Equity | India | Capital Goods

18 October 2010

Larsen & Toubro

Hold On track
Target price
Rs1928.00 (from Rs1912.00)
Larsen reported an in-line 2Q adjusted for one offs, though margin expansion
was subdued due to the non-engineering segments. We believe the company is
Price
Rs1988.60 on track to meet its guidance on order inflows and revenues. The medium-term
Short term (0-60 days) outlook is strong though near-term returns could be subdued. Hold maintained.
n/a
Market view Key forecasts
Underweight
FY09A FY10A FY11F FY12F FY13F
Revenue (Rsm) 339,385 370,348 441,052 574,164 647,631
Price performance EBITDA (Rsm) 39,222 48,156 57,108 71,368 86,276
Reported net profit (Rsm) 34,817 43,755 39,574 49,142 59,800
(1M) (3M) (12M)
Normalised net profit (Rsm)¹ 27,070 31,251 38,157 49,142 59,800
Price (Rs) 1918 1874 1693
Normalised EPS (Rs) 45.20 51.80 63.30 81.50 99.10
Absolute (%) 3.7 6.1 17.5
Rel market (%) 0.5 -5.6 0.4 Dividend per share (Rs) 10.20 12.50 14.00 15.40 18.60
Rel sector (%) -4.9 -9.3 13.9 Dividend yield (%) 0.51 0.63 0.70 0.78 0.93
Normalised PE (x) 44.00 38.40 31.40 24.40 20.10
Oct 07 Oct 08 Nov 09
2500 EV/EBITDA (x) 30.80 24.30 20.40 16.30 13.20
Price/book value (x) 9.56 6.55 5.65 4.78 4.03
2000 ROIC (%) 29.80 21.40 21.70 24.10 24.40

1500
1. Post-goodwill amortisation and pre-exceptional items year to Mar, fully diluted
Accounting standard: Local GAAP
Source: Company data, RBS forecasts
1000

500
2Q earnings in-line adjusted for one offs
LART.BO Sensex L&T reported 2Q11 sales of Rs93.3bn (up 17.8% yoy) ahead of our expectations driven by
strong growth in its core E&C business. Margins remained flat yoy, slightly below our
Market capitalisation expectations, as lower manufacturing costs (as a percentage of net sales) offset higher staff
Rs1.20t (US$27.07bn)
costs and other expenses. Reported profit came in at Rs6.9bn (up Rs25.5%yoy). Adjusting
Average (12M) daily turnover
Rs2650.40m (US$57.70m) for one offs in other expenses, other income and interest (cRs500m), profit was in line with
Sector: BBG AP Eng & Mach
our estimates. Order inflow remained strong at Rs204.6bn (up 11.4% yoy); while the order
RIC: LART.BO, LT IN backlog stood at Rs1.154tn (up 41.4% yoy).
Priced Rs1988.60 at close 15 Oct 2010.
Source: Bloomberg
Comfortably placed on FY11 inflow guidance; execution cycle is lengthening
We believe the company is comfortably placed to meet its FY11 inflow guidance of Rs87bn
(up 25% yoy), given order inflows of Rs360bn in 1H11 (up 29% yoy) and with projects like
the cRs120bn Hyderabad metro order (for which L&T is the lowest bidder). The current order
book (at Rs1.15trn) is at an all time high. However, the inflow is being skewed gradually
towards the power sector and large orders, which will lengthen the execution cycle for the
company. Execution time for the current order book is 27 months as compared to 22 months
one year ago.

Macro outlook remains exciting, but medium-term return ratios could be subdued
The macro outlook for L&T remains exciting, in our view, given the strong pipeline of projects
in the infrastructure space. This is positive for the company not only as an engineering
Researched by contractor, but also as an asset owner and developer. However, while the company does not
RBS Equities (India) Limited
need immediate funding, it may have to shore up its balance sheet as it wins more such
Institutional Team projects. This may lead to continued fund raising, which might dampen return ratios in the
medium term until projects start yielding cash flows. This, in our view, will limit valuation
Mafatlal Chambers – C Wing, Ground
Floor, N.M. Joshi Marg, Lower Parel (E), upside. We roll forward our DCF valuation of the standalone business by a quarter, which
Mumbai 400 013, India. Tel : +91 022 takes our target price to Rs1,928. We maintain our Hold rating on the stock.
6754 8411 Fax : +91 022 6754 8420

www.rbs.in/broking Important disclosures can be found in the Disclosures Appendix.

 In line results

L&T reported 2Q11 earnings in line with our estimates adjusted for one offs. We believe
that the company is well placed to meet its FY11 revenue and order inflow guidance as
execution and order flow pick up in 2H11. Hold maintained.

Execution surprises in 2Q11; but earnings were in line

L&T reported 2Q11 sales of Rs93.3bn (up 17.8% yoy) driven by strong growth in its core E&C
business. Margins remained flat yoy, as lower manufacturing costs (as % of net sales) offset
higher staff costs and other expenses (other expenses included exchange related losses
cRs600m) during the quarter. Other income saw a sharp jump during the quarter to Rs3.8bn (up
80.5% yoy) but included one off income of Rs700m due to the sale of its Satyam stake and other
assets. Interest costs also increased during the quarter to Rs1.9bn (up 53% yoy) but included a
R320m one-off related to employee provident funds. Higher-than-anticipated other income meant
that profit for the quarter came in at Rs6.9bn (up Rs25.5% yoy).However, adjusting for one offs in
other expenses, other income and interest (cRs500m), profit was Rs6.54bn, up 18% yoy. Order
inflow for the quarter remained strong at Rs204.6bn (up 11.4% yoy); while the order backlog stood
at Rs1.154tn (up 41.4% yoy).

Table 1 : 2Q11 and 1H11 performance

Rsm 2Q11 2Q11 yoy 1H11 1H10 yoy

Order inflow 204640 183650 11.4% 360,900 279,360 29.2%
Order backlog 1153930 816230 41.4% 1,153,930 816,230 41.4%

Net sales 93,308 79,212 17.8% 172,161 153,295 12.3%

Expenditure 83,251 70,829 17.5% 152033 136593 11.3%

as a % of net sales 89.2% 89.4% -20bp 88.3% 89.1% -80bp
Consumption of raw materials 69857 60473 15.5% 129297 117691 9.9%
as a % of net sales 74.9% 76.3% -148bp 75.1% 76.8% -167bp
Personnel cost 8,288 7,097 16.8% 13921 12212 14.0%
as a % of net sales 8.9% 9.0% -8bp 8.1% 8.0% 12bp
Other expenses 5,105 3,260 56.6% 8815 6690 31.8%
as a % of net sales 5.5% 4.1% 136bp 5.1% 4.4% 76bp

EBITDA 10,057 8,383 20.0% 20127 16702 20.5%

OPM 10.8% 10.6% 20bp 11.7% 10.9% 80bp
Other income 3,822 2,118 80.5% 6090 4345 40.1%
Depreciation 1,212 1,001 21.1% 2354 1939 21.4%
EBIT 12,667 9,500 33.3% 23863 19109 24.9%
Interest 1,932 1,263 53.0% 3355 2358 42.3%
Exceptional/Extraordinary items 708.4 273.8 158.7% 708 10473 -93.2%

PBT 11,444 8,511 34.5% 21,217 27,223 -22.1%

Tax 3,794 2,707 40.2% 6905 5437 27.0%
Tax rate (%) 33.2% 31.8% 135bp 32.5% 20.0% 1257bp
Reported PAT 7,650 5,804 31.8% 14,312 21,786 -34.3%
Adjusted PAT 6,541 5,530 18.3% 13,203 11,314 16.7%
Source: Company data

Management confident on FY11 revenue; order book guidance

The company maintained its FY11 guidance of 20% revenue growth and 25% order inflow growth.
We believe the company is also comfortably placed to meet its FY11 inflow guidance of Rs87bn
(up 25% yoy), given order inflows of Rs360bn in 1H11 (up 29% yoy).

Larsen & Toubro | Company Dynamics | 18 October 2010 2

 Chart 1 : Order book & inflow (Rs m)

1,400,000 300,000

1,200,000
250,000

1,000,000
200,000

800,000
150,000
600,000

100,000
400,000

50,000
200,000

0 0
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11

Order backlog (LHS) Order intake

Source: Company data

Revenues were lower-than-expected in 1Q11 but picked up in 2Q11 reflecting the nature of the
business. We expect revenues to pick up further in 2H11 and the company to largely meet its
FY11 revenue guidance. However, we expect margins to contract by about 100bp in 2H11 on a
yoy basis, as metal prices rise.

Chart 2 : Margin movement bound by material costs

16% 78%

14% 77%

12% 76%

10% 75%

8% 74%

6% 73%

4% 72%

2% 71%

0% 70%
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11

EBITDA Margin RM/net sales (R.H.S)

Source: Company data, RBS forecasts

E&C segment clocks in strong performance

The core E&C segment of the company registered revenues of Rs80.2bn (up 16.9% yoy).
Segment margins also improved during the quarter with PBIT margins coming in at 11.2% (up
110bp yoy) due to better sales mix. However, overall margins were subdued due to decline in
PBIT margin in other segments.

Larsen & Toubro | Company Dynamics | 18 October 2010 3

Table 2 : 2Q11 and 1H11 segmental performance

Rsm 2Q11 2Q11 yoy 1H11 1H10 yoy

Revenues
E&C 80150 68578 16.9% 146589 134307 9.1%
E&E 6724 7077 -5.0% 14175 12835 10.4%
Machinery & Ind products 6981 5096 37.0% 12463 9465 31.7%
Others 1597 921 73.3% 2817 1693 66.5%
Total 95453 81671 16.9% 176044 158300 11.2%
Less Intersegment 1331 1759 -24.3% 2291 3623 -36.8%
Net Segment Revenues 94122 79913 17.8% 173754 154677 12.3%

Segment PBIT
E&C 9002 6939 29.7% 17169 13931 23.2%
E&E 868 1060 -18.1% 1606 1740 -7.7%
Machinery & Ind products 1156 928 24.5% 2286 1882 21.5%
Others 172 176 -2.2% 507 218 132.6%
Total 11198 9103 23.0% 21567 17770 21.4%
Less: Net Interest 1901 1310 45.1% 3324 2406 38.2%
Unallocable Income 1438 825 74.3% 2317 12052 -80.8%
Others 0 108 -100.0% 52 193 -73.2%
PBT 10735 8511 26.1% 20508 27223 -24.7%

Capital Employed
E&C 73342 71078 3.2% 73342 71078 3.2%
E&E 11571 11301 2.4% 11571 11301 2.4%
Machinery & Ind products 2723 1935 40.7% 2723 1935 40.7%
Others 2228 1680 32.6% 2228 1680 32.6%
Total 89864 85993 4.5% 89864 85993 4.5%
Unallocable Capital Employed 187628 132307 41.8% 187628 132307 41.8%
Total Capital Employed 277492 218300 27.1% 277492 218300 27.1%

PBIT Margins
E&C 11.2% 10.1% 111bp 11.7% 10.4% 134bp
E&E 12.9% 15.0% -206bp 11.3% 13.6% -223bp
Machinery & Ind products 16.6% 18.2% -166bp 18.3% 19.9% -154bp
Others 10.8% 19.1% -832bp 18.0% 12.9% 512bp
Total 11.7% 11.1% 59bp 12.3% 11.2% 103bp
Source: Company data

We maintain our Hold rating with a TP of Rs1,928 (up from Rs1,912)

We maintain our Hold rating on the company. Our target price moves from Rs1,912 to Rs1,928 as
we roll forward our DCF analysis. We have valued the core engineering business based on DCF,
with a cost of equity of 13% and overall weighed cost of capital of 11%. This takes the core
engineering division’s valuation to Rs1,730 (from Rs1,715).

We have updated our valuations for L&T’s subsidiaries as per the latest balance sheet. We value
L&T IDPL at 1.5x total equity invested, which we believe is fair as some of its projects have
started generating cash flows and the pipeline of projects is strong. We continue to value InfoTech
at 11x FY11F PE based on the average valuation for mid-tier Indian IT companies under our
coverage. We also continue to value L&T Finance at 1.5x FY11F P/B, given its average RoE of
15% for the past four years and the fact that it has strong growth plans.

Table 3 : SOTP valuations for L*&T

Particulars Valuation Basis Value

L&T core engg business DCF valuation 1730
L&T Infotech 11x FY11 earnings 58
LT Finance At 1.5x Adj. BV 28
LT IDPL At 1.5xTotal equity invested(as of Sep 10) 85
Other subsidiaries At 1.5x P/BV 27
Target Price 1928
Source: Company data, RBS forecasts

Larsen & Toubro | Company Dynamics | 18 October 2010 4

 While the macro outlook for L&T is very strong and we remain positive on the company and its
medium-term story, we believe the headwinds outlined previously may limit valuation upside. We
would prefer a defensive approach to the sector and, hence, prefer BHEL over L&T from a 12-
month perspective

Chart 3 : PE band chart Chart 4 : EV/EBITDA band chart

3,000 3,000

2,500 2,500

2,000 2,000

1,500
1,500

1,000
1,000

500
500

0
0 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10
Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10
L&T (EV/EBITDA 8 x)
LT PER (15X) PER (25X) PER (35 X) (EV/EBITDA 15 x) (EV/EBITDA 25 x)

Source: Bloomberg, RBS forecasts Source: Bloomberg, RBS forecasts

Larsen & Toubro | Company Dynamics | 18 October 2010 5

Income statement

Rsm FY09A FY10A FY11F FY12F FY13F

Revenue 339385 370348 441052 574164 647631
Cost of sales -260005 -283705 -337621 -447208 -494650
Operating costs -40158 -38487 -46323 -55588 -66705
EBITDA 39222 48156 57108 71368 86276
DDA & Impairment (ex gw) -3060 -4146 -4985 -5915 -6845
EBITA 36162 44010 52123 65453 79432
Goodwill (amort/impaired) n/a n/a n/a n/a n/a
EBIT 36162 44010 52123 65453 79432
Net interest -4156 -5053 -6761 -6526 -6796
Associates (pre-tax) n/a n/a n/a n/a n/a
Forex gain / (loss) n/a n/a n/a n/a n/a
Exceptionals (pre-tax) 7747 12504 708.4 0.00 0.00
Other pre-tax items 7376 8703 10751 11276 12793
Reported PTP 47129 60164 56822 70204 85429
Taxation -12312 -16409 -17956 -21061 -25629
Minority interests n/a n/a n/a n/a n/a
Exceptionals (post-tax) n/a n/a 708.4 0.00 0.00
Other post-tax items 0.00 0.00 0.00 0.00 0.00
Reported net profit 34817 43755 39574 49142 59800
Normalised Items Excl. GW 7747 12504 1417 0.00 0.00
Normalised net profit 27070 31251 38157 49142 59800
Source: Company data, RBS forecasts year to Mar

Balance sheet

Rsm FY09A FY10A FY11F FY12F FY13F

Cash & market secs (1) 56550 93964 105423 110551 137240
Other current assets 215491 249297 300406 391922 440718
Tangible fixed assets 50538 62231 71946 80731 88586
Intang assets (incl gw) 1408 1427 1727 2027 2327
Oth non-curr assets 37710 60527 70527 80527 90528
Total assets 361697 467446 550029 665758 759399
Short term debt (2) 54537 58451 61451 64451 67452
Trade & oth current liab 147762 190545 224910 293210 328862
Long term debt (3) 11024 9557 9557 9557 9557
Oth non-current liab 23778 25776 41797 47732 55741
Total liabilities 237100 284330 337715 414950 461613
Total equity (incl min) 124597 183116 212314 250808 297787
Total liab & sh equity 361697 467446 550029 665758 759399
Net debt 9011 -25956 -34415 -36543 -60231
Source: Company data, RBS forecasts year ended Mar

Cash flow statement

Rsm FY09A FY10A FY11F FY12F FY13F

EBITDA 39222 48156 57108 71368 86276
Change in working capital -31651 11434 -756.9 -17315 -5168
Net interest (pd) / rec 4156 5053 6761 6526 6796
Taxes paid -12312 -16409 -17956 -21061 -25629
Other oper cash items 3220 3650 3991 4750 5997
Cash flow from ops (1) 2634 51885 49146 44268 68273
Capex (2) -18552 -15858 -15000 -15000 -15000
Disposals/(acquisitions) 0.00 0.00 0.00 0.00 0.00
Other investing cash flow -5769 -41620 -9258 -9966 -9967
Cash flow from invest (3) -24321 -57478 -24258 -24966 -24967
Incr / (decr) in equity 586.7 33.0 0.00 0.00 n/a
Incr / (decr) in debt 29721 2448 3000 3000 3001
Ordinary dividend paid n/a n/a n/a n/a n/a
Preferred dividends (4) n/a n/a n/a n/a n/a
Other financing cash flow -10513 9678 -16428 -17174 -19617
Cash flow from fin (5) 19795 12159 -13428 -14174 -16616
Forex & disc ops (6) n/a n/a n/a n/a n/a
Inc/(decr) cash (1+3+5+6) -1892 6566 11459 5127 26689
Equity FCF (1+2+4) -15917 36027 34146 29268 53273
Lines in bold can be derived from the immediately preceding lines. year to Mar
Source: Company data, RBS forecasts

Larsen & Toubro | Key Financial Data | 18 October 2010

Standard ratios Larsen & Toubro Bharat Heavy Electricals Voltas

Performance FY09A FY10A FY11F FY12F FY13F FY11F FY12F FY13F FY11F FY12F FY13F
Sales growth (%) 35.7 9.12 19.1 30.2 12.8 25.9 16.5 10.1 16.2 16.5 16.2
EBITDA growth (%) 32.1 22.8 18.6 25.0 20.9 32.9 16.0 7.46 1.11 14.8 18.3
EBIT growth (%) 31.1 21.7 18.4 25.6 21.4 35.3 16.2 7.28 0.53 14.9 18.7
Normalised EPS growth (%) 34.3 14.6 22.1 28.8 21.7 34.1 16.9 12.9 -2.23 14.2 17.7
EBITDA margin (%) 11.6 13.0 12.9 12.4 13.3 20.1 20.0 19.5 8.31 8.18 8.33
EBIT margin (%) 10.7 11.9 11.8 11.4 12.3 19.0 18.9 18.4 7.88 7.77 7.94
Net profit margin (%) 7.98 8.44 8.65 8.56 9.23 14.0 14.0 14.4 6.29 6.16 6.24
Return on avg assets (%) 9.44 8.35 8.39 8.80 9.03 10.8 10.4 9.93 9.55 9.05 9.05
Return on avg equity (%) 24.6 20.3 19.3 21.2 21.8 31.7 29.0 26.1 28.6 26.3 25.3
ROIC (%) 29.8 21.4 21.7 24.1 24.4 86.0 72.4 73.9 66.1 48.0 47.1
ROIC - WACC (%) 19.1 10.7 11.0 13.5 13.7 74.9 61.3 62.7 54.8 36.6 35.7
year to Mar year to Mar year to Mar

Valuation
EV/sales (x) 3.56 3.16 2.64 2.02 1.76 2.71 2.21 1.90 1.33 1.13 0.95
EV/EBITDA (x) 30.8 24.3 20.4 16.3 13.2 13.5 11.1 9.74 16.0 13.8 11.4
EV/EBITDA @ tgt price (x) 29.8 23.6 19.7 15.8 12.8 16.2 13.4 11.9 11.1 9.52 7.82
EV/EBIT (x) 33.4 26.6 22.3 17.7 14.3 14.3 11.7 10.3 16.9 14.5 12.0
EV/invested capital (x) 8.75 7.27 6.40 5.32 4.71 8.91 8.07 7.10 7.04 5.76 4.77
Price/book value (x) 9.56 6.55 5.65 4.78 4.03 6.01 4.74 3.83 5.66 4.62 3.78
Equity FCF yield (%) -1.34 3.00 2.85 2.44 4.44 2.23 4.28 4.49 1.16 3.76 4.50
Normalised PE (x) 44.0 38.4 31.4 24.4 20.1 21.4 18.3 16.2 22.1 19.3 16.4
Norm PE @tgt price (x) 42.7 37.2 30.5 23.7 19.4 25.2 21.6 19.1 15.6 13.7 11.6
Dividend yield (%) 0.51 0.63 0.70 0.78 0.93 0.79 0.87 0.95 0.94 1.02 1.07
year to Mar year to Mar year to Mar

Per share data FY09A FY10A FY11F FY12F FY13F Solvency FY09A FY10A FY11F FY12F FY13F
Tot adj dil sh, ave (m) 598.9 603.2 603.2 603.2 603.2 Net debt to equity (%) 7.23 -14.2 -16.2 -14.6 -20.2
Reported EPS (INR) 58.1 72.5 65.6 81.5 99.1 Net debt to tot ass (%) 2.49 -5.55 -6.26 -5.49 -7.93
Normalised EPS (INR) 45.2 51.8 63.3 81.5 99.1 Net debt to EBITDA 0.23 -0.54 -0.60 -0.51 -0.70
Dividend per share (INR) 10.2 12.5 14.0 15.4 18.6 Current ratio (x) 1.34 1.38 1.42 1.40 1.46
Equity FCF per share (INR) -26.6 59.7 56.6 48.5 88.3 Operating CF int cov (x) -2.60 -12.5 -8.93 -9.01 -12.8
Book value per sh (INR) 208.0 303.6 352.0 415.8 493.7 Dividend cover (x) 3.78 3.15 3.95 3.57 4.47
year to Mar year to Mar

Priced as follows: LART.BO - Rs1988.60; BHEL.BO - Rs2524.85; VOLT.BO - Rs234.55

Source: Company data, RBS forecasts

Valuation methodology - SOTP valuations for L*&T

Particulars Valuation Basis Value

L&T core engg business DCF valuation 1730
L&T Infotech 11x FY11 earnings 58
LT Finance At 1.5x Adj. BV 28
LT IDPL At 1.5xTotal equity invested(as of Sep 10) 85
Other subsidiaries At 1.5x P/BV 27
Target Price 1928
Source: Company data, RBS forecasts

Larsen & Toubro | Performance and Valuation | 18 October 2010

Company description Hold Price relative to country

Larsen & Toubro (L&T) is the largest engineering and construction conglomerate in India. The company also has 140

business interests in electrical equipment, construction equipment, information technology, defence equipment 130

and equipment leasing. Until FY04, L&T was the largest manufacturer of cement in India, before it sold off its 120

cement business to Grasim Industries. Recently, L&T partnered with global power equipment major Mitsubishi 110
Heavy to manufacture main plant power-generation equipment with supercritical technology. L&T derives business 100
mainly from capex in infrastructure and industry.
90

80

70
Oct Feb May Sep Dec Apr Aug Nov Mar Jul Oct
07 08 08 08 08 09 09 09 10 10 10

Price relative to country

Strategic analysis Average SWOT company score: 3 Shareholding pattern

Strengths 4
FIIs Custodians
Dominant player in India's non-power engineering and construction businesses, with a diversified customer base. 17% 4% Domestic
Institution
Experienced in handling large projects and has superior project-execution skills. 37%

Weaknesses 2
Non -
The company is predominantly a domestic play, but it needs to expand its foothold in global EPC projects. Institution
42%
Opportunities 5
The thrust by the Government of India in terms of infrastructure development provides new opportunities for the Source: Bombay Stock Exchange
company, such as turnkey solutions. Rising oil prices open capex opportunities in refining and infrastructure
construction projects in Gulf countries.
Market data
Threats 1
Headquarters
Any slowdown in infrastructure development and the investment upcycle would likely hamper the company. Any Larsen & Toubro Ltd, L&T House, Ballard
adverse change in government policies would also likely have an effect. Estate, Mumbai - 400001, India
Website
Scoring range is 1-5 (high score is good)
www.larsentoubro.com
Shares in issue
602.2m
Freefloat
100%
Majority shareholders
Life Insurance Corporation of India (19%), L&T
Employee Welfare Trust (12%), UTI MF (9%)

Country view: India Country rel to Asia Pacific

The macro picture for India has been constructive recently, with GDP and industrial production tracking in line with 170

expectations, while portfolio allocators continue to favour the market for its domestic consumption orientation. 160

However, these positives have already been priced in and we believe risks are rising from the increasing double 150

deficit, demanding valuations and tightening liquidity. 140

130
The country view is set in consultation with the relevant company analyst but is the ultimate responsibility of the Strategy Team.
120

110

100

90
Oct Feb May Sep Jan May Aug Dec Mar Jul Oct
07 08 08 08 09 09 09 09 10 10 10

MarketIndex

Competitive position Average competitive score: 2+ Broker recommendations

Supplier power 3- 30
RM suppliers have a negligible impact on the company. However, L&T is exposed to increases in the prices of key 25
raw materials such as steel, cement, etc.
20
Barriers to entry 4+ 15
High, as the project nature of business calls for experience in diverse end-user sectors and strong execution skills. 10
Customer power 1+ 5
Emergence of newer companies has given customers more choice. However, for specific projects, customers may 0
have to turn to L&T. Buy Hold Sell

Substitute products 2+
Source: Bloomberg
There are substitutes in individual sectors, such as power, construction etc, but none with experience as diverse
as L&T's.
Rivalry 1-
Larsen & Toubro does face some rivalry. Rivals in individual sectors include BHEL in power, HCC in construction
etc.
Scoring range 1-5 (high score is good) Plus = getting better Minus = getting worse

Larsen & Toubro | Strategic and Competitive Overview | 18 October 2010

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Larsen & Toubro | Disclosures Appendix | 18 October 2010