. This indicates that the company’s ability to withstand the emergency shocks has also improved.[05/12/2012] [ ] Return on Equity = Profit after Tax / Shareholder’s Equity March 2010 23.21846.84 33 | KIAMS .54Crore over the same period. This implies that the portfolio of debtors was good in year 2011.3957. B. mainly the reason for such enormous increase in the ROE ratio in earlier year rather than current year is that profit after tax has not increased in samse rate as was growing earlier .22Crore to Rs. The profit after tax value decreased from Rs. This is because of the fact that the PAT value of the company has decreased in compare to the Shareholder’s Fund. the total Reserves of the company has increased from Rs. there has been decrease in the ROE value from the FY 2009-2010 to FY 20102011 & 2011-12. But the significant decline in the year 2012 indicates that the management of receivables in the company has deteriorated over the period.89Crore over the same period. LIQUIDITY RATIOS 1) Debtor Turnover Ratio Debtor turnover = Net sales / Total Debtors March 2010 3.67 The shareholder’s fund for the year ended March 2010 was Rs. In the year 2011 the debtor turnover ratio for the company was highest as compared to 2010 and 2012.29 Interpretation: The Debtor Turnover Ratio shows the number of times each year the company’s debtors turns into cash.
4 Interpretation: March 2011 6. The above ratio implies that the company has been able to utilize its fixed assets almost similarly from 2010-2012.14 Interpretation: March 2011 20.11 March 2012 22.06 This ratio indicates that the inventory holding period for L&T has decreased in 2011 but in 2012 it is increased.24 Interpretation: 34 | KIAMS March 2011 1. This implies that the company started dispatching the order as soon as possible.33 March 2012 1.4 March 2012 6.[05/12/2012] [ ] 2) Inventory turnover Ratio Inventory Turnover = Cost of goods sold / Total inventories March 2010 21. The net sales over the years have grown to a larger extent as compared to the increase in the Average fixed assets in 2012. The operating cycle time increased over the year implying that the company’s funds were struck in receivables and inventories for a longer period. at the same time fixed asset is also increased. 4) Current Ratio: Current Ratio= Current Assets/Current Liabilities March 2010 1.27 .8 The Net sales has increased for the year ending March 2010 to March 2012. 3) Fixed assets turnover ratio Fixed Assets Turnover = Net sales/total fixed assets March 2010 6.
to.39 Interpretation: March 2011 0. The Liquid Ratio for this company is almost same and while comparing with the current ratio it has the difference of 0. But L&T keeps its current ratio around 1.33 March 2012 0.05 which suggests that its inventory is less. GEARING RATIOS/SOLVENCY RATIOS: 1) DEBT-TO-EQUITY RATIO: Debt.3 which is a good sign for the company ability to pay its debt. C. For L&T current ratio is around 1. March 2010 0.Equity Ratio= (Short-term Debt+ Long-term Debt)/ Shareholder’s Equity.27 for the year 2010-2012.[05/12/2012] [ ] It is a widely used indicator of a company’s ability to pay its debts in the short-term. there has been a considerable increase in the “Cash and Bank Balances “of the company.2-1.28 March 2012 1.Inventories) represents the assets that can be readily convertible to cash.17 Interpretation: March 2011 1.24-1. Also. 5) Quick Ratio: Quick Ratio= QUICK Assets/ Current Liabilities March 2010 1. This suggests that the firm’s short-term debt paying capacity has almost same over the year.37 35 | KIAMS . The reason for an increase in 2011 has been due to increase in the Current Assets during this period.22 The Quick Assets (Current Assets.
The company was able to increase the Shareholder’s Equity due to the increase in the Reserve & Surplus from Rs.12Crores whereas the Total Shareholder’s Equity amounted to Rs. for that year was Rs. Whereas.[05/12/2012] [ ] This ratio measures the relationship of the Capital provided by the creditors to the amount provided by the shareholders.40Crores.50 Interpretation: 36 | KIAMS March 2011 14.8266.26Crores. Thus.5 for FY 2010 –FY 2012 to 10.This was because the Total Debts of the co.21846. the ratio improved to 0.26Crores. shown a minor increase to Rs. Debt financing is used very appropriately.25223.50 March 2012 16. the company’s has turned out to be in a more favourable position of raising a Bank Loan than ever.21846.50 .5 Interpretation: March 2011 9.390. The Debt-to-Equity ratio of any company must be less than 1.37 for the year ending Mar’12. 3) Dividend per share: March 2010 12.390 There has been a stagnancy in terms of Interest Coverage ratio from 10. 2) INTEREST COVERAGE RATIO: Interest Coverage ratio= Profit before Interest and Tax/Interest Expenses March 2010 10. This ratio for Larsen & Toubro was 0.99 March 2012 10.17882.6332. A too high Interest coverage ratio is because of using a small dose of debt in the Capital structure.33 for the financial year ending Mar’11 as the total Debts of the co. instead they have enough scope to leverage themselves still if required or if they wish to plan for any inorganic growth.22Crores to Rs.78Crores whereas the Total Shareholder’s Equity amounted to Rs. The Interest Coverage ratio in 2010 is much higher as compared to the other years and the company is in a much favourable position to pay its interest obligations.
CONCLUSION FOR RATIO ANALYSIS The company over the years have given dividends to its shareholders at an increased rate. Also. Company has also been increasing amount of “RESERVES AND SURPLUS” of the company. The decrease in the value of Debtor Turnover and Inventory Turnover is a cause of worry for the Management. the Management should work on its effective ways to control the inventory and the receivables. the firm’s credit standing has also improved over the years. declaration of dividend is optional for the company and they can use these dividends for the diversification of their business. 37 | KIAMS . the consistent increase in the company’s Liquidity ratios indicates that the firm’s ability to pay its short term liabilities have also improved. But the dividend per share is an important tool to inform the shareholders that the company is doing well in the market.[05/12/2012] [ ] It basically indicates the dividend per share value declared by the company to its shareholders. Thus. Also. The Dividend per share for the year ending March 2011 & March 2012 has increased over its previous financial year despite of the fact that the PAT value has not grown at similar rate as compared to previous year growth . This has let the company able to take Loans from the financial institutions for its Development works. The fluctuation and dividend depends upon the profits of the company. .
It is the expected return of the investors on their different type of investments in different portfolios.[05/12/2012] [ ] COST OF CAPITAL OF L&T LTD.85 . What is Cost of Capital? Cost of Capital is the rate of return that a firm must earn on its project investments to maintain its Market value and attract funds. It is taken from the investor’s point of view.00.54 1700.48 25100. PARTICULARS Equity Share Capital Reserves and Surplus Debentures FCCB ECB 38 | KIAMS AMOUNT (In crores) 122. 1017. The cost of capital helps the company to evaluate the financial feasibility of a venture or project CAPITAL STRUCTURE OF LARSEN & TOUBRO LTD.50 2557. COMPONENTS OF CAPITAL: a) DEBENTURES b) PREFERENCE SHARES c) EQUITY SHARES d) RETAINED EARNINGS Cost of capital is the cost at which the company acquires its funds for different operations.
] 2. After Tax Cost of Debt .FCCB are redeemable in nature.[05/12/2012] [ Total ] 30553. FCCB’s are also redeemable in nature but except for debentures issued in home country for whose redeemable & sale value both are given while for foreign debt same was not provided . Under the Schedule “C” “Secured Loans”. COST OF EQUITY CAPITAL The cost of equity capital can be calculated by two methods A) DIVIDEND APPROACH CALCULATION OF COST OF EQUITY CAPITAL (Dividend Approach Method) FORMULA: 39 | KIAMS . [Note: The Debentures. is the amount of Debentures that the co. Kd = 604. it has been clearly mentioned that the given Debentures are Redeemable and the other long term borrowings raising by the firm in the form of ECB’s . Cost of Debt ( Before Tax) . has raised. Ki Thus.06 = 7.etc) Hence.ECB. COST OF DEBT FORMULA: COST OF IRREDEMABLE DEBT = INTEREST (1-TAX RATE) COST OF REDEEMABLE DEBT = [I (I-t) + (RV-SV)/n] / (RV+SV)/2 Here.30)/5330.93% (Secured & Unsecured Redeemable NonConvertible Debenture. Kd = Ki(1-t) =.FCCB.thus we have taken total finance cost as our basis to calculate the Cost of Debt . In the annual report.11(1-. 2011-2012.08 COMPUTATION OF OVERALL COST OF CAPITAL 1. The amount of debentures is as follows: Cost of Debt = I (I-t) + (RV-SV)/n] / (RV+SV)/2 Here.ECB. In the annual report of the Larsen & Toubro Ltd.
2 each year thus Expected Dividend is assumed to be Rs.18+30.35% So.%.00+12.50 16. Ke = (D1/P) + g = [18. had been paying the dividends with increment of Rs. Expected Growth Rate.18 30. Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 Dividend(Rs.50 P = Current Market Price.12 Thus. we will calculate it using the other method i.77 23.28.00 12. B) CAPITAL ASSET PRICING MODEL (CAPM) FORMULA: Ke = Rf + ß (Km-Rf) .50 8.53+19.50 10.) 5.(as adopted by Larsen & Toubro) 40 | KIAMS .77+23.18.where Ke – cost of capital. g = (18.50 12.50 14.05 16.e.(Assumed that co. Ke = Cost of Equity D1 = Expected Dividend for the Upcoming year ending 31st March 2013. Rf – risk free return on equity which is 8.[05/12/2012] [ ] Ke = ( D1 / P) + g Where.50 6.12)/6 % = 19.53 19.05+16. as on 31st March 2012 g = Expected Growth Rate.50/1309] + 19.94% = 21.94% Now.50 % Change Nil 18.
08 17.[05/12/2012] [ ] ß – Beta of the stock which is 1.45 100 7.39 Share Amount crores) 122. COST OF RETAINED EARNINGS Since cost of capital for retained earnings is also the opportunity cost hence it is equivalent to fully subscribed issue or additional shares. 41 | KIAMS .48 0. which is 5.393 3.75%.98 (in Weights Specific Cost Weighted Cost Hence.06 30553. COMPUTATION OF OVERALL COST OF CAPITAL OF LARSEN & TOUBRO LTD.53 Km – market return (Calculated from average returns indicated by SENSEX index of last 6 years. the Overall Cost of Capital for LARSEN & TOUBRO LTD.95 7.75 25100. BY WEIGHTED AVERAGE METHOD Particulars Equity Capital Retained Earnings Debentures Total 5330.28-4.93 1.54 82. Ke = Rf + ß (Km-Rf) = 8.09 Hence. is 25.8807 = 3. which is measured from cost of equity shares.28 + 1.95 16.28) = 8.38 25.40 19.53 (5. which has been taken from the Excel Sheet).09-8.15 19.