X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 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: Engineering story - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Oct 1, 2003

    L&T: Engineering story

    Industrial production has shown encouraging increase from 2.6% in FY02 to 5.8% in FY03 and is expected to grow above 6% in the current fiscal. The capital goods industry witnessed a reversal from the negative trend in past two years to 10.5% growth in FY03 and outlook for FY04 looks positive, as we have had good monsoons through out the country. GDP is likely to grow at 6.5% in FY04. L&T, which is going to be a pure engineering company post 2004, is likely to benefit from such a scenario.

    The company has divided its engineering and construction business in three segments namely construction, heavy engineering and E&C (which involves a mix of engineering and construction). In construction, the company is into constructing thermal and hydro power plants, roads, highways and bridge construction and installing water supply and affluent treatment plants. In heavy engineering, the company is into supply of industrial equipments, power plant equipments (including boilers etc.), refinery equipments, defence and nuclear equipments etc. Its E&C division is into installing fertilizer projects and chemical plants etc. The companyís other business i.e. electrical and electronics, consists of manufacturing standard electrical products like transformers and switchgears (for retail segment also).

    Lets have a look at the companyís engineering business over last three years.

    The companyís engineering and construction business has faired well in last three years. The contribution of this business to total revenues has gone up from 59% in FY01 to 62% in FY03. The revenues from this segment have grown at CAGR of 15% over last three years. The export earnings have grown at a faster CAGR of 68% over last three years. The orderbook size has grown from Rs 92 bn in FY01 to 137 bn in FY03, which stands at 2.2x FY03 segment revenues.

    L&Tís electrical and electronics grew at a slower rate as compared to its engineering business. The topline contribution from this segment has remained stagnant at 8% over the last few years. The revenues grew at CAGR of 8%, but exports grew at faster CAGR of 29% in the last three years. The orderbook size for the segment has gone up from Rs 7 bn in FY01 to around Rs 9 bn in FY03, which is more than 1x FY03 revenues from this segment.

    Construction is expected to provide large business opportunities in the near and long term as government is laying focus on improving infrastructure facilities. Company expects to increase orderbook size with the coming up of hydro power and irrigation projects. The Electricity Act 2003 will encourage power companies to add lot of capacities. Since L&T is both in construction of power plants and supplying equipments for power generation, it is expected to benefit going forward. As said above, the industrial production is expected to grow by more than 6%. It will help the company to increase its revenues from industrial equipment division. With the huge investments coming up in refineries and oil & gas sector, the company expects to increase revenues from the heavy engineering segment.

    (Rs m) FY03 ABB BHEL L&T*
    Net Sales 11,758 78,147 73,036
    EBIDTA 1,176 7,346 5,916
    EBIDTA margin 10.0% 9.4% 8.1%
    Market cap/ Sales** 1.7 1.2 0.6

    * L&T's cement business revenues excluded
    ** For L&T, Total current market cap less (value offered by Grasim for cement business)

    On the export front, the company has fared well as evident from the figures above. It is focusing on brand building and is also joining hands with other players for bidding of bigger contracts in the international arena. At the current price of 321 the stock trade at P/E multiple of 18.4x FY03 earnings (including cement). Overall, the valuation might look stretched, but once cement business goes away from its books, the engineering business will be at market capitalisation to sales ratio of 0.6x, which is still lower as compared to its engineering peers like ABB and BHEL.

     

     

    Equitymaster requests your view! Post a comment on "L&T: Engineering story". Click here!

      
     

    More Views on News

    L&T: Amidst a Challenging Business Environment (Quarterly Results Update - Detailed)

    Aug 1, 2017

    Bank credit to industry remained muted and investment momentum was driven mostly by public sector spending.

    L&T: Private Sector Capex Remains in a Tizzy (Quarterly Results Update - Detailed)

    Jul 24, 2017

    Vast majority of private players remain more concerned with debt payback rather than starting new projects.

    L&T: Demonetisation Blues (Quarterly Results Update - Detailed)

    Feb 8, 2017

    Larsen & Toubro (L&T) has announced third quarter results of financial year 2016-2017 (3QFY17). The company has reported 1.7% YoY growth in sales while profits have grown 38.9% YoY. Here is our analysis of the results.

    BHEL: Margins Dip into the Negative (Quarterly Results Update - Detailed)

    Aug 14, 2017

    The company also saw order inflows of Rs 18 billion during the quarter, which was a massive 41% YoY lower than the previous year's quarter.

    Cummins Ltd: Domestic Revenues the Saving Grace (Quarterly Results Update - Detailed)

    Aug 14, 2017

    The domestic economy continues to grow largely in areas which are positively impacted through continuing government investments in infrastructure.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    L&T SHARE PRICE


    Aug 21, 2017 (Close)

    TRACK L&T

    L&T - SWELECT ENERGY SYSTEMS COMPARISON

    Compare Company With Charts

    COMPARE L&T WITH

    MARKET STATS