UBS Investment Research
L & T
Margin guidance revision a negative
s urprise; results ahead of expectations
Event: Operating profit +17% y/y, execution remains strong (+19% y/y)
Q2FY12 PAT was Rs8bn (+15% y/y, UBS-e/Consensus ~Rs7.2bn), operating
profit Rs11.7bn (+17% y/y, UBS-e/consensus Rs11.6bn) and revenues Rs112bn
(+19% y/y, strong given current environment, UBS-e/consensus Rs109bn). Order
inflows were Rs161bn and order bk is Rs1,422bn. H1 orders down 11% y/y (25%
from overseas; implied H2 growth 9% to meet UBS-e, 18% to meet co guidance).
Impact: Order guidance revision expected, margin revision a surprise
Downward revision in order inflow guidance (+5% y/y vs 15-20% earlier; UBS-e
of flat orders in FY12) was expected in our view. However, downward revision in
margin guidance (75-125bps downside risk, 50-75bps earlier) was a surprise
(UBS-e 50bps decline). L&T’s mid-term review indicated that commodity price
impact for fixed price contracts could be higher than earlier expectations.
Action: Downgrade earnings by ~4% based on lower margins
We revise EPS to Rs79.9/92.5/109.5 from Rs82.3/96.5/113.5 for FY12E/13E/14E
based on lower margins- we factor 100bps decline in FY12 and a further 20bps in
FY13. We maintain our revenue (+19% y/y, guidance 25%) and order estimates.
Valuation: Revise PT on lower earnings
There could be near-term weakness due to unexpected margin revision/lowering of
consensus estimates. We maintain Buy as we believe structural story is intact and
that L&T will benefit due to its strong balance sheet/execution track
record/diversified exposure.
L & T
Margin guidance revision a negative
s urprise; results ahead of expectations
Event: Operating profit +17% y/y, execution remains strong (+19% y/y)
Q2FY12 PAT was Rs8bn (+15% y/y, UBS-e/Consensus ~Rs7.2bn), operating
profit Rs11.7bn (+17% y/y, UBS-e/consensus Rs11.6bn) and revenues Rs112bn
(+19% y/y, strong given current environment, UBS-e/consensus Rs109bn). Order
inflows were Rs161bn and order bk is Rs1,422bn. H1 orders down 11% y/y (25%
from overseas; implied H2 growth 9% to meet UBS-e, 18% to meet co guidance).
Impact: Order guidance revision expected, margin revision a surprise
Downward revision in order inflow guidance (+5% y/y vs 15-20% earlier; UBS-e
of flat orders in FY12) was expected in our view. However, downward revision in
margin guidance (75-125bps downside risk, 50-75bps earlier) was a surprise
(UBS-e 50bps decline). L&T’s mid-term review indicated that commodity price
impact for fixed price contracts could be higher than earlier expectations.
Action: Downgrade earnings by ~4% based on lower margins
We revise EPS to Rs79.9/92.5/109.5 from Rs82.3/96.5/113.5 for FY12E/13E/14E
based on lower margins- we factor 100bps decline in FY12 and a further 20bps in
FY13. We maintain our revenue (+19% y/y, guidance 25%) and order estimates.
Valuation: Revise PT on lower earnings
There could be near-term weakness due to unexpected margin revision/lowering of
consensus estimates. We maintain Buy as we believe structural story is intact and
that L&T will benefit due to its strong balance sheet/execution track
record/diversified exposure.
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