X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
L&T: Hydrocarbon segment continues to bite - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

L&T: Hydrocarbon segment continues to bite
Feb 11, 2015

Larsen & Toubro (L&T) has announced the third quarter results of financial year 2014-2015 (3QFY15). The company has reported 10% YoY growth in sales while net profits have grown 9% YoY. Here is our analysis of the results.

Performance summary
  • Consolidated net sales for the company grew by 10% YoY during 3QFY15.
  • Operating expenses for the company increased at the same pace. This led to operating margins remaining the same compared to the same quarter of the previous year. Overall, operating profit grew by 10% YoY in 3QFY15.
  • Net profit grew by 9% YoY during the quarter, in line with the pace of growth of revenues.

Financial Performance Snapshot
(Rs m) 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
Sales 217,324 238,479 9.7% 581,043 639,820 10.1%
Expenditure 190,993 209,579 9.7% 510,951 562,425 10.1%
Operating profit (EBDITA) 26,330 28,900 9.8% 70,092 77,394 10.4%
Operating profit margin (%) 12.1% 12.1%   12.1% 12.1%  
Other income 1,959 2,347 19.8% 7,125 7,263 1.9%
Interest 8,842 9,204 4.1% 23,687 23,895 0.9%
Depreciation 5,878 6,791 15.5% 17,318 20,350 17.5%
Exceptional items   671   - 671 2,493 -
Profit before tax 14,240 15,252 7.1% 36,883 42,905 16.3%
Tax 6,694 5,693 -15.0% 17,403 14,875 -14.5%
Extraordinary items, net of tax - -   (66)    -  
Profit after tax/(loss) 7,546 9,559 26.7% 19,415 28,031 44.4%
Net profit margin (%) 3.5% 4.0%   3.3% 4.4%  
Share in profit of associates (9) 17   39 39 0.0%
Minority interest (430) 911   (1,162) 1,118  
Profit after share of associates & minority interest 7,967 8,665 8.8% 20,616 26,952 30.7%
No. of shares         928.8  
Basic reported earnings per share (Rs)*         59.6  
P/E ratio (x)*         27.0  
* On a trailing twelve month basis

What has driven performance in 3QFY15?
  • The company secured orders worth Rs 346 bn during the quarter, which is a 19% YoY increase over the previous financial year's quarter. Of this, international orders comprised 18% of the inflows. The infrastructure segment drove the inflows by securing major orders this quarter.

  • The company's consolidated order book stood at Rs 2,258 bn as at the end of the quarter, an increase of 17% YoY, of which international orders comprise 25%.

  • The infrastructure, power, metals, heavy engineering, and hydrocarbons segments put pressure on the operating margins during the quarter, the rest of the segments saw an uptick in margins. The net result was a margin profile similar to the same quarter of the previous year. As for the infrastructure segment, the reason for the decline in margins was that a larger percentage of the revenue accrued during the period was from jobs at an early stage of execution, and yet to achieve the margin recognition threshold. The hydrocarbons business was the biggest drag; it saw its margins slip into the negative on account of under recoveries of overheads and additional cost overruns which were closed out.

    Segment-wise performance (Consolidated)
    (Rs m) 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
    Infrastructure
    Revenue 96,469 117,967 22.3% 238,130 291,588 22.4%
    % share 43% 48%   40% 44%  
    EBIT margin 8.6% 7.5%   9.2% 7.9%  
    Power
    Revenue 16,274 11,419 -29.8% 45,685 33,077 -27.6%
    % share 7% 5%   8% 5%  
    EBIT margin 19.5% 13.4%   21.9% 12.3%  
    Metallurgical and Material Handling
    Revenue 16,065 7,310 -54.5% 39,036 24,736 -36.6%
    % share 7% 3%   7% 4%  
    EBIT margin 13.7% 5.5%   13.3% 7.2%  
    Heavy Engineering
    Revenue 11,015 8,293 -24.7% 30,391 25,516 -16.0%
    % share 5% 3%   5% 4%  
    EBIT margin 10.5% 4.9%   8.4% 5.7%  
    Electrical Automation
    Revenue 13,206 13,595 2.9% 35,618 37,144 4.3%
    % share 6% 6%   6% 6%  
    EBIT margin 10.3% 10.2%   9.1% 8.5%  
    Hydrocarbon
    Revenue 24,280 17,919 -26.2% 78,720 51,811 -34.2%
    % share 11% 7%   13% 8%  
    EBIT margin 0.6% -7.7%   3.4% -21.9%  
    IT Technology Services
    Revenue 16,419 19,889 21.1% 47,125 56,168 19.2%
    % share 7% 8%   8% 9%  
    EBIT margin 17.9% 17.5%   20.2% 16.6%  
    Financial Services
    Revenue 13,294 16,363 23.1% 37,866 47,245 24.8%
    % share 6% 7%   6% 7%  
    EBIT margin 7.6% 14.5%   11.3% 17.0%  
    Developmental Projects
    Revenue 3,462 11,459 231.0% 9,057 42,818 372.8%
    % share 2% 5%   2% 6%  
    EBIT margin 6.3% 21.3%   0.0% 36.5%  
    Others
    Revenue 13,089 21,323 62.9% 38,033 50,218 32.0%
    % share 6% 9%   6% 8%  
    EBIT margin 12.0% 22.9%   3.9% 17.9%  
    Total Revenue* 223,572 245,537 9.8% 599,661 660,319 10.1%
    * Excluding inter-segment adjustments & excise duty
What to expect?
For a large projects oriented company like L&T, a majority of its segments do not see sales and margins accrue uniformly over the year. Hence the operational performance of various segments can be better judged only on the basis full year figures as the figures during any given quarter may not be representative of any longer term trend.

The management has indicated that domestic business sentiment has seen an improvement on the back of regulatory announcements and the government’s resolve to create a business friendly environment in India. A translation of policies into ground level implementation remains a key factor for economic momentum to pick up in a sustainable way. While investments in the oil and gas sector in the Middle East may get impacted due to the decline in oil prices, the management expects that spends on infrastructure development would continue in that region.

At the current price of Rs 1,608, the stock trades at 19.7 times our FY17 earnings estimates for the company. Considering these expensive valuations, we maintain a SELL view on the stock at

To Read the Full Story, Subscribe or Sign In



DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group.
BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.
DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.
GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.
DETAILS OF ASSOCIATES:
  1. Quantum Information Services Private Limited (QIS) having its registered office at 103, Regent Chambers, Nariman Point, Mumbai 400021 is registered under SEBI (Investment Advisers) Regulations, 2013 vide Registration No. INA000000680. QIS provides information on mutual funds and personal financial planning, financial markets in general, and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services through its website www.personalfn.com
  2. Agora Holdings (Cyprus) Limited having its registered office at Akropolis, 59-61, 3rd Floor, Office 301 Strovolos 2012 Nicosia Cyprus belongs to Agro group (Agora) which owns www.agora-inc.com and is one of the largest and most successful consumer newsletter publishers in the world.
  3. Common Sense Living Private Limited (CSL) owns www.commonsenseliving.co.in and is an initiative that provides straightforward lifestyle and wealth-building ideas from wealth coach Mark Ford. CSL is 100% subsidiary Company of Equitymaster.
DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

L&T SHARE PRICE


Dec 15, 2017 (Close)

TRACK L&T

COMPARE L&T WITH

MARKET STATS