Asia Pacific Research - July 19, 2023

Equity Research Report

Larsen & Toubro Ltd. Reco : BUY
Revenue in UP-Trend, retain BUY! CMP : Rs 2494
Target Price : Rs 3075
About the Company
Potential Target : +23.3%
Larsen & Toubro (L&T) is a multinational conglomerate headquartered in
Mumbai, India. It is one of the largest and most respected engineering and Stock data (as on June 10, 2023)
construction companies in India and has a global presence in over 30 Nifty 19,833
countries. L&T operates across various industry sectors, including 52 Week H/L (in Rs) 2504/1715
engineering, construction, infrastructure, power, defense, technology, and
Market Cap (in Rs/USD mn) 348000 / 4240
financial services.
Outstanding Shares (mn) 14100.6
L&T has a robust engineering, procurement, and construction (EPC)
Dividend yield (%) 0.97%
business, undertaking complex projects such as buildings, airports, metro
NSE Code LT
rail systems, power plants, oil and gas facilities, and infrastructure
development. The company is known for its expertise in project Valuations Measures
management, engineering design, and construction execution.
In addition to its EPC business, L&T has diverse business divisions. These Market Cap (intraday) 3.48T
include L&T Construction, L&T Infotech, L&T Technology Services, L&T Enterprise Value 4.14T
Hydrocarbon Engineering, L&T Financial Services, L&T Realty, and L&T
Trailing P/E 32.94
Metro Rail (which is involved in building and operating metro rail systems in
Forward P/E 23.42
India).
Price/Sales (ttm) 1.92
Price/Book (mrq) 3.89
Enterprise Value/Revenue 2.28
Q4FY23 - Results Synopsis Enterprise Value/EBITDA 17.49
The company declared that its consolidated profit after tax for the three
months ended March 31, 2023, increased by 45% year over year (YoY) to ₹4459
crore. In the same quarter of the prior fiscal year, the company had reported a Shareholding Pattern ( Mar 31, 2023)
net profit of ₹4138 crore. Promoter 0.23%
FII 25.29%
For the quarter ended March (Q4FY23), the company's revenue from
operations surged 10.12% year-on-year to ₹58335 crore from ₹52851 crore in DII 38.01%
March 2022. Public 36.47%

In the March quarter, the company's total expenses increased by about 11.33%
to ₹ 49981 crore, from ₹ 44892 crore in the same quarter of the prior fiscal
Financial Summary
year.
Rs. (in mn) FY23 FY24E FY25E
Net Revenue 183340 1,98,307 2,18,249
Earnings before interest, taxes, depreciation, and amortization (EBITDA) rose by
5% to 8354 crore in the first quarter of CY2023, and EBITDA margins consistent YoY Growth (%) 8.0% 32.3% 13.2%
at 17%. EBITDA 25326 31,637 39,756
EBITDA(%) 13.8% 14.1% 14.4%
•Adjusted standalone revenue was up 10.9% YoY to ₹ 32989.2 crore
•Standalone EBITDA up 7.8% YoY to ₹ 3869.6 crore, margins dipped 173 bps to PAT 9559 10,220 12,265
10.3% on a YoY basis. YoY Growth (%) 8.3% 9.8% 11.7%
•Consequently, standalone adjusted PAT at ₹ 2901.2 crore (up 17.6% YoY) ROE 16.40% 19.95% 21.50%
•Order inflows came in at ₹ 73,900 crore, up 46% YoY
EPS 68.02 77.36 92.89
EV/EBITDA 17.7x 25.7x 32.5x
L&T Ltd.has consistently prioritized rewarding its shareholders through a P/BV 3.89x 4.6x 6.1x
generous dividend payout. The company has maintained a dividend payout
ratio of 37.2 percent. This higher dividend payout ratio reflects companies
commitment to providing attractive returns to its shareholders and
underscores its financial strength and confidence in future growth
prospects. Prepared by: Your Name
Guided by: Parth Verma (The Valuation School)
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Larsen & Toubro Ltd.

Exhibit 1: Financials

Q1FY22 Q2FY22 Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23 Q4FY23

Sales + 48,088 29,335 34,773 39,563 52,851 35,853 42,763 46,390
Expenses + 40,007 26,163 30,778 33,581 44,892 31,897 36,400 39,736
Operating Profit 8,081 3,171 3,995 5,982 7,959 3,957 6,362 6,653
OPM % 17% 11% 11% 15% 15% 11% 15% 14%
Other Income + 1,028 648 629 571 516 695 739 891
Interest 2,670 827 779 2,267 2,147 756 2,304 2,383
Depreciation 817 717 729 732 769 963 860 825
Profit before tax 5,623 2,275 3,116 3,554 5,558 2,932 3,937 4,336
Tax % 37% 32% 28% 30% 28% 22% 28% 29%
Net Profit + 3,696 1,532 2,232 2,517 4,138 2,228 2,785 3,058
EPS in Rs 23.44 8.36 12.95 14.63 25.77 12.11 15.86 18.17

Exhibit 2: Supplemental Metrics

Particulars (Rs. Mn) Q1FY22 Q2FY22 Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23 Q4FY23 Trend
EBITDA 5,738 5,213 1,696 5,263 12,397 6,725 3,797 7,605
EBITA 4,420 3,931 429 3,997 10,975 5,458 2,450 6,258
EBIT 4,420 3,931 429 3,997 10,975 5,458 2,450 6,258
Basic EPS 4.7 3.7 0.3 3.9 12.1 5.9 1.2 6.6
Dividends per Share 1.1 0.0 0.6 - 2.5 0.0 1.0 -
Effective Tax Rate % 24.0% 26.4% 22.1% 25.0% 24.5% 22.6% 9.0% 23.5%
Source: Company Reports, The Valuation School Research

Exhibit 3 : Key Ratios

Particulars Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23
Debto Turnover Ratio 3.06x 3.89x 3.81x 3.61x 3.67x 3.57x 3.22x 3.39x 4.10x
Creditor Turnover Ratio 1.57x 1.60x 1.59x 1.46x 1.48x 1.48x 1.35x 1.41x 1.52x
Inventory Turnover 14.12x 20.83x 26.41x 24.69x 21.08x 25.31x 23.36x 26.34x 26.85x
Fixed asset Turnover 2.65x 7.13x 6.55x 6.44x 6.38x 3.33x 3.07x 3.66x 4.29x
Capital Turnover Ratio 2.44x 2.47x 2.47x 2.38x 2.46x 2.33x 2.04x 2.06x 2.22x

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Con-Call Q4FY23 – Key Highlights

L&T total ordering prospects/pipeline for FY23E stands at | 853000 crore, which comprises of | 631000 crore
of domestic and | 220000 crore of international pipeline. L&T has become more selective in choosing
business opportunities coupled with a strong backlog gives convenience to the company to use
discretion for winning relatively profitable orders.

From a segment perspective, Infrastructure segment prospects are pegged at |572000 crore
The management commentary suggests that tendering activity was quite robust in Q3FY22 but the same
did not get converted into order finalisations and award. This was quite evident from the Award to
Tendering ratio which stood at 48% in Q3FY22 vs. 61% in Q3FY21.

Improvement in this particular ratio in Q4Y22 and ramp up in spending by PSU and States for their
respective capex might lead to strong order inflows for L&T in Q4FY22E.

L&T has given a guidance of 12-15% revenues and order inflow growth for FY23E. The margins guidance
has been pegged at 9.5% given the volatile commodity outlook. On the working capital to sales ratio the
company has guided for a range of 20-22% even though company will strive to achieve the lower end of
the range.

In terms of client exposure, central government forms 11% of the domestic backlog while the share of state
governments, PSU and private sector stands at 29%, 45% and 16% respectively. Out of the total backlog of |
357600 crore, 30% of the same is funded by multilateral agencies. In terms of ordering, inflows and order
finalisations are happening at brisk pace from Central government and PSU’s/State owned enterprises
but the same is lagging behind from the state governments.

The net working to capital ratio significantly improved from 23.2% in Q3VY22 and 22.2% in Q4FY21 to 19.9%.
The company has generated strong cash flow from operations in FY22 to the tune of | 15000 crore. Also
from a leverage perspective, standalone entity has very low debt while the debt for concessions portfolio
is down by |2100 crore and standalone entity is down by |4300 crore in FY22
.
On the labour front, the company has gradually ramped-up to 263000 labourers leading to near normal
requirement in FY22

Developments at Hyderabad Metro: Hyderabad Metro is witnessing resurgence in ridership with daily
ridership at over 300000 passengers in Q1FY23, which had suffered in Q4FY22 (199000 riders per day) on
account of Omicron. Hence the average ridership on per day basis for FY22 stood at 155000. The
subsidiary for the posted a positive EBITDA 2.4% EBIDTA. But on account of higher interest cost and
depreciation, the loss for Q4FY22 was at |349 crore. Total loss for FY22 stood at |1700 crore.
The refinancing of the L&T Hyderabad metro happened on Dec 2021 wherein the bank debt of |13000 crore
.

Other Developmental Projects: The company will shorty sell out the remaining 51% in L&T IDPL (Road
Assets) and also in active talks to hive off power subsidiary Nabha power. This exits are likely to happen
on FY23.

Five-year plan: Lakshya 2026: The company will focus on emerging portfolios like Green EPC,
Manufacturing of electrolysers, Battery & Cell manufacturing, DatRa Centres and Platforms (Sufin &
Edutech). 18%
 On the capex side, the company intends to put a 500 MW electrolyser manufacturing capacity by FY26
and scale it upto 1000 MW by FY28 at total outlay of | 1000-1100 crores. Which will be funded by internal
accruals. On the battery cell manufacturing side, the company intends to put up a 5000 MW capacity by
FY2028.

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Quarterly Trends
Exhibit 4: Revenue grew up 37% YoY Exhibit 5: EBITDA grew 44% & Margins 92bps YoY
(Rs. Mn) (Rs. Mn)
55,000 EBITDA EBITDA (%)

45,000 12,500
10,500 25.0%
35,000 8,500
20.0%
6,500
25,000
4,500 15.0%
15,000 2,500
500 10.0%
5,000
Q4F22 Q1F23 Q2F23 Q3F23 Q4F23
Q4F22 Q1F23 Q2F23 Q3F23 Q4F23

Source: Company Reports Source: Company Reports

Exhibit 5: PAT grew 44% & Margins 203 bps YoY Exhibit 5: EV/Revenue grew 42% & EBITDA 24%
(Rs. Mn)
PAT PAT (%) EV/Revenue EV/EBITDA

8000 16.0%
14.0% 8.5x 31.0x
6500
12.0% 7.5x 29.0x
5000 10.0%
3500 8.0% 6.5x 27.0x
6.0%
2000 5.5x 25.0x
4.0%
500 2.0% 4.5x 23.0x
Q4F22 Q1F23 Q2F23 Q3F23 Q4F23 Q4F22 Q1F23 Q2F23 Q3F23 Q4F23

Source: Company Reports Source: Company Reports

Exhibit 6: Volume grew up 24.4% YoY Exhibit 7: Category-wise mn unit cases

(Mn unit cases)
320
CSD Juice Water

250 60
270
200 50

220 40
150
30
100
170 20
50 10
120 0 0
Q4F22 Q1F23 Q2F23 Q3F23 Q4F23 Q4F22 Q1F23 Q2F23 Q3F23 Q4F23

Source: Company Reports Source: Company Reports

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Peer Comparison
Exhibit 11: Peer Stock Performance
Peer Stock Performance (1Y)- Indexed

Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23
Source: Yahoo Finance

Exhibit 12: Peers

Name CMP Rs. Mar Cap Rs.Cr. PEG P/E Debt Rs.Cr. EBIT 12M Rs.Cr. ROCE Prev Yr % OPM Prev Ann % Div Yld % EV / EBITDA

Larsen & Toubro 2484 349144.29 9.03 33.59 120650.44 26206.64 10.96 15.54 0.97 15.06

GMR Airports Inf 44.75 27010.88 32157.06 1362.91 5.99 49.66 0 22.93

Rites 416.5 10008.65 1.91 18.42 5.42 780.96 30.16 27.4 3.52 7.75

HFCL 66.02 9095.98 2.48 30.23 768.12 582.8 19.18 13.75 0.28 14.33

Engineers India 130.2 7317.81 -10.55 21.1 18.88 447.01 25.37 11.88 1.51 13.2

Source: Screener.in

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Analyst Coverage Universe

Exhibit 13: Peers Financial Performance

# DATE Research House Rating Price at Reco Target

1 03-May-23 ICICI Securities Limited Hold 1430.2 1400
2 03-May-23 Axis Direct Buy 1430.2 1600
3 03-May-23 ICICI Direct Hold 1430.2 1470
4 02-May-23 Keynote Capitals Ltd Buy 1415.1 1626
5 02-May-23 Motilal Oswal Buy 1415.1 1690
6 16-Mar-23 ICICI Securities Limited Hold 1306.15 1290
7 09-Mar-23 Motilal Oswal Buy 1345.75 1620
8 24-Feb-23 Axis Direct Buy 1291.55 1500
9 08-Feb-23 Bonanza Buy 1304.1 1520
10 07-Feb-23 Axis Direct Buy 1304.1 1450
11 07-Feb-23 Keynote Capitals Ltd Buy 1304.1 1461
12 07-Feb-23 ICICI Direct Hold 1304.1 1340
13 07-Feb-23 ICICI Securities Limited Hold 1221.85 1225
14 06-Feb-23 Motilal Oswal Buy 1221.85 1550
15 04-Dec-22 Keynote Capitals Ltd Buy 1318.6 1540
16 03-Nov-22 Bonanza Hold 1189 1317
17 02-Nov-22 Axis Direct Buy 1127.5 1300
18 02-Nov-22 ICICI Securities Limited Hold 1107 1150
19 01-Nov-22 Motilal Oswal Buy 1127.5 1330
20 11-Oct-22 Motilal Oswal Buy 1068.35 1230
Source: Trendlyne

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hence it should not be relied upon as such.
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