Larsen & Toubro - Q1FY21 First Cut - ICICI Securities

(CMP: Rs. 921, MCap: Rs. 1,29,300 crore)

Larsen & Toubro (L&T) reported reasonable Q1FY21 performance on order inflow front amid subdued business environment. Order inflow came in at Rs. 23574 crore at group level, down 39% YoY with significant orders received in the infrastructure segment. Standalone revenues de-grew by 50.6%, which were below our estimates. The infrastructure segment revenues de-grew by 53.8% on YoY, owing to execution challenges, labour shortage, supply chain disruptions amid Covid-19 adversely affecting revenue accretion. While, on the balance sheet side, though we are awaiting details on cash flows and working capital situation, the company has ensured vendor support in a befitting manner amid tight liquidity situation and challenging business environment.

Q1FY21 Earnings Summary

- L&T's adj. Standalone revenues (Ex- E&A business) for the quarter de-grew by 50.6% YoY to Rs. 8150 crore, below our estimate of Rs. 8865.7 crore. On standalone basis, infrastructure segment has posted subdued performance with revenue decline of 53.8% to Rs. 6040.2 crore on YoY basis. Heavy engineering segment revenue de-grew by 57.1% to Rs. 425.1 crore on YoY basis. While on the other side, Power segment revenues continues to decline by 32.5% to Rs. 380 crore, Defence Engineering segment revenue de-grew by 49.3% to Rs. 476.5 crore while Electrical and Automation segment (Discontinued) de-grew by 51.8% to Rs. 565.7 crore on YoY basis Note: L&T has started classifying Electrical & Automation business as 'discontinued operations', consolidating only at profit level in its P&L account

- On a consolidated basis, adj. revenues from continuing operations on like to like basis (excluding E&A business and including Mindtree) declined by 31.4% to Rs. 21260 crore on YoY basis. On consolidated basis, Infrastructure segment net revenue de-grew by 53.1% YoY to Rs. 6456.1 crore. While Hydrocarbon segment registered a revenue decline of 18.5% to Rs. 3070.1 crore, IT & Technology segment (including Mindtree) grew by 6.4% on to Rs. 6043.4 crore, on a like to like basis. Financial services segment de-grew by 5.1% to Rs. 3284.2 crore for the quarter while IDPL segment declined by 43.5% to Rs. 554.3 crore

- For Q1FY21, L&T registered reasonable order inflows at group level worth Rs. 23574 crore, which grew by 39% YoY, characterized low interest in fresh investment and order deferments'. International orders for Q1FY21 came in at Rs. 8872 crore contributing 38% to order inflows. Overall infrastructure segment secured orders worth 11349 crore (~48% of total inflows) which included orders like large barrage projects, rural water supply schemes, expressway project, and some international orders in power T&D mainly from the Middle East region. L&T's order backlog stands at Rs. 305083 crore up 3.8% on YoY basis with international orders constituting 24% of order backlog

- For Q1FY21, though we are awaiting details on cash flows and working capital situation, the company has ensured vendor support in a befitting manner amid tight liquidity situation and challenging business environment. However, interest expenses for Q1FY21 has grown substantially by 47% to Rs. 708.5 crore, impacting profitability

- During the quarter, Standalone EBITDA margins declined marginally by 30bps to 7.1% (Vs. our estimates of 5.7%) on YoY basis affected by headwinds in execution due to lockdowns. On a consolidated basis, EBITDA margins came in at 7.6%. From a segmental perspective, infrastructure segment EBITA margins declined marginally by 10 bps to 6.3% owing to favourable input cost and cost control measures despite adverse impact of Covid-19. Power segment EBITDA margin declined by 230bps to 1.0%, Heavy Engineering segment EBITDA margins came in at 17.5% (declined by 200bps YoY), on account of under-recovery of overheads amidst low capacity utilisation. While Hydrocarbon EBITDA margin declined by 230bps to 5.3% on YoY basis due to impact of cost pressures on project margins amid lockdowns

- Consequently, for Q1FY21, standalone Adj. PAT came in at Rs. 306.6 crore which de-grew by 65.6% YoY (below our estimates of Rs. 323.6 crore) aided by lower raw material cost and higher other income. For Q1FY21, other income grew by 51% to Rs. 698.3 crore on YoY basis while interest expenses has also grown by 47% to Rs. 708.5 crore impacting profitability. The consolidated PAT for Q1FY21 came in at Rs. 543.9 crore (Vs Rs. 1809.7 crore in Q1FY20)

L&T recorded reasonable performance on order inflow front while the infrastructure segment saw execution challenges and adverse impact of covid-19. However, working capital levels will be closely monitored to provide controlling situations on the balance sheet front.

Shares of LARSEN & TOUBRO LTD. was last trading in BSE at Rs.920.95 as compared to the previous close of Rs. 937.8. The total number of shares traded during the day was 220012 in over 9821 trades.

The stock hit an intraday high of Rs. 940 and intraday low of 910.2. The net turnover during the day was Rs. 203082596.

Source : Equity Bulls

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