29 October 2020 Results Review 2QFY21

Larsen & Toubro

Marginal miss, bracing for recovery BUY
While LT 2QFY21 revenue/EBITDA/APAT was (7)/0.4/(19)% (miss)/beat on our CMP (as on 29 Oct 2020) Rs 935
estimate, robust FCF generation, contained NWC, and directionally strong
Target Price Rs 1,260
commentary on ordering were key positives. LT has taken impairment on key
non-core assets to make them monetisation ready. Talks on Hyderabad Metro NIFTY 11,671
project restructuring/refinancing have been initiated, and focus is on re-
KEY
investing the surplus E&A proceeds towards high RoE growth businesses. CHANGES
OLD NEW
Despite near-term challenges, we reiterate BUY on LT, given its (1) strong
Rating BUY BUY
order book (Rs 2.99tn, ~3x FY20 core EPC revenue), (2) healthy balance sheet
Price Target Rs 1,260 Rs 1,260
and (3) robust services business. We tweak our FY21/FY22 estimate by 0.1/-
0.6% and keep the target price unchanged at Rs 1,260/sh. FY21E FY22E
EPS %
 Execution recovery underway: LT reported revenue of Rs 310bn, missing 0.1 -0.6
our estimate by 7%. While services business remained resilient with IT &
ITES registering growth of 5% YoY and finance clocking de-growth of 3% KEY STOCK DATA
YoY, core business faced productivity headwinds (due to social distancing
Bloomberg code LT IN
norms), declining 17% YoY. Finance cost rose sharply by 52% YoY, on full
commissioning of Hyderabad Metro. After adjusting the one-off gains from No. of Shares (mn) 1,404

E&A sale (Rs 81bn) and impairment of power development assets (Rs 27bn) MCap (Rs bn) / ($ mn) 1,312/17,640
and funded exposure in heavy forging facility JV (Rs 11bn), APAT came in
6m avg traded value (Rs mn) 5,109
Rs 11.5bn, missing our estimates by 19%. Near-normal level of labour and
52 Week high / low Rs 1,492/661
healthy order book would lead to execution recovery in 2HFY21.
 Ex-services orders decline by 54% YoY; await pick-up in ordering: Total
STOCK PERFORMANCE (%)
order inflow came in at Rs 280bn, a decline of 42% YoY. Order inflow,
excluding the services, fell by 54% YoY, taking OB to Rs 2.99tn. The order 3M 6M 12M
pipeline stood at Rs 6.1tn (domestic Rs 4.7tn and international at Rs 1.3tn). Absolute (%) 1.4 6.8 (36.0)
Management expects domestic ordering activity to gain traction in 2HFY21,
Relative (%) (3.0) (14.7) (35.8)
given the government’s continuous focus on infrastructure and uptick in
economic indicators and tax revenues. L&T has received LOI for Package C4
SHAREHOLDING PATTERN (%)
of Mumbai-Ahmedabad high-speed rail with ~Rs 250bn value.
 E&A sale concluded: L&T has received Rs 132bn from the sale of E&A Jun-20 Sep-20

business, and net of taxes and costs, the total inflow amounts to Rs 110bn. Promoters 0.0 0.0
L&T is planning to utilise the cash to repay Rs 50bn of debt, infuse Rs 20bn FIs & Local MFs 36.56 35.43
in the services business and restructure capital allocation of Hyderabad
FPIs 18.77 17.89
Metro (Rs 20bn committed). L&T also declared special dividend Rs 18/sh, to
be paid out from the proceeds. Public & Others 44.67 46.68

 Balance sheet remains comfortable: With E&A proceeds consolidated net Pledged Shares 0.0 0.0
debt reduced to Rs 1tn from Rs 1.13tn on Mar 20-end. While the net working Source : BSE
capital as a percentage of sales remains elevated at 26.7% (on low TTM Rev,
<23.5% on normal base), receivables declined from Rs 407bn to Rs 361bn (vs
Parikshit D Kandpal, CFA
Mar-20). L&T generated Rs 27.6bn/36.5bn of FCFF during 2Q/1HFY21,
parikshitd.kandpal@hdfcsec.com
which is very robust, given the impact of the pandemic.
+91-22-6171-7317
Financial summary
2Q 2Q YoY 1Q QoQ
(Rs mn) FY20 FY21E FY22E FY23E Chintan Parikh
FY21 FY20 (%) FY21 (%)
Net Revenues 3,10,347 3,53,285 (12.2) 2,12,600 46.0 14,54,524 13,85,101 15,62,133 17,37,135
chintan.parikh@hdfcsec.com
EBITDA 33,348 40,219 (17.1) 16,205 105.8 1,63,290 1,33,734 1,78,394 1,95,511
+91-22-3021-7355
APAT 11,515 25,273 (54.4) 784 1,368.4 88,945 63,902 98,740 1,09,783
Diluted EPS (Rs) 8.2 18.0 (54.4) 0.6 1,368.4 63.4 45.6 70.4 78.3 Rohan Rustagi
P/E (x) 14.7 20.5 13.3 11.9 rohan.rustagi@hdfcsec.com
EV / EBITDA (x) 15.1 19.5 14.3 12.8 +91-22-3021-7355
RoE (%) 14.6 9.4 13.7 14.1
Source: Company, HSIE Research

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Larsen & Toubro: Results Review 2QFY21

Quarterly Financials Snapshot - Consolidated

2Q 2Q YoY 1Q QoQ 1H 1H YoY
(Rs mn)
FY21 FY20 (%) FY21 (%) FY21 FY20 (%)
Revenue: Rs 310bn (-12/46%
Net Sales 3,10,347 3,53,285 (12.2) 2,12,600 46.0 5,22,947 6,49,644 (19.5)
YoY/QoQ, 7% miss)
Material Expenses 1,94,949 2,28,863 (14.8) 1,13,370 72.0 3,08,319 4,29,056 (28.1)

Employee Expenses 60,844 61,406 (0.9) 61,535 (1.1) 1,22,379 1,06,924 14.5
EBITDA: Rs 33.3bn (- SG&A Expenses 21,207 22,797 (7.0) 21,490 (1.3) 42,698 40,257 6.1
17/106% YoY/QoQ, marginal EBITDA 33,348 40,219 (17.1) 16,205 105.8 49,552 73,407 (32.5)
beat of 0.4%); Interest Cost 10,425 6,859 52.0 10,559 (1.3) 20,984 12,726 64.9

Depreciation 7,131 6,297 13.3 6,722 6.1 13,854 10,911 27.0

Other Income (Incl. EO) 49,278 5,964 726.2 10,021 391.7 59,299 8,873 568.3
Margins of 10.7% (-
64/312bps YoY/QoQ) PBT 65,069 33,028 97.0 8,945 627.5 74,014 58,643 26.2

Tax 6,754 7,911 (14.6) 2,564 163.4 9,318 15,859 (41.2)

Minority Interest 3,037 2,432 24.9 2,408 26.1 5,445 5,803 (6.2)
Finance cost: Rs 10.6bn (52/- Associate Profits (526) 400 (231.2) (1,011) (48.0) (1,537) (292) 425.8
1% YoY/QoQ) PAT from discontinued operations 450 2,188 (79.4) 71 537.7 520 3,308 (84.3)
Reported PAT 55,203 25,273 118.4 3,031 1,721.0 58,234 39,997 45.6

E/o (adj for tax) * 43,687 - 2,247 45,935 (936) (5,010.2)

Other income: Rs 5.6bn (-6/-
28% YoY/QoQ) APAT 11,515 25,273 (54.4) 784 1,368.4 12,300 40,933 (70.0)
Source: Company, HSIE Research

PBT ex-EO items: Rs 21.4bn Margin Analysis

2Q 2Q YoY 1Q QoQ 1H 1H YoY
(-35/219% YoY/QoQ, 6%
FY21 FY20 (bps) FY21 (bps) FY21 FY20 (bps)
behind our estimates) Material Expenses as % of Net
62.8 64.8 (196.5) 53.3 949.1 59.0 66.0 (708.7)
Sales
Employee Expenses as % of Net
19.6 17.4 222.4 28.9 (933.9) 23.4 16.5 694.3
Sales
Associate profit/(loss): Rs Other operating expenses as % of
6.8 6.5 38.1 10.1 (327.5) 8.2 6.2 196.8
(526) mn vs Rs 400mn/ Net Sales
(1,011) mn YoY/QoQ EBITDA Margin (%) 10.7 11.4 (63.9) 7.6 312.3 9.5 11.3 (182.4)

Tax Rate (%) 10.4 24.0 (1,357.4) 28.7 (1,829.1) 12.6 27.0 (1,445.4)

Net Profit Margin (%) 3.7 7.2 (344.3) 0.4 334.2 2.4 6.3 (394.9)
APAT incl. E&A: Rs 11.5bn Source: Company, HSIE Research
(19% miss), a decline of 54%
YoY and ~13.7x 1QFY21

EO items (net of taxes):

Impairment of Rs 10.7bn in
funded exposure in the heavy
forging facility joint venture
and of Rs 26.6bn in power
development business. L&T
also booked gain of Rs 81bn
on sales of E&A business.

Page | 2
Larsen & Toubro: Results Review 2QFY21

Consolidated Segmental Revenue

2QFY21 2QFY20 YoY (%) 1QFY21 QoQ (%) 1HFY21 1HFY20 YoY%
Segmental Revenues
Revenue from core EPC -Infrastructure 1,30,957 1,67,806 (22.0) 64,561 102.8 1,95,517 3,08,182 (36.6)
business fell by 17% YoY -Power 6,887 4,916 40.1 3,800 81.2 10,687 10,549 1.3
-Heavy engineering 7,081 7,058 0.3 4,251 66.5 11,332 16,973 (33.2)
-Defence 7,688 10,173 (24.4) 4,765 61.3 12,453 19,864 (37.3)
-Hydrocarbon 40,497 43,049 (5.9) 30,701 31.9 71,198 80,737 (11.8)

Labour availability has Engineering & Construction 1,93,109 2,33,002 (17.1) 1,08,078 78.7 3,01,187 4,36,305 (31.0)

improved to near-normal -Electrical and automation 8,460 14,844 (43.0) 7,549 12.1 16,008 29,081 (45.0)
level, however decline in -IT and TS 61,998 59,036 5.0 60,434 2.6 1,22,432 97,480 25.6
productivity due to -Financial Services 33,419 34,445 (3.0) 32,842 1.8 66,261 69,066 (4.1)
restrictions -Developmental projects 11,396 14,523 (21.5) 5,543 105.6 16,939 26,307 (35.6)
-Others 13,762 15,921 (13.6) 7,684 79.1 21,445 27,859 (23.0)
-Intersegment revenue (3,246) (3,642) (10.9) (1,980) 63.9 (5,227) (16,995) (69.2)
-Discontinued Operations (8,460) (14,844) (43.0) (7,549) 12.1 (16,008) (29,081)
Total 3,10,437 3,53,285 (12.1) 2,12,600 46.0 5,23,037 6,40,021 (18.3)
Services business remained
EBIT
resilient with IT & ITES
-Infrastructure 6,586 9,920 (33.6) 2,448 169.0 9,034 16,965 (46.7)
registering growth of 5%
-Power 125 104 20.2 (50) (349.7) 75 190 (60.6)
and finance clocking de-
growth of 3% YoY -Heavy engineering 187 1,419 (86.8) 543 (65.5) 730 3,018 (75.8)
-Defence 1,508 1,465 3.0 250 504.5 1,758 2,706 (35.1)
-Hydrocarbon 2,990 5,041 (40.7) 1,179 153.6 4,168 7,509 (44.5)
Engineering & Construction 11,396 17,948 (36.5) 4,369 160.8 15,765 30,388 (48.1)
-Electrical and automation 698 2,701 (74.2) 178 292.4 876 4,433 (80.2)
Power segment revenue
-IT and TS 11,307 8,905 27.0 9,670 16.9 20,977 16,747 25.3
reported 40% YoY growth
-Financial Services 3,283 7,587 (56.7) 995 230.0 4,278 15,050 (71.6)
on large opening orderbook
-Developmental projects (168) 1,207 (114.0) (386) (56.3) (554) 2,144 (125.8)
-Others 2,114 3,118 (32.2) 229 823.3 2,343 5,668 (58.7)
-Discontinued Operations (698) (2,701) (74.2) (178) 292.4 (876) (4,433) (80.2)
Total 27,932 38,765 (27.9) 14,877 87.7 42,809 69,997 (38.8)
Source: Company, HSIE Research

While PLF of Nabha

Power increased to 92% on Segmental Margin (EBITDA): Consolidated Trend
3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21
power demand recovery,
daily ridership on Infra 5.4 12.3 6.4 7.2 6.1 11.1 6.3 6.4

Hyderabad metro Power 2.9 4.7 3.3 4.2 3.4 37.6 1.0 3.0

recovered to 100k since Heavy Engineering 20.5 22.8 19.5 24.9 23.5 23.5 17.5 4.4

commencing operation on Defence 9.0 18.6 16.5 17.9 20.5 17.5 12.9 24.3

7th Sep 2020 Hydrocarbons 8.2 9.8 7.6 12.5 12.1 11.0 5.3 8.5
Others 47.2 13.9 24.1 21.8 21.9 21.9 6.7 17.3
IT & services 22.2 21.9 23.2 19.5 21.0 21.0 20.7 23.0
Financial Services 24.2 23.3 22.0 22.5 21.3 13.8 3.6 3.8
Development projects 4.2 (3.6) 10.0 10.2 17.3 6.1 7.0 5.3
Source: Company, HSIE Research

Page | 3
Larsen & Toubro: Results Review 2QFY21

EBITDA margin of infra 2QFY21 Segmental EBITDA breakup

segment declined by 83bps
EBITDA (Rs bn) - LHS Margins (%) - RHS
YoY, on productivity
16.0 14.3 30.0
headwinds
14.0 25.0
12.0
10.0 20.0
8.3
Increase in defence margin 8.0 15.0
reflective of the job mix 6.0 3.4
10.0
4.0 1.3
2.4 1.9
2.0 5.0
0.3 0.6 0.2
Margins of IT business - -

Dev. Projects
Hydrocarbon

Defence
IT Services

Heavy Eng.

Power
Infra

Others
Fin. Services
improved from 20.7% to
23% on improved
utilization of manpower
and cost rationalisation

Source: Company, HSIE Research

Warranty provisioning
2QFY21 Segmental Net Assets Employed
depressed margins of
heavy engineering Rs bn Others
85
business Infra
290

Dev. Projects Power

217 18
Net capital employed
stood at Rs 772bn at the
Heavy Eng.
end of 2QFY21 16

Defence
Fin. Services 25
134
E&A Hydrocarbon
IT Services 0 26
215

Source: Company, HSIE Research

Share of infra in order

Order Book Break-up (2QFY21-Rs 2,989bn)
book increased by 3% YoY
Others
on relatively better order Services
4%
wins for the segment in Hydrocarbon 0%
2QFY21 13%

Defence
3%
Heavy Eng.
International orders 1%
constitute 24% of the
Power
order book
5%

Infra
74%

Source: Company, HSIE Research

Page | 4
Larsen & Toubro: Results Review 2QFY21

Order Inflow Breakup (2QFY21-Rs 280bn)

Order inflow for the Others
4%
quarter stood at Rs 280bn,
a decline of 42% YoY;

Infra
Increase of services share 48%
Services
in order inflow was 42%
largely due to muted order
wins in other business Hydrocarbon
segments 0%

Defence
Heavy Eng. Power
5%
Of the total order wins in 1% 0%
the quarter, 36% of orders Source: Company, HSIE Research
came from international
clients Infra Segment Order Inflow Trend
Inflows (Rs bn) - LHS % Change (QoQ) - RHS
450 150%
122%

400

79%
41%
350 100%

47%
26%

28%
300
21%

Infrastructure segment 50%

-6%

250

-10%
registered 7% YoY decline

-43%
200
in order inflow 0%

-72%
-42%

150
100 -50%
50
- -100%
Order wins were largely
3QFY18

1QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20

1QFY21

2QFY21
4QFY18

2QFY19

in power T&D, water

supply & distribution

Source: Company, HSIE Research

Ex-Services (Ex-Infra)- Order Inflow Trend

Inflows (Rs bn) - LHS % Change (QoQ) - RHS
72%

250 600%
524%

500%
Order inflow ex-services 200
54%

400%
and ex-infra fell by 87%
71%

-21%

150 300%
YoY
19%

200%
18%
-1%

19%
-44%

-91%

100 100%
-81%

0%
50
-100%
- -200%
3QFY18

1QFY19

3QFY19

1QFY20

2QFY20

3QFY20

4QFY20

1QFY21

2QFY21
4QFY18

2QFY19

4QFY19

Source: Company, HSIE Research

Page | 5
Larsen & Toubro: Results Review 2QFY21

Segmental Order inflow Trend

Order flows (Rs bn) 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21
Infrastructure 234 219 309 175 157 281 412 113 145
While L&T reported order Power 25 1 4 67 43 8 12 - -
wins of Rs 145bn for infra Heavy Engineering* 13 5 8 2 7 5 5 5 3
segment in the quarter, it Defence 12 5 12 4 6 2 7 1 13
did not report any major Subtotal 25 10 20 6 13 7 12 6 17
award in power and Hydrocarbons 27 78 127 34 149 - 22 12 -
hydrocarbon segment Others 12 17 12 20 15 4 73 5 11
Ex Services Inflows 323 325 471 302 375 300 532 137 173
Services 81 81 79 85 107 116 47 99 107
Hydrocarbon business is
Total Inflow 403 406 551 387 482 416 579 236 280
likely to see tepid ordering Source: Company, HSIE Research
given lower crude prices
Segmental Order Book Trend
Rs bn 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21
Reported order book of Rs Infrastructure 2,182 2,192 2,218 2,187 2,153 2,236 2,249 2,197 2,212
2.99tn is well diversified Power 93 82 70 129 152 184 152 153 149
and is net of slow moving Heavy Engineering* 51 48 47 41 30 31 30 31 30
orders which give revenue Defense 121 114 114 112 121 92 91 92 90
visibility of ~3 years for Subtotal 172 162 161 153 152 123 122 122 120
core EPC business Hydrocatbons 278 318 399 403 515 459 456 427 389
Others 56 57 59 68 61 61 61 153 120
Total Order Book 2,812 2,840 2,934 2,940 3,032 3,063 3,039 3,051 2,989
Source: Company, HSIE Research

We tweak our FY21/FY22 Change in Estimates

estimate by 0.1%/-0.6%, FY21 FY22 FY23
Rs mn
New Old % diff New Old % diff New Old % diff
Net Revenues 13,85,101 13,92,126 (0.5) 15,62,133 15,35,782 1.7 17,37,135 - -
EBITDA 1,33,734 1,32,274 1.1 1,78,394 1,76,688 0.9 1,95,511 - -
Margins (%) 9.7 9.5 15.4 11.4 11.5 (8.5) 11.3 - -
We reiterate our BUY on APAT 63,902 63,821 0.1 98,740 99,379 (0.6) 1,09,783 - -
L&T with an unchanged Source: Company, HSIE Research
TP of Rs 1,260/sh
Valuation Summary
Business Valuation methodology Rs bn Rs/sh

L&T E&C business 20x Sep-22 E&C Earnings 1,113 793

L&T Infotech HDFC Sec Target Valuation with 25% holdco disc 297 212
L&T Tech services HDFC Sec Target Valuation with 25% holdco disc 93 66
Mindtree HDFC Sec Target Valuation with 25% holdco disc 133 95
L&T Finance Mcap with 25% holdco disc 30 21
Other Subsidiaries, Associates and
0.7x P/BV of Invested Equity 102 73
Developmental Portfolio
Target price 1,768 1,260
Source: HSIE Research

Page | 6
Larsen & Toubro: Results Review 2QFY21

Financials
Consolidated Income Statement
Year ending March FY18 FY19 FY20 FY21E FY22E FY23E
Net Revenues (including E&A) 11,96,831 13,52,203 14,54,524 13,85,101 15,62,133 17,37,135
Growth (%) 9.5 13.0 7.6 (4.8) 12.8 11.2
Material Expenses 7,71,067 8,82,474 8,93,208 8,28,178 9,19,285 10,33,270
Employee Expenses 1,52,925 1,74,664 2,31,140 2,33,483 2,55,788 2,79,449
Other Operating Expenses 1,37,127 1,41,768 1,66,886 1,89,706 2,08,667 2,28,905
EBIDTA 1,35,713 1,53,296 1,63,290 1,33,734 1,78,394 1,95,511
EBIDTA (%) 11.3 11.3 11.2 9.7 11.4 11.3
EBIDTA Growth (%) 22.5 13.0 6.5 (18.1) 33.4 9.6
Depreciation 19,287 19,230 24,623 25,884 27,982 29,345
EBIT 1,16,426 1,34,066 1,38,667 1,07,850 1,50,411 1,66,166
Other Income (Incl. EO Items) 15,350 18,365 23,609 27,150 28,508 29,933
Interest 15,385 18,026 27,967 38,027 31,606 33,222
PBT 1,16,391 1,34,406 1,34,310 96,973 1,47,313 1,62,878
Tax 31,989 40,671 32,632 24,408 37,079 40,996
Minority Interest 6,346 13,115 13,453 9,071 11,575 12,188
Share of Associate profits (4,359) (210) 720 408 80 90
APAT 73,698 80,410 88,945 63,902 98,740 1,09,783
EO items (net of tax) (1,230) 8,641 5,610
RPAT 72,468 89,051 94,555 63,902 98,740 1,09,783

Consolidated Balance Sheet

As at March FY18 FY19 FY20 FY21E FY22E FY23E
SOURCES OF FUNDS
Share Capital 2,803 2,806 2,808 2,808 2,808 2,808
Reserves 5,53,767 6,20,943 6,64,424 6,93,258 7,47,109 8,07,516
Total Shareholders Funds 5,56,570 6,23,748 6,67,232 6,96,066 7,49,917 8,10,324
Minority Interest 56,250 68,261 95,208 1,04,279 1,15,854 1,28,042
Long Term Debt 8,81,922 9,63,313 10,77,277 11,39,861 11,29,861 11,69,861
Short Term Debt 1,93,319 2,92,238 3,54,460 3,75,210 3,65,210 3,55,210
Total Debt 10,75,241 12,55,552 14,31,737 15,15,071 14,95,071 15,25,071
Other Non Current Liabilities 9,455 9,122 16,409 33,825 33,825 33,825
Deferred Taxes 6,379 3,111 14,530 14,530 14,530 14,530
TOTAL SOURCES OF FUNDS 17,03,895 19,59,794 22,25,117 23,63,771 24,09,197 25,11,792
APPLICATION OF FUNDS
Net Block 1,26,726 1,51,125 1,23,303 2,92,625 2,88,145 2,79,303
CWIP 1,34,434 1,39,195 33,111 33,111 34,111 35,111
Goodwill 15,618 18,269 80,114 80,114 80,114 80,114
Investments 1,01,929 1,12,155 1,10,625 1,34,218 1,35,560 1,35,560
Other Non Current Assets 9,04,470 10,29,448 12,57,993 11,93,344 12,15,569 12,38,237
Total Non-current Assets 12,83,177 14,50,192 16,05,145 17,33,413 17,53,499 17,68,326
Inventories 48,478 64,139 57,467 52,187 55,409 62,279
Debtors 3,46,541 3,68,459 4,07,315 3,95,096 4,24,720 4,72,600
Cash & bank balances 1,74,968 2,56,724 2,78,175 2,16,135 2,60,509 3,43,278
ST Loans & Advances 23,536 31,779 36,439 32,620 39,145 45,016
Other Assets 5,59,215 6,12,180 6,96,860 6,62,030 6,68,651 6,95,397
Total Current Assets 11,52,737 13,33,282 14,76,256 13,58,068 14,48,433 16,18,571
Creditors 3,15,714 4,29,948 4,36,439 3,51,692 4,02,974 4,52,940
Other Current Liabilities & Provns 4,16,305 3,93,731 4,19,845 3,76,018 3,89,761 4,22,164
Total Current Liabilities 7,32,019 8,23,679 8,56,285 7,27,710 7,92,735 8,75,104
Net Current Assets 4,20,718 5,09,602 6,19,972 6,30,358 6,55,698 7,43,467
TOTAL APPLICATION OF FUNDS 17,03,895 19,59,794 22,25,117 23,63,771 24,09,197 25,11,792
Source: Company, HSIE Research

Page | 7
Larsen & Toubro: Results Review 2QFY21

Consolidated Cash Flow

Year ending March FY18 FY19 FY20 FY21E FY22E FY23E
PBT 1,15,162 1,42,862 1,43,142 97,381 1,47,393 1,62,968
Non-operating & EO items (10,696) (19,383) (10,414) (27,150) (28,508) (29,933)
Interest expenses 8,729 18,026 27,967 38,027 31,606 33,222
Depreciation 19,287 19,230 24,623 25,884 27,982 29,345
Working Capital Change (1,98,757) (1,59,465) (77,914) (2,07,998) (3,190) (27,668)
Tax paid (34,034) (48,828) (40,465) (24,408) (37,079) (40,996)
OPERATING CASH FLOW ( a ) (1,00,310) (47,558) 66,939 (98,265) 1,38,205 1,26,937
Capex (20,150) (34,994) (32,994) (21,502) (24,502) (21,503)
Free cash flow (FCF) (1,20,461) (82,552) 33,944 (1,19,767) 1,13,703 1,05,434
Investments 19,025 (86,066) (61,481) (1,329) (1,342) -
Non operating income 40,270 10,832 11,912 27,150 28,508 29,933
INVESTING CASH FLOW ( b ) 39,145 (1,10,228) (82,563) 4,319 2,664 8,430
Share capital Issuance 495 113 176 - - -
Debt Issuance 1,26,190 1,81,743 1,41,259 1,05,000 (20,000) 30,000
Dividend Payment (23,898) (26,471) (45,513) (35,069) (44,888) (49,377)
Interest expenses (24,707) (29,832) (27,397) (38,027) (31,606) (33,222)
Others 15,624 28,849 (4,809) - - -
FINANCING CASH FLOW ( c ) 93,705 1,54,402 63,716 31,904 (96,494) (52,598)
NET CASH FLOW (a+b+c) 32,539 (3,385) 48,091 (62,041) 44,375 82,769
Opening Cash & Equivalents 1,96,062 1,74,968 2,56,724 2,78,175 2,16,135 2,60,509
Adj - EO Items (5,274) 40,322 2,066 - - -
Adj - Treasury Investments (48,360) 44,819 (28,707) - -
Closing Cash & Equivalents 1,74,968 2,56,724 2,78,175 2,16,135 2,60,509 3,43,278

Key Ratios
FY18 FY19 FY20 FY21E FY22E FY23E
PROFITABILITY (%)
GPM 35.6 34.7 38.6 40.2 41.2 40.5
EBITDA Margin 11.3 11.3 11.2 9.7 11.4 11.3
EBIT Margin 9.7 9.9 9.5 7.8 9.6 9.6
APAT Margin 6.1 6.6 6.5 4.6 6.3 6.3
RoE 13.7 15.1 14.6 9.4 13.7 14.1
Core RoCE 6.4 6.2 6.1 4.2 5.7 6.3
RoCE 5.3 5.6 5.6 4.1 5.2 5.6
EFFICIENCY
Tax Rate (%) 27.5 30.3 24.3 25.2 25.2 25.2
Asset Turnover (x) 3.8 6.0 3.7 3.4 3.6 3.8
Inventory (days) 15 17 14 14 13 13
Debtors (days) 106 99 102 104 99 99
Other Current Assets (days) 178 174 184 183 165 156
Payables (days) 96 116 110 93 94 95
Other Current Liab (days) 127 106 105 99 91 89
Net Working Capital Cycle (Days) 75 68 86 109 92 84
Debt/EBITDA (x) 7.9 8.2 8.8 11.3 8.4 7.8
Net D/E 1.6 1.6 1.7 1.9 1.6 1.5
Interest Coverage 7.6 7.4 5.0 2.8 4.8 5.0
PER SHARE DATA
EPS (Rs/sh) 51.7 57.3 63.4 45.6 70.4 78.3
CEPS (Rs/sh) 65.4 77.2 85.0 64.0 90.3 99.2
DPS (Rs/sh) 17 19 32 25 32 35
BV (Rs/sh) 397 445 476 496 535 578
VALUATION
P/E 18.1 16.3 14.7 20.5 13.3 11.9
P/BV 2.4 2.1 2.0 1.9 1.7 1.6
EV/EBITDA 16.3 15.1 15.1 19.5 14.3 12.8
OCF/EV (%) (4.5) (2.1) 2.7 (3.8) 5.4 5.1
FCF/EV (%) (5.4) (3.6) 1.4 (4.6) 4.5 4.2
FCFE/Market Cap (%) (1.4) 5.3 11.3 (4.0) 4.7 7.8
Dividend Yield (%) 1.8 2.0 3.5 2.7 3.4 3.8
Source: Company, HSIE Research

Page | 8
Larsen & Toubro: Results Review 2QFY21

RECOMMENDATION HISTORY
Date CMP Reco Target
L&T TP
1,900 10-Oct-19 1,425 BUY 1,720
24-Oct-19 1,431 BUY 1,703
1,700 30-Dec-19 1,300 BUY 1,703
1,500 10-Jan-20 1,325 BUY 1,703
23-Jan-20 1,294 BUY 1,720
1,300 2-Mar-20 1,188 BUY 1,765
24-Apr-20 851 BUY 1,191
1,100
7-Jun-20 957 BUY 1,236
900 15-Jul-20 913 BUY 1,235
24-Jul-20 916 BUY 1,260
700 12-Oct-20 906 BUY 1,260

Oct-20
Oct-19

Aug-20
Apr-20
Jan-20

Jul-20

Sep-20
May-20
Mar-20
Dec-19

Jun-20
Nov-19

Feb-20

29-Oct-20 935 BUY 1,260

From 2nd March 2020, we have moved to new rating system

Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: > 10% Downside return potential

Page | 9
Larsen & Toubro: Results Review 2QFY21

Disclosure:
We, Parikshit Kandpal, CFA, Chintan Parikh, MBA & Rohan Rustagi, MBA, authors and the names subscribed to this report, hereby certify that all of the
views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as
on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative
or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding
the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material
conflict of interest.
Any holding in stock –No
HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475.

Disclaimer:
This report has been prepared by HDFC Securities Ltd and is solely for information of the recipient only. The report must not be used as a singular basis of any
investment decision. The views herein are of a general nature and do not consider the risk appetite or the particular circumstances of an individual investor;
readers are requested to take professional advice before investing. Nothing in this document should be construed as investment advice. Each recipient of this
document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in securities of the companies
referred to in this document (including merits and risks) and should consult their own advisors to determine merits and risks of such investment. The
information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be
reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy,
completeness or correctness. All such information and opinions are subject to change without notice. Descriptions of any company or companies or their
securities mentioned herein are not intended to be complete. HSL is not obliged to update this report for such changes. HSL has the right to make changes and
modifications at any time.
This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen
or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be
contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement within such jurisdiction.
If this report is inadvertently sent or has reached any person in such country, especially, United States of America, the same should be ignored and brought to
the attention of the sender. This document may not be reproduced, distributed or published in whole or in part, directly or indirectly, for any purposes or in
any manner.
Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or
price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively
assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security.
This document is not, and should not, be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report
should not be construed as an invitation or solicitation to do business with HSL. HSL may from time to time solicit from, or perform broking, or other services
for, any company mentioned in this mail and/or its attachments.
HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of
the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a
market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any
other potential conflict of interests with respect to any recommendation and other related information and opinions.
HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments
made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates,
diminution in the NAVs, reduction in the dividend or income, etc.
HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt
in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations
described in this report.
HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject
company for any other assignment in the past twelve months.
HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the
date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage
services or other advisory service in a merger or specific transaction in the normal course of business.
HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with
preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this
report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may
have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of
the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report.
HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg
(East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: complianceofficer@hdfcsec.com Phone: (022)
3045 3600
HDFC Securities Limited, SEBI Reg. No.: NSE, BSE, MSEI, MCX: INZ000186937; AMFI Reg. No. ARN: 13549; PFRDA Reg. No. POP: 11092018; IRDA
Corporate Agent License No.: CA0062; SEBI Research Analyst Reg. No.: INH000002475; SEBI Investment Adviser Reg. No.: INA000011538; CIN -
U67120MH2000PLC152193

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel, Mumbai - 400 013
Board: +91-22-6171-7330 www.hdfcsec.com

Page | 10