>LARSEN & TOUBRO (MERRILL LYNCH)

■ Stands by its guidance
L&T reiterated 25%yoy sales growth target for 4QFY10E as all the key reasons of miss in 3Q execution reverse such as a) financial closure of its own five toll roads with backlog of ~50bn, b) opening of work fronts and c) receipt of delayed orders.

■ Finance could be first of the block for monitization
L&T’s finance subsidiaries are maturing well and registering good growth and margins. L&T Finance is in the equipment finance business and is likely to be the first subsidiary to be monetized through a listing. L&T Infrastructure Finance is involved in project financing and is growing at a rate of 30-40% annually. Company has asset size of Rs38bn and leverage of 4.5-5x which management believes to be conservative.

■ Shift in portfolio to support long term margins
L&T derives 75% of its revenues from E&C business and 25% from the manufacturing and services business. Company’s long term strategy is to increase the share of manufacturing and services revenues to 40%. Margins in company’s E&C projects business are 2-3% lower than those in the manufacturing and services businesses. Shifting of the mix in favor of manufacturing and services would help the company improve it margin profile.

■ Power business could impact margins near term
L&T said margins are expected to be lower for super critical plants. Power business is expected to hurt overall margins till the ramp up has been achieved.

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