IGI Logo

Strong outlook

L&T’s Q3FY23 recurring PAT at Rs24.2bn was below estimate of Rs26bn largely due to miss in E&C and IT business margins. Reported PAT of Rs25.5bn includes net one-time gain of Rs1.36bn on sale of MF business (net of Rs20.1bn write-down in loan book of wholesale financing business). E&C EBITDA at Rs26.8bn missed estimate of Rs28.6bn due to lower than expected infrastructure margins. Order inflows beat estimate and grew 21% YoY to Rs607bn with backlog at Rs3.9tn (+14% YoY, 3.2x E&C revenue). NWC remained low at 19% of revenue (20.2% in Sept-22). Order intake and execution guidance for FY23 have been re-iterated but margin guidance has been lowered from flat YoY (FY22: 9.3%) to 30-50bps YoY decline. Robust order intake, supportive NWC environment, likely bottoming of margins and continued improvement/divestment in the developmental assets business are key positives. Maintain ADD with PT of Rs2246.

Order intake and execution robust; NWC levels benign; margins missed estimate

Consolidated revenue/EBITDA grew by 17%/12% YoY to Rs464bn/Rs50.7bn. Revenue growth was led by Infra segment (+20% YoY) while Hydrocarbons revenue grew by 9.8% YoY. Infra segment margins declined 10bps YoY to 7% and were below estimate of 7.6% due to cost pressures. IT segment margins declined sharply by 460bps YoY due to higher employee and LTI-Mindtree merger related costs. Consolidated order inflows grew 21% YoY to Rs607bn with E&C order inflow of Rs457bn (+20% YoY). Working capital improved QoQ from 20.2% in Sept-22 to 19% in Dec-22

Robust bid pipeline; tender to award conversion strong

Domestic tendering activity remained strong in Q3FY23 with award to tender ratio of 56% against 57% in Q3FY22. L&T’s order prospects for Q4FY23 remains robust at Rs4.87tn (domestic: Rs3.82tn, International: Rs1.05tn). Bid pipeline is spread across verticals with Infrastructure with major share at Rs3.89tn (domestic: Rs3.27tn, International: Rs0.62tn) followed by Hydrocarbon at Rs0.61tn.

Growth outlook re-affirmed; margin guidance moderated

L&T has re-affirmed its FY23 order intake and revenue growth guidance of 12-15% with bias at the upper end. While L&T lowered its E&C margin guidance from flat YoY to 30- 50bps YoY decline in FY23E (FY22: 9.3%), it has guided for sequential improvement hereon. Hyderabad metro ridership improved to 394k/day in 3QFY23 (285k in 1QFY23, 357k in 2QFY23). L&T has provided support of Rs3-3.5bn to Hyderabad Metro in YTDFY23 but does not see need for any incremental funding. Of the agreed state support of Rs30bn from Telangana, Rs1bn has been received and further Rs9bn is likely in Q4FY23. Also, L&T expects TOD (Transit Oriented Development) monetisation of Rs10bn each in FY24 and FY25 to support the asset’s debt repayment commitments]

Earnings growth strong; positive developments in the assets business; Maintain ADD

We expect 18% CAGR in L&T’s E&C business earnings over FY22-25 (E&C EPS: Rs48.3/Rs60.1/Rs74.2 in FY23E/FY24E/25E). Robust order intake, supportive NWC environment, likely bottoming of margins and continued improvement/divestment in the developmental assets business are key positives. Maintain ADD with PT of Rs2246.

To Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

Above views are of the author and not of the website kindly read disclaimer