 Larsen & Toubro is a highly diversified conglomerate

having interest in engineering, construction, electrical

and electronics and earthmoving & construction
equipment.
 AGENDA

 Economic indicators
 Industry

 Company
ECONOMIC INDICATORS

+ve -ve
INDUSTRY

 Bureau of Economic Analysis, CMIE

 Gross fixed capital formation
 yearly growth in investments in fixed assets
 20-30% growth rates
CONTD…

Pioneering Expansion
Stage (growth) Stage

Stagnation Decline Stage

(mature) Stage
COMPANY
CONTD…
CONTD…
MAJOR ORDERS ANNOUNCED IN Q2FY2009-2010
SWOT ANALYSIS FOR L&T
 RATIOS FOR ANALYSIS
Quick Ratio Current Ratio
0.78 1.6
0.76
1.4
0.74
0.72 1.2
0.7 1
0.68
0.8
0.66
0.64 0.6
0.62 0.4
0.6
0.2
0.58
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 0
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09

Debt to Equity Ratio Interest Cover

0.6
30
0.5
25
0.4
20
0.3
15
0.2
10
0.1
5
0
0
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09
 CNTD…
PAT/Avg Capital employed PAT/Avg. total assets
30 16
14
25
12
20
10
15 8
6
10
4
5
2
0 0
Mar 04 Mar 05 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10E Mar 11E Mar 04 Mar 05 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10E Mar 11E

Net profit margin

10

4
Mar 04 Mar 05 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10E Mar 11E
GROWING ORDER BOOK
 Opportunities in infrastructure, power and hydrocarbons
(oil and gas)
 Order book stands at Rs 81,623 crore

 Up 30% Y-o-Y

 The average execution time for these orders is around

23 months
 Superior execution and delivery capabilities
OUTLOOK
 E&C margins are likely to continue to remain the same.
 However, E&E's and M&I's margins are under pressure
as a result of their muted top-line growth which will
impact their utilization levels
 Further, the net margins are likely to be impacted by
higher average borrowing cost.
 Due to the absence of low-cost foreign debt the
Company had to borrow high-cost rupee debt to finance
its capital expenses.
P/E ANALYSIS
Projected figures
Year to marchFY07 FY08 FY09 FY10E FY11E CAGR(%)
(Figures in Rs mn, except per share data) (FY09-11E)
Net sales 203,360 291,985 401,870 442,782 546,987 16.70%
EBITDA 26,163 36,083 49,587 54,462 67,279 16.70%
Net Profit 18,864 22,846 30,058 31,880 39,383 12.40%
Margins(%)
EBITDA 12.90% 12.40% 12.30% 12.30% 12.30%
NPM 9.30% 7.80% 7.50% 7.20% 7.20%
Per Share Data (Rs.)
EPS 33.1 37.4 49.3 54.5 65.6 14.70%
PE 24.4 18 31.8 28.8 24.67

Estimates for Net sales

FY10E
Order book as of 2007 - 553477 mn
80 % order execution converts into 442782 mn sales!
Projecting EBIDTA & NPM margins fairly constant for the next two years

FY11
Order book as of 2008 -683733 mn
80 % order execution converts into 546987 mn sales!
P/E ANALYSIS – CNTD..

Market price 1619

2010E 2011E
EPS 54.5 64.8
PE 28.8 24.2
Stock Price 1800 2128
Growth of 31 % in two years!!!
Long Term Buy!
 ASSUMPTION:

The company is expected to grow at a rate of 25% for

the next 10 years  reason: the company has grown at a
CAGR of > 30% from
2004 onwards.

Government attitude towards the infrastructure sector

 METHODOLOGY:

1. Forecast period & Forecasting revenue growth

    > 10 years considering the outstanding growth
rate, barriers to entry, dominate market position - the
company can be assured of cash inflow for more than 10
years.

2. Forecasting free cash flows :

    FCFF = OCF - Expenses - taxes - changes in Net working
capital

3. Calculation of the discount rate

    Cost of equity = Rf + beta (rm -rf)

4. Calculation of fair value (FCFE)

    FCFE = FCFF - debt
VALUATION BASED ON THREE STAGE FCFF MODEL

Microsoft Office
Excel 97-2003 Worksheet
THANK YOU