Q2FY16 consolidated PAT at Rs.686 cr (gross 996- exceptional 310)
down 20% YOY(Estimate at 944)
down 20% YOY(Estimate at 944)
Q2 EPS at 7.34 (consensus at 10.99; QOQ-6.48)
The company slashed its FY-16 order & revenue guidance to 6% & 12.5% from 15% earlier !!
CMP: 1389
Buy: 1350-1325-1300
TGT: 1425-1510 (1-3M)
TGT: 1575-1627-1676 & 1825-1895 (12-24M)
TSL< 1285
Note: For LT, technically, 1335 is a strong support area and the zone around 1350-1300 should attract good demands for the stock. Consecutive closing below 1285 zone for any reason, LT can further fall to 1250-1225-1198 area, where it may be again accumulated for better investment buy average.
Some key takeaways & rationale:
As we all know, Q2FY16 result of LT was below street estimates and further the management disappoints the market with very tepid and slashed down guidance for expected order inflow & revenue for the the rest of the FY-16.
As par the company, lower commodity prices and weakening currency has been constraining growth prospectus and hurting business and it may take further time for healthy pick-up in business opportunities.
Investment momentum in our domestic economy has not picked up sufficiently leading to order inflow and capacity under-utilization despite various efforts by our Govt. Players are waiting for vicious cycle investment to pick up. (demand/ full transmission of rate cut/investment)
Also, many projects of LT in Middle East are currently under review due to low oil prices.
Investment momentum in our domestic economy has not picked up sufficiently leading to order inflow and capacity under-utilization despite various efforts by our Govt. Players are waiting for vicious cycle investment to pick up. (demand/ full transmission of rate cut/investment)
Also, many projects of LT in Middle East are currently under review due to low oil prices.
After the announcement of the result, the stock tanked around 7% and from mid July peak, LT has already corrected by over 25% under performing the broader market.
This is not very surprising, given the soft numbers of order inflows in Q1FY16 and the stock may be already discounted to a great extent, going by the time & price action of the same.
Analysts are somewhere divided but if we take an average of their 12M TP estimates, it may comes to around 1580 amid various ratings.
Street is also very conservative of LT's own guidance and feel that the management is taking over cautious stance this time unlike Q1FY16 in order to prune the market estimates and going forward, we may see above estimate numbers from LT as well.
In Q2, LT's EBITDA was mainly affected by higher than estimated depreciation and interest costs.
Looking ahead, disinvestment of some of LT's assets (like L&TFH) and IT subsidiary (L&T Infotech) listing will be positive for it (balance sheet deleverage).
LT continues to be the best play in Indian infra space due to its strong business model, diverse skill sets, strong execution capabilities and healthy/strong balance sheet.
In the manufacturing business (like shipyard, power, BTG, forgings etc), LT has dominant position and already has huge order in its book which may take care of its cash flow in the next few quarters quite well.
At Q2FY16, LT's order book stood as around Rs.2.45 lac cr against Rs.2.39 lac cr in Q1FY16. Thus sequentially, there is only 2.5% growth QOQ in order inflow and this has spooked the scrip further. But, mere order book is not an issue unless its executed in full and revenue brings in !! In that sense, gigantic order book at Q2 & its proper execution might be a silver lining for LT in the days ahead.
Market will focus on LT's execution, working capital management (due to project delays & cost overrun) and margin of hydrocarbon business.
Going by various demand supply scenarios for crude oil, stable price near 60-70 $ is expected in FY-17 and we may see sequentially higher improvement in hydrocarbon segment for LT.
LT continues to be the best play in Indian infra space due to its strong business model, diverse skill sets, strong execution capabilities and healthy/strong balance sheet.
In the manufacturing business (like shipyard, power, BTG, forgings etc), LT has dominant position and already has huge order in its book which may take care of its cash flow in the next few quarters quite well.
At Q2FY16, LT's order book stood as around Rs.2.45 lac cr against Rs.2.39 lac cr in Q1FY16. Thus sequentially, there is only 2.5% growth QOQ in order inflow and this has spooked the scrip further. But, mere order book is not an issue unless its executed in full and revenue brings in !! In that sense, gigantic order book at Q2 & its proper execution might be a silver lining for LT in the days ahead.
Market will focus on LT's execution, working capital management (due to project delays & cost overrun) and margin of hydrocarbon business.
Going by various demand supply scenarios for crude oil, stable price near 60-70 $ is expected in FY-17 and we may see sequentially higher improvement in hydrocarbon segment for LT.
Being the Indian "Caterpillar", its a preferred choice of domestic economic and infra growth story.
Although, there has been delays in order awarding side, expected gradual recovery in capex cycle and PMO/Govt's active intervention to resolve the stalled projects issue may change the landscape for LT.
Also, "Smart City" and "affordable housing for all" theme might help LT directly or indirectly in the days ahead (if implemented).
Also, "Smart City" and "affordable housing for all" theme might help LT directly or indirectly in the days ahead (if implemented).
On the larger landscape, LT's slashed order inflow and its lack of confidence to meet its own revenue guidance also put a serious question mark of so called "economic recovery" in India and it may be an "wake up" call for our Govt. also to take necessary steps and kick starts various reforms without wasting much times towards "intolerance, beef politics" etc; otherwise, the "recovery" continues to be in "dream" only.
But the big question is when and how fast this recovery will happen and for that market will keenly watch the H2FY16 numbers & guidance of LT, being the proxy/ industrial bellwether for corporate India.
But the big question is when and how fast this recovery will happen and for that market will keenly watch the H2FY16 numbers & guidance of LT, being the proxy/ industrial bellwether for corporate India.
As par BG metrics & current market parameters:
(Stand alone TTM & Projected EPS)
Present median valuation of LT may be around: 1365 (FY:15/TTM)
Projected fair valuations might be around: 1485-1650-1810 (FY:16-18)
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | Low | High | Median | 200-DEMA | 10-DEMA |
| LT | 53.88 | 398.31 | 22 | 1388.78 | 1327.81 | 1358.29 | 1627.1 | 1487.37 |
| LT | 63.95 | 440.15 | 22 | 1513.00 | 1446.58 | 1479.79 | 1627.1 | 1487.37 |
| LT | 78.55 | 486.45 | 22 | 1676.84 | 1603.22 | 1640.03 | 1627.1 | 1487.37 |
| LT | 94.45 | 537.75 | 22 | 1838.74 | 1758.01 | 1798.37 | 1627.1 | 1487.37 |
Analytical Charts:
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