>LARSEN & TOUBRO: Adj. PAT slightly ahead; orders disappoint

L&T’s1QFY13 reported results were marginally ahead of estimates after adjusting for several one-offs reported during the quarter — namely, higher other income, forex loss on unhedged foreign currency loan liability and compensation for voluntary retirement scheme. Revenue growth surprised positively at 26% y-y, even as order inflow disappointed marginally at INR195bn (vs. Nomura est of INR200bn). Adjusted for the one-offs, results were slightly ahead of our and consensus estimates.


Other highlights of the result are as follows:
 Reported EBITDA at INR10.9bn for 1QFY13 was below estimates. However, as per the CFO’s comments on CNBC earlier today, LT has accounted for mark-to-market provision on the unhedged portion of its foreign currency loans of ~INR1.6bn. CNBC further cited additional forex loss (possibly on trade positions) for ~INR1.07bn for the company in 1QFY13. Adjusted for these, EBITDA margin was in-line with expectations at 11.3%.


 However, we note that SG&A expense historically has been around 4.75% of sales compared to 4.8% this quarter (despite including FX loss). Net of FX loss of INR2.67bn, SG&A expense would have been 2.52% of sales, which is amongst the lowest in the past 5 years.


 Net income was boosted by strong other income at INR6bn vs INR3bn a year ago. Management cited higher dividends from subsidiaries and treasury gains as key reasons for growth.


 Order inflow at INR195bn was below our estimate and led by the transportation and buildings & factories segments. Net of chunky orders received from L&T IDPL and Reliance Infra, as well as spilled over orders from FY12, the sustainable run-rate of order inflow is much lower at INR100-120bn per quarter, based on our calculations.


 Management attributes the y-y revenue drop in machinery and industrial products to restructuring of the welding products division into a subsidiary.


 Management maintained its guidance for 15-20% growth in FY13 both in revenues and order inflow.


Management’s conference call is scheduled at 5pm IST today, and we look for commentary on revenue execution, slow-moving orders, SG&A expense and other income break-down, margin outlook and order breakdown.

RISH TRADER