>LARSEN & TOUBRO (CITI)

Hold: 1QFY10 – More Or Less In Line With Expectations

■ Recurring PAT up 18% YoY — At Rs5.8bn it was 6% ahead of CIRA estimates of Rs5.5bn. Reported PAT at Rs15.9bn, up 218% YoY, was higher on account of profit on Ultratech Cemco stake sale.

■ Slower execution, but no point worrying — Gross sales at Rs74.3bn, up 6% YoY, was below CIRA expectations of Rs83.9bn. Despite slower sales growth management maintains its 15-20% FY10E guidance. We are not unduly worried as this is reminiscent of FY07 when post 12% YoY growth in 9mFY07, L&T delivered 36% YoY growth in 4QFY07 and met its FY07 guidance of 20% YoY.

■ Margin expansion, pleasant surprise — Margins expanded 115bps and made up for slower sales growth, once again reminiscent of FY07, when despite slow sales growth L&T expanded margins significantly. Margin expansion was led by the E&C business and we expect E&E and MIP businesses to bounce back in FY11E. Cost efficiency and a larger % of jobs crossing the margin threshold level being recognised in 1QFY10 led to the margin improvement.

■ Order inflows should pick up only in 3QFY10 — Order inflow at Rs95.7bn was down 22% YoY, with the company ending the quarter with a backlog of Rs716.5bn, up 23% YoY. We expect muted order inflow in 2QFY10 similar to 1QFY10, and believe that L&T is basically relying on the 2HFY10 to meet its full year order inflow guidance of 25% YoY.

■ Maintain Hold/Low Risk (1L) — Given the stock seems fairly valued at 18.9x FY11E.

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