Larsen & Toubro Ltd_Q2FY11 Result Update

Larsen & Toubro Ltd - Q2FY11 Result Highlights

L&T’s top-line came in line with Unicon’s expectation but positively surprised on margin front. While top-line at INR 83bn grew by 17.8% YoY, the operating profit was higher by 20% on yearly basis to INR 10bn. The operating profit margin, marginally improved by 20bps to 10.8%, (our estimate 10.2%). Due to sharp run up in base metal prices during the quarter, going forward, we expect its margin to ease. Improvement in margin was led by reduced cost, as percentage of sales, in cost of materials and sub-contracting charges. Net profit after tax at INR 6.9bn was higher by 19.6% on yearly basis before extraordinary items.

Outlook and Valuation

Having regard to the performance and order intake during 1HFY10, management guidance of 25% growth in its order-book and 20% topline growth seems achievable for FY11.

Currently, stock trades at 22.7 its FY12e earning per share of 88.7 and price to sales ratio of ~1.8x. Upgrade to Accumulate for price target of 2,250.

Thanks & Regards,

Unicon Wealth Research