L&T’s This fall outcomes print was negatively impacted by externalities on all three key fronts, with margin being hit essentially the most. In such a context, L&T has performed very properly on order inflows. While inflationary setting would restrict restoration in margin, we envisage L&T to maintain wholesome double-digit progress trajectory and money move era. Investment in new age applied sciences/belongings over the following 5 years could be much like the funding in laborious concession belongings, which L&T goals to exit over such a interval. We reduce SoTP by ~8% to Rs 2,025 and retain Buy.
Externalities impression outcomes; wholesome order backlog and money move era enthuse: L&T reported a ten/2/9% y-o-y progress in revenues/Ebitda/PAT for Q4FY22, assembly conservative consensus estimates and meaningfully lacking our estimates. While execution was impacted by supply-chain points and concentrate on money era, margin was impacted by RM worth stress, deferment of declare settlement and undertaking combine. Order inflows bought boosted by sturdy ordering from abroad, rising 54% y-o-y and will have been increased however for deferment of choose orders received in This fall for need of buyer approval. Order backlog additionally grew a wholesome 9% and money era was wholesome.
Guidance seems affordable given start line: L&T met FY22 steering on income progress (up 15%) whereas lacking on margin (down ~110 bps versus flat steering) and order inflows (up 8% versus double-digit steering). Inflationary setting would restrict prospects of L&T protecting up for margin disappointment in FY2023 and L&T steering displays that. L&T has guided for a low-to-mid teenagers income progress, fairly achievable given sturdy order backlog. Also word that ~98% of L&T’s order backlog is transferring properly. It has additionally guided for a 12-15% progress so as inflows. The start line is beneficial with authorities tender conversion ratio to orders being a low 50% in FY22 vs 70% in FY2021. This additionally displays in a five-year low quantum of home share of order backlog at 73%.
Concessions on their manner out; new enterprise investments deliberate of comparable quantum: L&T shared optimistic developments for the three concessions the place L&T has ~Rs 85-bn publicity (fairness+mortgage). L&T hinted at sale of the remaining highway belongings being a near-term occasion, adopted by sale of stake in Nabha. Hyderabad metro exit might take time however L&T expects its publicity to the asset (~Rs 55 bn) to start out coming down from present yr. It expects to make an funding of Rs 70-75 bn into new age inexperienced applied sciences over the following four-five years.
We cut back Fair Value by 8%, retain BUY at affordable 15X FY2023E core EPS valuations: We cut back our FV by ~8% to Rs 2,025 to account for 4-10% reduce in core E&C EPS and decrease worth of subsidiaries.
Source: www.financialexpress.com”