IGI Logo

L&T’s 1QFY24 PAT at INR 24.9bn beat estimate of INR 21.5bn (consensus: INR 19bn) led by higher revenue and higher other income. P&M business EBITDA margin at 7.5% missed estimate of 8.5% but L&T remained confident of meeting its guidance of 9% in FY24 (FY23: 8.6%) with completion of legacy low margin projects in 1H. Order inflows beat estimate and grew 57% YoY to INR 655bn with order backlog at INR 4.1trln (2.9x P&M revenue). NWC remained low at 17% of revenue (16% in Mar-23). L&T approved buyback of 33.3m shares at a maximum price of up to INR 3000/share and consideration of up to INR 100bn. L&T also approved special dividend of INR 6/share which amounts to INR 8.43bn. We estimate a robust 27% EPS CAGR for the P&M business over FY23-25. Further, improved cash distributions along with lower asset intensity should help L&T get closer to its targeted ROE of 18% by FY26 from 12.2% in FY23. Maintain BUY with revised price target of INR 2834. 

* Robust execution led by strong order backlog; made up for margin miss: Consolidated revenue/EBITDA grew by 34%/23% YoY to INR 479bn/INR 48.7bn and materially beat estimate of INR 407bn/ INR 46bn. Execution was particularly strong in Infra (+56% YoY) and Hydrocarbons (+46% YoY) segments. The core P&M business revenue/EBITDA grew by 48%/35% YoY to INR 327bn/INR 24.5bn with P&M margins at 7.5% (estimate: 8.5%, down 70bps YoY). Stronger execution compensated for miss in margins. Management indicated these margins are within its internal budgets and sounded confident of the guided P&M margin of 9% for FY24 (FY23: 8.6%).  

* Strong inflows in 1Q boosts backlog; robust prospects pipeline led by Hydrocarbons: Consolidated order inflows grew 57% YoY to INR 655bn with P&M inflows of INR 504bn (+79% YoY) in 1QFY24. Order backlog is at record high of INR 4.1trln (2.9x TTM revenues). Prospects pipeline for order wins at INR 10.1trln (+34% YoY) for the balance 9MFY24 strengthened over the Mar-23 pipeline of INR 9.73trln (usually it comes down as year progresses). Hydrocarbons segment is the incremental driver of this increase.  

* Maintains FY24 guidance; monetization progressing well: L&T maintained its FY24 growth guidance of 10-12% in order inflow and 12-15% in revenue for the P&M business. We expect L&T to achieve upper end of this guidance. Hyderabad Metro has received state support of INR 5.5bn till date with Rs10bn pa each likely over 3 years. It also expects to monetise INR 20bn worth TOD real estate in Hyderabad over 2 years. IDPL monetization (likely to be completed by Dec-23) should fetch proceeds of c.INR 14bn. In 1QFY24 L&T sold commercial real estate worth INR 2bn in Mumbai.

* Expect 27% CAGR in P&M earnings; valuations elevated but well supported: We expect EPS CAGR of 27% over FY23-25 for L&T’s P&M business. Asset intensity continues to reduce which along with strong growth and push from increased cash distribution to shareholders bodes well for ROE expansion to targeted level of 18%. Valuations at 21.5x FY25E P&M business EPS remain supported by these tailwinds. Our revised SOTP-based price target of INR 2,834 values the P&M business at 25x FY25E EPS. Maintain BUY.  

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

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