Post on 09-May-2018
May 30, 2017
ICICI Securities Ltd | Retail Equity Research
Result Update
Balance sheet mend continues…
Larsen & Toubro (L&T) reported a mixed set of Q4FY17 numbers. The
company reported healthy topline growth. However, muted
execution in some segments impacted EBITDA and PAT growth. L&T
reported strong order intake of | 47,289 crore, up 9.6% YoY. Also,
going forward, the company has guided at 12% growth in its
revenue and 12-15% growth in its order intake. L&T reported a
significant improvement in cash-flows. In Q4FY17, CFO came in at
| 7300 crore (up by | 3000 crore YoY) and | 12,200 crore in FY17,
which is up 58.4% YoY (| 7700 core in FY16). From a balance sheet
perspective, net working capital also saw a significant improvement
to 19% of sales in FY17 from 23% of sales in FY16
Standalone revenues for the quarter grew 5.5% YoY to | 23,499.6
crore vs. our estimate | 22708.1 crore. On a consolidated basis,
revenues came in at | 36800 crore, up 12% YoY. Infrastructure
segment revenues disappointed, up 10% while hydrocarbon
segment revenues grew 6% YoY. On the negative side, revenues
from the power, heavy engineering segment fell 3%, 4% respectively
Standalone EBITDA margin was at 12.9% whereas consolidated
margins were at 11.8%. Key miss was from margin disappointment
in infrastructure segment wherein EBITDA margins for Q4FY17 were
at 13.5% vs. 16.1% in Q4FY16. On the positive side, heavy
engineering segment reported strong revenue of 26% whereas
hydrocarbon saw a solid recovery in margin to 9.8% in Q4FY17
Execution in international market to remain robust; domestic likely to
recover in FY18E
For FY17, revenues from international markets grew in excess of 15%
YoY on the back of planned execution wherein domestic revenues were
a laggard during FY17 on the back of liquidity issues, client side delays
and demonetisation (impacting the buildings and factories segment).
Going ahead also, FY18E will see growth in excess of 15% YoY wherein
domestic execution is likely to witness a gradual up-tick. The
management guidance of 12% growth builds in a moderate pick-up in
domestic execution. Going ahead, we have pencilled in 10% and 13%
YoY growth in standalone revenues in FY18E and FY19E, respectively.
Balance sheet mend gaining traction
From a balance sheet perspective, net working capital saw a significant
improvement during Q4FY17 as the same was at 19% of sales vs. 23%
of sales in FY16. Even from a cash flow perspective, the company
generated CFO to the tune of | 12200 crore in FY17 vs. | 7700 crore in
FY16. This is also reiterated by interest costs that were down, on a
standalone, consolidated basis, by 10.2%, 6% YoY, respectively.
Best play on domestic capex cycle recovery; maintain BUY
Focus on improvement of working capital, generation of cash flows and
staying away from BoT assets make us believe that L&T is moving in the
right direction. This has laid a strong foundation for the next leg of
growth. Going ahead, we expect L&T to deliver 11.5% and 10% PAT
CAGR, respectively, in FY17-19E. With most equity infusion in L&T IDPL
over, we expect L&T’s road to improvement of RoEs to be achievable.
Post the recent rally, we expect L&T to have further legs to make an up
move as we believe it is the best play on domestic capex recovery. We
upgrade the target price to | 2090 (SoTP basis) and maintain BUY.
Rating matrix
Rating : Buy
Target : | 2090
Target Period : 12 months
Potential Upside : 19%
What’s Changed?
Target Chnaged from |1635 to |2090
EPS FY18E Changed from | 65.2 to | 65
EPS FY18E Introduced at | 69.5
Rating Unchanged
Quarterly Performance
Q4FY17 Q4FY16 YoY (%) Q3FY17 QoQ (%)
Revenue 23,499.7 21,061.3 11.6 12,150.0 93.4
EBITDA 3,021.1 3,193.2 -5.4 964.2 213.3
EBITDA (%) 12.9 15.2 -231 bps 7.9 492 bps
PAT 1,254.2 2,616.4 -52.1 550.1 128.0
Key Financials
| Crore FY16 FY17E FY18E FY19E
Net Sales 59,779.6 66,301.4 73,027.7 82,459.7
EBITDA 6,182.1 6,425.2 7,835.2 8,858.6
Net Profit 5,064.1 4,708.2 6,015.2 6,427.0
EPS (|) 54.8 50.9 65.0 69.5
Valuation summary
es
FY16 FY17E FY18E FY19E
P/E 32.0 34.4 26.9 25.2
Target P/E 26.9 29.0 22.7 21.2
EV / EBITDA 26.4 26.1 21.8 19.1
P/BV 4.1 3.8 3.5 3.2
RoNW (%) 12.8 11.1 13.0 12.8
RoCE (%) 10.3 10.0 11.5 12.1
Stock data
Particular Amount
Market Capitalization | 161857.5 Crore
Total Debt (FY17) |10500 Crore
Cash and Investments (FY17) |3000 Crore
EV |169358 crore
52 week H/L |1893/ | 1069
Equity capital | 185 Crore
Face value | 2
Price performance (%)
1M 3M 6M 12M
Larsen & Toubro Ltd 4.8 (4.9) 9.0 59.8
BHEL 1.5 3.8 17.0 66.0
Thermax Ltd 5.0 10.5 30.5 75.4
Crompton Greaves (14.7) (13.5) (16.0) 37.1
Larsen & Toubro (LARTOU) | 1760
Research Analyst
Chirag Shah
shah.chirag@icicisecurities.com
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis
Q4FY17 Q4Y17E Q4FY16YoY (Chg %) Q3FY17QoQ (Chg %) Comments
Revenue 23,499.7 22,708.1 21,061.3 11.6 12,150.0 93.4 Revenues were higher than estimates on account of better execution
in heavy engineering, E&A and others segment
Other Income 345.3 567.7 736.7 -53.1 482.6 -28.4
Employee Expenses 1,364.1 1,112.7 1,037.2 31.5 1,289.8 5.8
Raw Material Expenses 15,832.0 17,144.6 16,213.1 -2.4 9,244.1 -154.0
Other Operating Expenses 836.5 772.1 617.8 35.4 652.0 28.3
EBITDA 3,021.1 3,678.7 3,193.2 -5.4 964.2 213.3 EBITDA was lower than expectations owing to higher employee
expenses and other operating expenses
EBITDA Margin (%) 12.9 16.2 15.2 -231 bps 7.9 492 bps
Depreciation 396.3 277.3 254.5 55.7 279.3 41.9
Interest 269.3 365.2 397.3 -32.2 331.1 -18.7 Better working capital management led to lower interest costs
PBT 2,700.8 3,603.9 3,278.0 -17.6 836.3 223.0
Total Tax 485.7 899.8 661.6 -26.6 286.2 69.7
PAT 1,254.2 2,704.1 2,616.4 -52.1 550.1 128.0 PAT was below estimates on account on miss on margins and one-off
to tune of | 961 crore
Key Metrics
Order inflows 34,900.0 30,000.0 38,700.0 -9.8 31,000.0 12.6 Order inflow was better than estimates
Order backlog 258,600.0 255,000.0 255,000.0 1.4 251,000.0 3.0 Backlog provides strong visibility for next two to three years
Source: Company, ICICIdirect.com Research
Change in estimates
(| Crore) Old New % Change Old New % Change
Revenue 76,017.6 73,027.7 -3.9 - 82,459.7 -
EBITDA 8,161.0 7,835.2 -4.0 - 8,858.6 -
EBITDA Margin (%) 10.7 10.7 -1 bps - 10.7 -
PAT 6,030.8 6,015.2 -0.3 - 6,427.0 -
EPS (|) 65.2 65.0 -0.3 - 69.5 -
We have revised the margins down due to execution issues
Lower margins in FY17E has led to downward revision of PAT
FY18E FY19E
Comments
Source: Company, ICICIdirect.com Research
Assumptions
Comments
FY16 FY17 FY18E FY19E FY18E FY19E
Order Inflow growth -16.3 -3.7 12.4 13.4 14.1 - In term of order inflows, infrastructure segment (both domestic and international)
will dominate intake while hydrocarbon and defence are also expected to
contribute significantly
Order Backlog growth 7.4 1.2 4.4 30.7 4.0 -
Revenue growth 4.8 10.9 10.1 12.9 16.0 - Execution in domestic market will pick up in FY18E on a low base
EBITDA Margins 10.3 9.7 10.7 10.7 10.7 -
Current Earlier
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 3
Key results and analyst meet highlights
L&T reported a strong order intake of | 47,289 crore, up 9.6% YoY.
Also, going forward, the company has guided 12% growth in its
revenue and 12-15% growth in its order intake. In terms of
opportunities, L&T expects to bag orders to the tune of | 15000 crore
and | 10000 crore from the hydrocarbon and the defence segment.
The order inflow growth expectation is 10-15% growth in the
infrastructure segment. In MENA markets, the management
commentary seems to be mixed badly as they expects Saudi Arabia
and Kuwait to continue to spend on downstream hydrocarbon and
power T&D while countries like Oman and Qatar are expected to see a
slowdown in ordering trends
During Q4FY17, the company reported a backlog of | 216000 crore.
However, the company removed | 18000 crore worth of non/slow
moving orders from the backlog. These orders were from the building
& factories and Power T&D space
In terms of segmental performance, infrastructure segment revenues
grew 4% YoY to | 202300 crore while power segment reported a
flattish YoY performance. Hydrocarbon & heavy engineering reported
revenues to the tune of | 2579 crore and | 1035 crore, respectively
The company has guided for 12% revenue growth guidance and 12-
14% order inflow growth guidance for FY18E. The margins are
expected to improve 50 bps
From a balance sheet perspective, net working capital saw a
significant improvement during Q4FY17 as the same was at 19% of
sales vs. 23% of sales in FY16. From a longer basis, the company
expects the ratio at 18% of sales by FY21E
In Q4FY17, CFO came in at | 7300 crore (up by | 3000 crore YoY) and
| 12,200 crore in FY17, which is up 58.4% YoY (| 7700 core in FY16).
The consolidated debt was at | 94000 crore while standalone debt
reduced from | 14000 crore to | 10500 crore as of Q4FY17
The work on Hyderabad metro is completed to the tune of 70%. The
project is slated to be fully commissioned by December 2018. The
company is expecting a favourable settlement with the respective
state government within next year
ICICI Securities Ltd | Retail Equity Research Page 4
Company Analysis
Macros sensitivity does impact L&T’s prospects but intensity moderating
L&T’s order inflows have scaled up by ~8x in FY04-15, representing a
robust CAGR of 23% over the same period. In absolute terms, L&T’s order
inflows were at | 13,200 crore in FY04, which have eventually scaled up
to | 126500 crore by FY15 (excluding hydrocarbon business). This
outsized growth in order flows is attributable to a high quality
management, superior and timely execution track record, capability to
execute mega sized projects across segments, stringent risk management
techniques, timely diversification across sectors/geographies and credible
reputation among private sector clients. Revenue growth as a percentage
of GDP growth has averaged at 1.4x while order inflow growth as a
percentage of GDP growth has averaged at 1.7x in FY05-14. Going ahead,
even though capital formation is weak, we expect L&T to maintain a ratio
of 1.2x and 1.5x with respect to revenues and order inflows, respectively,
vis-à-vis GDP growth. We expect L&T to report revenue CAGR of 11.5% in
FY17-19E, on a high base. We expect L&T to report standalone revenues
of | 73028 crore and | 84560 crore in FY18E and FY19E, respectively.
Over the next three to five years, we expect L&T’s revenue growth to be
propelled by the infrastructure division as over 75% of the backlog and
50% of the new order wins are coming from these segments. We have
noted that L&T has been able to meet most its yearly guidances across
order inflow growth, revenue growth and margins.
Exhibit 1: Trend in revenue growth
333.7369.7
438.5
531.9
608.3568.4586.7
617.0663.0
730.3
824.6
0
100
200
300
400
500
600
700
800
900
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
(|
billion)
-10
0
10
20
30
40
(%
)
Revenue YoY Growth
Source: Company, ICICIdirect.com, Research
Exhibit 2: How has L&T fared vis-à-vis its cycles across business cycles
Guidance Achievement Guidance Achievement
FY08 30 40 30-35 45
FY09 30 28 30.00 47
FY10 25-35 41 15-20 14
FY11 25 14 20.00 19
FY12 5 -12 25 21
FY13 15-20 25 15-20 15
FY14 15-20 15 15 10
FY15 20 22 15 3
FY16 0 -13 15 12
FY17 10 5 10 5
FY18E 43083 - 12 -
Inflow Growth (%) Revenue Growth (%)
Source: Company, ICICIdirect.com, Research
Diversity: L&T’s biggest USP both during up/down turns in capex cycle
L&T’s current order backlog of | 261300 crore (Q4FY17, excluding
hydrocarbon & services) is highly diversified across segments and
geographies. Out of the current backlog, the infrastructure segment
(roads, buildings & factories, urban infra, airports) comprises 75% of the
backlog whereas power (generation & T&D) and process (metals &
material handling) segment’s share is at 5% and 5%, respectively. Others
(defence, shipbuilding and electronic products), on the other hand,
constitute 9% of the backlog. However, with the focus of the government
on reforming the power sector and opening of defence sector and L&T’s
vigorous efforts to scale up international hydrocarbon business (vision of
$5 billion in revenues), share of these segments can rise sharply in the
next five years.
ICICI Securities Ltd | Retail Equity Research Page 5
Going ahead, we have built in order inflows of | 114100 crore and
| 129300 crore in FY17E and FY18E, respectively. We expect L&T to end
with a standalone order backlog of | 324220 crore by FY19E end.
Exhibit 3: Break-up of backlog
39%
36%
41%
33%
36%
43%
49%
67%
69%
70%
78%
70%
68%
71%
71%
75%
75%
74%
75%
74%
16%
16%
22%
30%
32%
28%
28%
10%
9%
8%
10%
9%
11%
10%
10%
8%
8%
7%
6%
5%
19%
23%
14%
15%
12%
10%
8%
6%
6%
6%
7%
7%
7%
6%
5%
6%
8%
8%
10%
12%
14%
16%
16%
16%
15%
10%
9%
9%
7%
6%
4%
5%
5%
5%
5%
4%
3%
3%
5%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
FY07
FY08
FY09
FY10
FY11
FY12
FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14*
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q3FY16
Q4FY16
H1FY17
9MFY17
FY17
Infrastructure Power Hydrocarbons Process Others
Source: Company, ICICIdirect.com Research
*: Does not include Hydrocarbon segment orders as the division was hived off into separate subsidiary.
Margins to improve gradually to 10.7% by FY19E
EBITDA margins have averaged at 11.4% in FY08-16. EBITDA margin,
primarily, is a function of the order book mix and commodity prices. The
E&C segment (80-85% share in total EBITDA) and E&E segment (5-7%
share in total EBITDA), carry a margin of nearly 11% while segments like
M&IP and others carries heftier margins averaging 15-20%. However,
going ahead, with higher execution of international orders, infrastructure
segment margins will see a structural shift. We believe that a decline in
margins is getting played out currently as margins in FY15 and FY16 were
at 11.4% and 10.3% (excluding hydrocarbon), respectively. They were
also hit by weak execution in the heavy engineering and MMH division
owing to the weak outlook of these segments. Going ahead, we expect
margins to be back at 10.7% in FY18E and FY19E.
Exhibit 4: Trend in EBITDA margins
9.9
11.4 11.5
12.8 12.8
11.7
10.5
11.811.4
10.3
9.7
10.7 10.7
5
7
9
11
13
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E
(%
)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 6
From FY14 onwards, L&T has started reported segmental margins from
and to the Street’s surprise, infrastructure segments margins have ranged
at 11-13% while the main disappointment came in from the hydrocarbon
segment, which ranges at 7-8% as execution has been lumpy while lower
orders and high operating leverage (commissioning of new BTG facility)
have led to low single digit margins in the power segment.
Exhibit 5: Trend in segmental EBITDA margins
Q4FY17 Q4FY16 FY17 FY16
Infrastructure 13.5 16.1 10.2 11.2
Power 3.8 -1.2 3.5 2.7
Heavy Engineering 27.6 2.7 19.9 0.6
Hydrocarbon 7.8 1.5 5.8 1.7
E&A 19.4 17.1 15.1 12.5
Others 14.8 14.5 10.9 14.6
Source: Company, ICICIdirect.com Research
PAT CAGR of 10% in FY17-19E owing to pick-up in execution cycle,
gradual uptick in EBITDA margins in FY18E
We expect revenue CAGR of 11.5% in FY17-19E while EBITDA CAGR in
the same period is expected at 17.5%. Our PAT CAGR in FY17-19E stands
at ~10% as we have assumed a moderate rise in other income
component in FY17-19E over FY16 while depreciation is expected to
exhibit a CAGR of ~9%. Hence, we expect PAT at | 6427 crore in FY19E
vs. | 5428 crore in FY17.
Exhibit 6: Trend in profitability…
2172.4
3481.4
4417.1
4006.8
4416.54729.5
4996.65006.75064.1
5458.2
6015.2
6427.0
0
1000
2000
3000
4000
5000
6000
7000
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E
(|
crore)
-20
-10
0
10
20
30
40
50
60
70
(%
)
PAT YoY growth
Source: Company, ICICIdirect.com Research
RoEs: Walking the talk in creating shareholder value
The RoEs of standalone base business used to average between 24% and
27% in FY08-10. However, the same has declined to 16-17% in FY11-13
as L&T’s investments in BOT assets (road, power, urban infra) rose from
| 5740 crore in FY10 to | 15168 crore in FY14.
Investments in subsidiaries have grown at a CAGR of 22% (low base)
over FY10-13. The management’s decision of significantly slowing down
new BOT assets investment coupled with divestures of non strategic
subsidiaries/JVs and possible monetisation of L&T IDPL will reduce
pressure on standalone RoEs.
ICICI Securities Ltd | Retail Equity Research Page 7
Exhibit 7: Trend in RoEs
23.6
18.117.4
16.3
15.0
13.712.8
11.1
13.0 12.8
0
5
10
15
20
25
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Source: Company, ICICIdirect.com Research
The key impediment in the medium term would be the low utilisation of
facilities at the shipbuilding business and the NPCIL JV, which are making
losses at these juncture. Going ahead, as per the management, the
shipbuilding business would be limited to | 100 crore.
Out of the above, a few service oriented subsidiaries are cash flow
generators (L&T Infotech and L&T Finance holdings) and will not burden
the parent’s balance sheet for growth. Going ahead, the management
expects to hive off Nabha Power and restructure L&T IDPL in FY17-19E, in
order to ease pressure on parents cash flows and meet funding
requirements in the developmental assets.
Going ahead, L&T’s management has clearly shifted its focus on reducing
the equity funding stress on base business balance sheet and
simultaneously monetise non strategic subsidiaries to raise future equity
requirement for the subsidiary.
Going ahead, we expect L&T to report RoEs in the range of 11-13% for
the standalone business in FY17-19E. However, the scenario may
drastically change in FY19-20, as 1) L&T has already divested its entire
stake in Dhamra port, which will free up equity required in developmental
portfolio, 2) L&T has signalled a possible stake sale of 20-25% in IDPL
wherein it has already roped in a strategic investor to the tune of | 2000
crore of equity, 3) losses of shipbuilding business will reduce significantly
if the capex cycle recovers in time with the opening up of the defence
sector. These subsidiaries will turn into black and 4) the company is close
to selling its Nabha Power plant, general insurance business and also
restructuring L&T IDPL. These actions, in our view, will be RoE accretive
from FY18E onwards.
ICICI Securities Ltd | Retail Equity Research Page 8
Outlook and Valuation
Focus on improvement in working capital, generation of cash flows and
staying away from BoT assets makes us believe that L&T is moving in the
right direction, which has laid the strong foundation for the next leg of
growth. Going ahead, we expect L&T to deliver 11.5% and 10% PAT
CAGR in FY17-19E. With most equity infusion in L&T IDPL over, we
expect L&T’s road to improve RoEs is achievable. Post the recent rally,
we expect L&T to have further legs to make an up move as we believe it
is the best play on a domestic capex recovery. We upgrade the target
price to | 2090 (SoTP basis) and maintain BUY recommendation.
Exhibit 8: SOTP valuation for L&T
Company (|per share) Bull case % of total Base Case % of total Bear Case % of total
Base Business 1668 68.8 1494.3 71.5 962.2 70.3
L&T Finance Holdings 164 6.8 164 7.9 115 8.4
L&T Infotech 195 195.2 9.3 146.4 10.7
L&T Power Development 26 1.1 17.1 0.8 11.4 0.8
L&T MHI JV 20 0.8 11.4 0.5 8.5 0.6
L&T IDPL 262 10.8 157.3 7.5 83.9 6.1
Other E&C, MIP & E&E Subs 43 1.8 30.5 1.5 22.4 1.6
Hydrocarbon 46 1.9 35 1.7 18 1.3
Total 2425 100.0 2090 100.0 1368 100.0
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 9
Recommendation History vs. Consensus eses
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
0
500
1,000
1,500
2,000
2,500
May-17Mar-17Dec-16Oct-16Aug-16May-16Mar-16Dec-15Oct-15Jul-15May-15
(%
)
(|)
Series1 Idirect target Consensus Target Mean % Consensus with Buy
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date Event
Sep-10 L&T files DHRP for IPO of finance subsidairy L&T Finance Holdings Ltd. The IPO size was to the tune of | 1500 crore
Apr-11 L&T Metro Rail (Hyderabad) Ltd, the SPV incorporated to implement the Hyderabad Metro Project achieves financial closure for the project. The financial closure was
achieved in a record time of six months
Dec-11 Mitsubishi Heavy Industries (MHI), Japan plans to sign a technological collaboration agreement with L&T Shipbuilding (LTSB) to provide a broad range of
technological support for the construction of commercial vessels
Mar-12 L&T and Samsung Techwin Co, Ltd (STW) of South Korea announce they would be cooperating with the Indian Army’s Tracked Self Propelled Artillery Programme.
Mar-13 LT anoounces bonus issue in the ratio of 1:2. This means 1 bonus share for every 2 share held
Jul-13 L&T wins its biggest ever civil construction order worth |8250 crore to build a metro rail project in Saudi Arabia
Dec-13 L&T applies with FIPB for induction of strategic equity partner. The investor will invest equity of | 1000 crore each in two tranches.
Mar-14 L&T ends FY14 with another strong set of financial performance with revneues and order inflows up 19% and 15% YoY, respectively. Coupled with L&T sets strong
set of guidance for FY15E performance
Sep-14 Weak execution mars L&T's perfromace in Q2FY15 even though L&T reported 17% YoY order inflows to the tune of | 39797 crore. The ghost of hydrocarbon bsuiness
is gradullay receding back as L&T managed to post marginla EBIT loss of |54 crore as against |900 crore loss in Q1FY15.
Source: Company, ICICIdirect.com Research
Top 10 Shareholders Shareholding Pattern
Rank Name Latest Filing Date % O/S Position (m) Change (m)
1 Life Insurance Corporation of India 31-Mar-17 15.7 146.4 0.0
2 L&T Employees Welfare Foundation 31-Mar-17 12.3 114.8 0.0
3 UTI Asset Management Co. Ltd. 31-Mar-17 6.5 61.1 0.0
4 HDFC Asset Management Co., Ltd. 31-Mar-17 3.3 30.7 1.4
5 ICICI Prudential Asset Management Co. Ltd. 31-Mar-17 2.0 18.6 0.8
6 ICICI Prudential Life Insurance Company Ltd. 31-Mar-17 2.0 18.3 1.2
7 General Insurance Corporation of India 31-Mar-17 1.8 16.8 -1.1
8 GIC Private Limited 31-Mar-17 1.5 14.2 0.4
9 Reliance Nippon Life Asset Management Limited 31-Dec-16 1.4 12.9 0.1
10 SBI Funds Management Pvt. Ltd. 31-Mar-17 1.1 10.4 0.3
(in %) Mar-16 Jun-16 Sep-16 Dec-16 Mar-17
Promoter 0.00 0.00 0.00 0.00 0.00
FII 16.59 16.74 16.59 16.64 17.60
DII 38.92 39.15 38.92 39.91 39.28
Others 44.49 44.11 44.49 43.45 43.12
Source: Reuters, ICICIdirect.com Research
Recent Activity
Investor Name Value Shares Investor Name Value Shares
Government of India +192.31M +9.69M General Insurance Corporation of India -25.50M -1.05M
HDFC Asset Management Co., Ltd. +34.75M +1.43M Eastspring Investments (Singapore) Limited -22.59M -1.03M
ICICI Prudential Life Insurance Company Ltd. +28.14M +1.16M Naik (A M) -9.67M -0.36M
Axis Asset Management Company Limited +31.45M +1.16M Waddell & Reed Investment Management Company -6.39M -0.26M
Lyxor Asset Management +30.52M +1.12M JPMorgan Asset Management (Japan) Limited -3.50M -0.17M
Buys Sells
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 10
.
Financial summary
Profit and loss statement | Crore
(Year-end March) FY16 FY17 FY18E FY19E
Total operating Income 59,779.6 66,301.4 73,027.7 82,459.7
Growth (%) 4.8 10.9 10.1 12.9
Raw Material Expenses 8,958.5 8,938.3 8,675.8 9,804.4
Employee Expenses 4,481.9 5,146.9 5,535.0 6,247.7
Other Operating Expenses 32,997.8 36,636.4 42,254.3 47,701.7
Sales, administration & Other Expenses2,498.6 2,744.8 2,651.0 2,993.0
Other Manufacturing Expenses 4,660.8 6,409.9 6,076.4 6,854.3
Total Operating Expenditure 53,597.6 59,876.2 65,192.5 73,601.1
EBITDA 6,182.1 6,425.2 7,835.2 8,858.6
Growth (%) -4.7 3.9 21.9 13.1
Depreciation 700.5 1,020.2 1,108.8 1,212.9
Interest 1,449.0 1,318.0 1,197.8 1,264.3
Other Income 2,394.7 1,972.0 2,600.0 2,800.0
PBT 6,441.7 6,058.9 8,128.6 9,181.4
Others 0.0 0.0 0.0 0.0
Total Tax 1,377.7 1,350.7 2,113.4 2,754.4
PAT 5,064.1 4,708.2 6,015.2 6,427.0
Growth (%) 1.1 -7.0 27.8 6.8
EPS (|) 54.8 50.9 65.0 69.5
Source: Company, ICICIdirect.com Research
Cash flow statement | Crore
(Year-end March) FY16 FY17 FY18E FY19E
Profit after Tax 5,064.1 4,708.2 6,015.2 6,427.0
Add: Depreciation 700.5 1,020.2 1,108.8 1,212.9
(Inc)/dec in Current Assets -8,798.8 -11,429.9 -4,141.7 -6,616.2
Inc/(dec) in CL and Provisions 6,020.1 5,279.6 -1,531.9 5,557.4
Others - - - -
CF from operating activities 2,985.8 -421.8 1,450.4 6,581.1
(Inc)/dec in Investments 1,021.9 -1,000.0 -1,000.0 -1,000.0
(Inc)/dec in Fixed Assets -365.0 -1,050.0 -1,550.0 -1,000.0
Others 0.0 0.0 0.0 0.0
CF from investing activities 497.3 -2,100.0 -2,550.0 -2,000.0
Issue/(Buy back) of Equity 0.4 0.0 0.0 0.0
Inc/(dec) in loan funds 0.0 0.0 0.0 0.0
Dividend paid & dividend tax -1,840.8 -2,016.3 -2,217.9 -2,419.5
Inc/(dec) in Sec. premium 0.0 0.0 0.0 0.0
Others 0.0 7.6 0.0 0.0
CF from financing activities -1,246.7 -4,016.3 -1,217.9 -1,719.5
Net Cash flow 2,236.5 -6,538.1 -2,317.5 2,861.5
Opening Cash 9,995.8 12,232.3 5,694.1 3,376.6
Closing Cash 12,232.3 5,694.1 3,376.6 6,238.1
Source: Company, ICICIdirect.com Research
Balance sheet | Crore
(Year-end March) FY16 FY17 FY18E FY19E
Liabilities
Equity Capital 186.3 186.3 186.3 186.3
Reserve and Surplus 39,122.7 41,814.6 45,611.9 49,619.3
Total Shareholders funds 39,309.0 42,000.9 45,798.2 49,805.6
Total Debt 13,608.3 11,608.3 12,608.3 13,308.3
Deferred Tax Liability 203.4 153.4 153.4 153.4
Minority Interest / Others 0.0 0.0 0.0 0.0
Total Liabilities 53,420.9 54,062.8 58,860.0 63,567.5
Assets
Gross Block 13,632.3 14,583.0 16,083.0 17,083.0
Less: Acc Depreciation 5,823.7 6,843.9 7,952.8 9,165.6
Net Block 7,808.6 7,739.1 8,130.2 7,917.4
Capital WIP 250.7 300.0 300.0 300.0
Total Fixed Assets 8,059.3 8,039.1 8,430.2 8,217.4
Investments 12,339.6 13,339.6 14,339.6 15,339.6
Inventory 1,888.0 1,728.9 2,272.6 2,697.6
Debtors 26,309.2 27,126.7 30,011.4 31,628.4
Loans and Advances 13,236.9 14,486.6 16,185.0 18,448.1
Other Current Assets 21,642.5 31,164.2 30,179.1 32,490.3
Cash 12,232.3 5,694.1 3,376.6 6,238.1
Total Current Assets 75,308.8 80,200.5 82,024.7 91,502.4
Creditors 22,118.8 23,509.8 23,008.7 25,980.5
Provisions 3,063.9 4,702.0 3,451.3 3,637.3
Total Current Liabilities 42,539.7 47,819.3 46,287.4 51,844.8
Net Current Assets 32,769.1 32,381.2 35,737.3 39,657.6
Others Assets 0.0 0.0 0.0 0.0
Application of Funds 53,420.9 54,062.8 58,860.0 63,567.5
Source: Company, ICICIdirect.com Research
Key ratios
(Year-end March) FY16 FY17 FY18E FY19E
Per share data (|)
EPS 54.8 50.9 65.0 69.5
Cash EPS 62.3 61.9 77.0 82.6
BV 428.3 457.4 498.4 541.7
DPS 18.4 20.0 22.0 0.0
Cash Per Share 132.3 61.6 36.5 67.4
Operating Ratios (%)
EBITDA Margin 10.3 9.7 10.7 10.7
PBT / Total Operating income 10.8 9.2 11.1 11.1
PAT Margin 8.5 7.1 8.2 7.8
Inventory days 12.5 10.0 10.0 11.0
Debtor days 160.6 150.0 150.0 140.0
Creditor days 135.1 130.0 115.0 115.0
Return Ratios (%)
RoE 12.8 11.1 13.0 12.8
RoCE 10.3 10.0 11.5 12.1
RoIC 13.4 11.2 12.2 13.4
Valuation Ratios (x)
P/E 26.3 28.3 22.1 20.7
EV / EBITDA 21.8 21.6 18.2 15.8
EV / Net Sales 2.3 2.1 2.0 1.7
Market Cap / Sales 2.2 2.0 1.8 1.6
Price to Book Value 3.4 3.1 2.9 2.7
Solvency Ratios
Debt/EBITDA 2.2 1.8 1.6 1.5
Debt / Equity 0.3 0.3 0.3 0.3
Current Ratio 1.8 1.7 1.8 1.8
Quick Ratio 1.5 1.6 1.7 1.6
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 11
ICICIdirect.com coverage universe (Capital Goods)
CMP M Cap
(|) TP(|) Rating (| Cr) FY16 FY17 FY18E FY16 FY17 FY18E FY16 FY17 FY18E FY16 FY17 FY18E
AIA Engineering 1420 1,533 Buy 13064 44.3 50.1 51.9 32.1 28.3 27.4 24.7 21.9 22.4 27.6 22.1 19.6
Thermax (THERMA) 1000 800 Hold 10223 29.6 20.6 27.1 33.8 48.4 37.0 15.3 9.8 11.9 14.2 9.2 10.9
KEC International (KECIN) 250 292 Buy 3881 9.0 10.8 14.1 27.8 23.2 17.7 15.3 15.7 16.8 16.3 15.0 16.5
L&T (LARTOU) 1760 2000 Buy 162800 51.4 52.0 65.0 34.2 33.8 27.1 10.3 10.0 11.5 12.5 12.8 13.0
Greaves Cotton (GREAVE) 155 176 hold 3782 6.6 7.1 8.7 23.5 21.8 17.8 18.0 24.5 26.9 19.5 20.8 23.8
VaTech Wabag (VATWAB) 675 630 Buy 2661 16.9 28.7 36.4 29.0 17.1 13.5 17.0 20.4 22.2 9.7 14.8 16.5
NRB Bearing (NRBBEA) 123 115 Hold 1115 5.6 5.9 6.5 20.6 19.4 17.8 16.0 16.8 16.9 17.5 16.8 16.5
Timken India (TATTIM) 690 700 Hold 4691 13.5 14.3 15.9 51.1 48.3 43.3 27.8 22.7 24.2 18.2 16.0 15.7
Grindwell Norton (GRINOR) 380 390 Buy 3543 9.4 11.2 12.6 33.9 28.5 25.3 22.7 25.1 26.9 15.5 17.6 18.9
RoE (%)EPS (|) P/E (x) RoCE (%)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 12
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
ICICI Securities Ltd | Retail Equity Research Page 13
Disclaimer
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