Larsen & Toubro

BSE SENSEX

40,487

S&P CNX

11,938

9 December 2019

Update

| Sector:

Capital Goods

CMP: INR1,277

TP: INR1,680(+32%)

Bracing for macro headwinds



Buy

Cut FY20/21 core EPC estimate by 1.5%/3.4%; Valuations provide comfort

Order inflow assumption trimmed on account of macro risks:

We have

revisited our order inflow assumption to factor in risks of capex cuts and the

likely delay in order awarding from the Maharashtra government post the

change of government in the state. L&T’s sensitivity to the cut in Central

government capex is quite limited as it forms just ~20% of the order book, with

limited contribution from roads, railways and defense. Our overall order inflow

assumption stands at 9.6%/10.8% for FY20/FY21 with core E&C order inflow

growth estimated at 5.2%/8.8%.

2HFY20 ask rate for core E&C is at 2.2%.

Minor near-term hiccups in execution may not be ruled out:

Despite the

economic slowdown and the general elections, L&T’s core E&C domestic

business has witnessed growth of 16% in 1HFY20. However, we recall that

~INR160b worth orders pertaining to Andhra Pradesh and the Mumbai Coastal

Road project are slow-moving currently. Additionally, we suspect near-term

slowdown in construction activity in Maharashtra state owing to state elections

and delay in formation of a new government. Due to lower order inflow

assumption and near-term risks to execution, we lower our FY19-21E revenue

CAGR to 12.4% from 14.1% earlier.

2HFY20 ask rate for core E&C is at 12.8%.

But, L&T is better off navigating concerns compared to peers:

Thanks to L&T’s

well-diversified business across verticals as well as geographies, it is in a better

position to overcome macro challenges compared to mid-cap EPC companies

dependent on any single segment or geography. For instance, post the

formation of a new government in Andhra Pradesh, uncertainty around the

choice of the capital city had a negative impact on NCC (not rated), while the

impact on L&T was quite limited.

Conclusion of E&A sale deal and return of cash to shareholders can re-rate

the stock:

We expect the conclusion of the E&A sale to happen in 4QFY20. This

would result in gross proceeds of INR140b to the company. With no major

capex and aversion to capital allocation in the asset business, there is a high

likelihood that L&T may announce special dividend to return excess cash to

shareholders, especially as the new tax rules for buyback has made it

redundant for the company to choose between the two options. Any such

announcement in 4QFY20 can be a re-rating catalyst for the stock. Additionally,

any improvement in the macro environment would be beneficial for the stock.

Valuation and view:

We cut our core E&C EPS estimate by 1.5%/3.4% for

FY20/FY21, incorporating lower order inflow/revenue growth assumption.

Consol. EPS has been cut by 1.3%/2.6% for FY20/FY21. We have also lowered

our target P/E multiple on core business to 20x from 22x on account of macro

uncertainties. Accounting for the current market price of listed subsidiaries,

our TP stands at INR1,680 (prior: INR1,830). Adjusted for the valuation of

subsidiaries, the stock trades at FY20/FY21E P/E multiple of 19x/15.6x v/s its

long-term trading average P/E multiple of 23x. Maintain

Buy.

Stock Info

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

LT IN

1,402

1791.9 / 25.2

1607 / 1202

-11/-17/-22

4394

100.0



Financials Snapshot (INR b)

2019 2020E

Y/E Mar

1,352 1,561

Net Sales

153.3 193.5

EBITDA

80.4 102.6

PAT

57.3

73.1

EPS (INR)

10.9

27.6

Gr. (%)

444.7 500.8

BV/Sh (INR)

13.6

15.5

RoE (%)

1,352 1,561

RoCE (%)

22.3

17.4

P/E (x)

2.9

2.5

P/BV (x)

2021E

1,789

228.4

126.4

90.1

23.2

569.3

16.8

1,789

14.2

2.2



Shareholding pattern (%)

As On

Sep-19 Jun-19 Sep-18

Promoter

0.0

0.0

0.0

DII

37.2

37.3

37.9

FII

20.7

21.3

20.4

Others

42.1

41.4

41.7

FII Includes depository receipts

Stock Performance (1-year)

Larsen & Toubro

Sensex - Rebased

1,700

1,600

1,500

1,400

1,300

1,200





Nilesh Bhaiya – Research Analyst

(Nilesh.Bhaiya@MotilalOswal.com); +91 22 6129 1556

Pratik Singh – Research Analyst

(Pratik.Singh@MotilalOswal.com) +91 22 6129 1543

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Larsen & Toubro

Core E&C outlook strong despite near-term execution

and order inflow concerns



Current order book robust and well diversified:

At end-2QFY20, L&T’s order

book stood at INR3.0t (+7.8% YoY) with OB to core E&C revenue ratio at 2.8x.

The order book growth has been led by the Hydrocarbon segment (+85% YoY)

and the Power segment (+63%), while the Infrastructure segment witnessed a

decline of 1% YoY.

Exhibit 2: OB/Rev (x) trend by key segments

8.0

Infrastructure

Hydrocarbon

Power

Core E&C

Exhibit 1: Consol. order book to see 11% CAGR for FY19-21E

29%

Order book (INR b)

YoY (%)

2,613

7%

5%

2,326

2,499

2,631

6.0

12%

12%

11%

4.0

2.0

2,934

3,284

3,642

0.0

1%

Source: MOFSL, Company

Source: MOFSL, Company

Exhibit 3: Consol. order book break-up by segments

Defence,

4.0%

Hydrocarbo

Heavy n, 17.0%

Others,

2.0%

Exhibit 4: Consol. order book break-up by geography

Domestic

Middle East

8%

1%

13%

USA & Europe

ROW

Engineering

, 1.0%

Power,

5.0%

Infrastructure

, 75.6%

78%

Source: MOFSL, Company



Source: MOFSL, Company

However, near-term uncertainty due to the political landscape:

Near-term

uncertainty over execution and working capital cycle has emerged owing to

change of governments in major states. For instance, ~INR80b of orders in

Andhra Pradesh related to the capital city of Amravathi has been stalled post

the government change in the state. In Maharashtra, according to media

articles, the new government is reviewing on-going projects. Due to elections in

Oct’19 and delay in formation of a new government in Maharashtra, the

execution momentum has slowed down in the state. We remain optimistic on

the future of the projects and the eventual order awarding, however, near-term

uncertainty cannot be ruled out. Importantly, future of the Mumbai-Ahmedabad

High Speed Rail needs to be monitored.

9 December 2019

2

Larsen & Toubro

Exhibit 5: Post Andhra Pradesh, uncertainty over execution of orders in Maharashtra has emerged as a key concern

Key orders in Maharashtra

Coastal Road

Mumbai Metro

Mumbai Trans Harbour Link

Navi Mumbai Airport

Mumbai Nagpur Expressway - Pacakge 10

Navi Mumbai CIDCO housing order

Total

Gross value (INR m)

74,890

52,700

86,511

60,000

21,500

60,000

3,55,601

Status

Halt by court order

Advance stage of construction ~70%

Under Construction

Yet to commence

Under Construction

Yet to commence

Source: MOFSL, Company



We lower our order inflow assumption in core E&C business:

In 1HFY20, L&T

witnessed strong order inflows (+9.2% YoY) in the core E&C business. In FY19,

the core E&C business witnessed strong order inflow growth of 13.7%. However,

due to concerns over fiscal deficit and economic slowdown as well as likely delay

in awarding in the key state of Maharashtra, we build in muted growth in

2HFY20 order inflow at 2.2%, thus leading to our full year estimate of 5.2%. We

expect order inflow to rebound next year to 8.8%. The outlook for the

Hydrocarbon segment remains strong with a few large ticket size orders in the

pipeline, while Power segment may see opportunities arising from FGD orders.

Exhibit 6: Core E&C order inflow to register 7% CAGR over FY19-FY21E

Core E&C order inflow (INR b)

19.8

13.7

1,152

-15.4

1,362

1,207

1,274

1,448

1,523

1,657

4.8

5.5

5.2

8.8

YoY (%)

Source: Company, MOFSL



We forecast core E&C revenue growth at 12.4% over FY19-21E:

On account of

lower order inflow assumption and near-term risks to execution, we have

lowered our FY19-21E revenue CAGR to 12.4% from earlier 14.1%. Our positive

stance on revenue growth arises from the fact that order book growth is being

led by the Hydrocarbon segment, which has lower execution time period

compared to Infrastructure projects. Additionally, the Power segment has

witnessed refill of orders now and can scale up execution given the on-going

underutilization.

9 December 2019

3

Larsen & Toubro

Exhibit 7: Core E&C revenue to witness 12.4% CAGR over FY19-21E as Hydrocarbon

segment provides support to execution

Core E&C revenue (INR b)

11.3

8.2

729

1.4

811

FY15

FY16

877

FY17

941

FY18

1,031

FY19

1,149

FY20E

1,303

FY21E

7.3

YoY (%)

13.3

11.4

9.6

Source: Company, MOFSL

Exhibit 8: Revenue to be mainly driven by Hydrocarbon, Infrastructure and Heavy

Engineering segment

Key segment revenue CAGR (FY19-FY21E)

9.6

0.3

28.5

27.0

3.0

13.1

12.4

Source: Company, MOFSL



EBITDA margin to normalize in FY20:

Core E&C EBITDA margin (incl. corporate

overheads) dipped to 8.7% in FY19 from 10.5% in FY18 on account of provisions

in the Infrastructure segment of INR5b and in the Reality business of INR7.5b.

We expect core E&C margins to normalize in FY20E to 9.8% and expand to

10.1% in FY21 as the large ticket sized orders – especially airport orders –

commence full execution.

Exhibit 9: Core E&C EBITDA to expand from FY20 onwards after a blip in FY19

Core E&C EBITDA margin (%)

9.0

FY16

9.5

FY17

10.5

FY18

8.7

FY19

9.8

FY20E

10.1

FY21E

Source: Company, MOFSL

9 December 2019

4

Larsen & Toubro



We forecast core E&C PAT CAGR of 26.5% over FY19-21E:

Helped by EBITDA

margin expansion, higher other income and tax cut benefits, we expect core

E&C PAT to witness CAGR of 26.5% over FY19-21E.

Exhibit 10: Core E&C PAT to show CAGR of 26.5% over FY19-21E

Core E&C PAT (INR b)

46.1

25.3

31.7

19.0

0.9

-30.9

24

FY15

21.6

YoY (%)

31

FY16

45

FY17

53

FY18

54

FY19

71

FY20E

86

FY21E

Source: Company, MOFSL

9 December 2019

5

Larsen & Toubro

Services business provides cushion to consol. earnings



Services revenue growth estimated at 23% CAGR over FY19-21E, aided by

MindTree acquisition:

Services business of the company comprises Financial

Services, IT business (L&T Infotech, L&T Technology Services and MindTree) and

Development Projects (Hyderabad Metro & Nabha Power). We expect Services

business revenue to witness 23% CAGR over FY19-21E, primarily on account of

the MindTree acquisition (9 months contribution in FY20 and full year

contribution in FY21).

Exhibit 12: Services revenue growth estimated at 23% CAGR

over FY19-21E, aided by MindTree acquisition

44.3

Services revenue (INR b)

YoY (%)

Exhibit 11: Services order inflow estimated at healthy 23.6%

CAGR over FY19-21E

43.7

Services order inflow (INR b)

YoY (%)

223

13.1

191

216

3.0

14.6

255

25.6

29.3

18.1

209

9.2

223

6.7

255

14.6

25.6

28.4

18.0

321

415

490

191

321

412

486

Source: MOFSL, Company



Source: MOFSL, Company

Services EBITDA margin to be stable at current levels:

Services EBITDA margin

should be stable at current level of ~19.5-20% over the next two years, given

that MindTree also has EBITDA margin in similar vicinity.

Exhibit 13: Services EBITDA margin expected to stabilize around ~20% FY20 onwards

Services EBITDA margin (%)

19.8

19.6

19.9

15.0

12.3

14.4

FY16

FY17

FY18

FY19

FY20E

FY21E

Source: Company, MOFSL



Services PAT estimated at 12% CAGR over FY19-21E:

The boost from the

acquisition of MindTree is likely to be offset by losses from Hyderabad Metro.

Thus, we expect Services’ PAT to witness CAGR of 12% over FY19-21E.

9 December 2019

6

Larsen & Toubro

Exhibit 14: Services PAT estimated at 12% CAGR over FY19-21E

450.6

Services PAT (INR b)

YoY (%)

34.2

20

FY15

-46.2

11

FY16

14

FY17

33.3

19

FY18

67.2

-1.1

32

FY19

32

FY20E

27.0

40

FY21E

Source: Company, MOFSL

9 December 2019

7

Larsen & Toubro

Consol. earnings estimated at 25% CAGR over FY19-21E



Overall order inflow to be a tad shy of lower end of guidance:

L&T’s order

inflow growth guidance stood at 10-12% for FY20. We expect overall order

inflow growth of 9.6% in FY20, just shy of the lower end of the growth guidance.

The order inflow is being led by the Services business (+29.3% YoY in FY20E and

aided by MindTree acquisition), whereas core E&C order inflow is expected at

just 5.2% in FY20E (FY19: 13.7%).

Exhibit 15: Consolidated order inflow growth expected in double-digits YoY FY20 onwards

22%

Order inflow (INR b)

YoY (%)

16%

4%

7%

10%

11%

-12%

1,554

FY15

1,369

FY16

1,430

FY17

1,529

FY18

1,768

FY19

1,938

FY20E

2,146

FY21E

Source: Company, MOFSL



Consolidated revenue estimated at 15% CAGR over FY19-21E:

While the core

E&C segment is expected to grow at 11.4% in FY20E, Services business is

estimated to grow at 28.4%, helped by MindTree. Thus, we expect consolidated

revenue to grow at 15.5% in FY20E, meeting the upper end of the revenue

growth guidance range of 12-15%. Also, FY21E revenue growth will have support

of full year contribution from MindTree.

Exhibit 16: Consolidated revenue estimated at 15% CAGR over FY19-21E

Consolidated revenue (INR b)

13.0

10.8

8.1

7.9

8.8

YoY (%)

15.5

14.6

920

FY15

1,020

FY16

1,100

FY17

1,197

FY18

1,352

FY19

1,561

FY20E

1,789

FY21E

Source: Company, MOFSL



EBITDA margins to expand on favorable mix and normalization of margins in

core E&C:

On account of favorable mix from higher margin services, we expect

EBITDA margins for the consolidated entity to expand; even for core E&C, it

should normalize from the lows of FY19. Thus, we build in EBITDA margin

expansion of 150bp over FY19-21E for the consolidated entity and estimate

consolidated EBITDA at 22% CAGR over FY19-21E.

8

9 December 2019

Larsen & Toubro

Exhibit 17: Consolidated EBITDA margins to expand by 150bp over FY19-21E

Consolidated EBITDA (INR b)

12.3

10.3

10.1

11.3

EBITDA margin (%)

11.3

12.4

12.8

113

105

111

136

153

193

228

Source: Company, MOFSL



Consolidated PAT estimated at 25% CAGR over FY19-21E:

We estimate

consolidated PAT CAGR at 25% over FY19-21, aided by margin expansion in core

E&C and acquisition of MindTree, which should be offset by losses from

Hyderabad Metro. We have built in losses from Hyderabad Metro at

INR8.0b/INR7.0b for FY20/FY21E.

Exhibit 18: Consolidated PAT seen at 25% CAGR over FY19-21E

Consolidated PAT (INR b)

43.0

22.4

13.1

41

-6.3

FY16

59

FY17

72

FY18

11.0

27.6

23.2

YoY (%)

44

FY15

80

FY19

103

FY20E

126

FY21E

Source: Company, MOFSL

Exhibit 19: Consolidated RoE to gradually expand from FY20

after being flat YoY in FY19

Consolidated RoE (%)

12.5

9.7

13.7

13.6

15.5

16.8

Exhibit 20: Consolidated Net D/E to remain stable within

~1.7-1.9x

2.1

1.9

1.8

1.8

Consolidated Net D/E (x)

1.8

1.9

1.7

11.2

Source: MOFSL, Company

Source: MOFSL, Company

9 December 2019

9

Larsen & Toubro

Valuation and view



Valuation and view:

We cut our core E&C EPS estimate by 1.5%/3.4% for

FY20/FY21, incorporating lower order inflow/revenue growth assumption.

Consol. EPS has been cut by 1.3%/2.6% for FY20/FY21. Also, we have lowered

our target P/E multiple on core business to 20x from 22x on account of macro

uncertainties. Accounting for the current market price of listed subsidiaries, our

TP stands at INR1,680 (prior: INR1,830). Adjusted for the valuation of

subsidiaries, the stock trades at FY20/FY21E P/E multiple of 19x/15.6x v/s its

long-term trading average P/E multiple of 23x. Maintain

Buy.

Exhibit 21: Our SOTP-based TP stands at INR1,680

Business segment

Core E&C

IT & TS + MindTree

Finance Holdings

IDPL

Total

INR/sh

1,328

234

86

35

1,680

Remarks



20x FY21 core E&C EPS + E&A sale

proceeds



20% discount to current mkt cap



20% discount to current mkt cap



P/Inv based approach

Source: MOFSL

Exhibit 22: L&T trades at a discount to its 10-year average 1-year forward P/E

P/E (x)

45.0

35.0

25.0

15.0

5.0

22.6

16.7

13.1

28.5

14.4

Avg (x)

Max (x)

Min (x)

+1SD

39.7

-1SD

Source: MOFSL

9 December 2019

10

Larsen & Toubro

Exhibit 23: Earnings change summary - Cut our core E&C EPS estimate by 1.5%/3.4% for FY20/FY21; consol. EPS estimate cut

by 1.3%/2.6% for FY20/FY21

(In INR m)

CONSOLIDATED FINANCIALS

Orderbook

Growth (%)

OB/Rev (x)

Order inflow

Growth (%)

Total Revenues

Growth (%)

EBITDA

Growth (%)

EBITDA Margin (%)

Adjusted PAT

Growth (%)

E/O items

Reported PAT

Growth (%)

Reported EPS

Adjusted EPS

EX-SERVICES

Total Revenues

Growth (%)

EBIDTA

Growth (%)

EBIDTA %

Adjusted PAT

Growth (%)

E/O items

Reported PAT

Growth (%)

Reported EPS

Adjusted EPS

Old

FY20E

33,04,369

12.6

2.8

19,75,525

11.7

15,78,956

16.8

1,95,500

27.5

12.4

1,03,984

29.3

6,466

1,10,450

24.0

78.7

74.1

11,64,478

12.9

1,14,121

27.1

9.8

71,950

51.1

6,466

78,416

39.4

55.9

51.3

FY21E

36,70,618

11.1

2.7

21,99,286

11.3

18,33,036

16.1

2,33,092

19.2

12.7

1,29,824

24.8

8,882

1,38,706

25.6

98.9

92.5

13,43,827

15.4

1,35,594

18.8

10.1

89,179

23.9

8,882

98,061

25.1

69.9

63.6

New

FY20E

32,84,199

11.9

2.9

19,37,669

9.6

15,61,270

15.5

1,93,470

26.2

12.4

1,02,607

27.6

6,466

1,09,072

22.5

77.8

73.1

11,49,319

11.4

1,12,596

25.4

9.8

70,846

48.8

6,466

77,312

37.4

55.1

50.5

FY21E

36,41,624

10.9

2.8

21,46,341

10.8

17,88,916

14.6

2,28,392

18.1

12.8

1,26,445

23.2

8,882

1,35,326

24.1

96.5

90.1

13,02,613

13.3

1,31,476

16.8

10.1

86,115

21.6

8,882

94,997

22.9

67.7

61.4

Change

FY20E

-0.6%

FY21E

-0.8%

-1.9%

-1.1%

-1.0%

-2.4%

-2.4%

-2.0%

-1.3%

0.0%

-1.2%

-1.2%

-1.3%

-1.3%

-1.3%

-2.6%

0.0%

-2.4%

-2.4%

-2.6%

-3.1%

-3.0%

-1.5%

0.0%

-1.4%

-1.4%

-1.5%

-3.4%

0.0%

-3.1%

-3.1%

-3.4%

Source: MOFSL, Company

9 December 2019

11

Larsen & Toubro

Financials and Valuation

Income Statement

Y/E March

Net Revenues

Growth Rate (%)

EBITDA

Change (%)

EBITDA Margin (%)

Depreciation

EBIT

Net Interest

Other Income

Profit before Tax

Tax

Effective Tax Rate (%)

Reported Profit (Before MI & AI)

Less: Minority Interest

Add: Profits of Associates

EO Adjustments

Adjusted Profit

Growth (%)

Cons. Profit (Reported)

E: MOFSL Estimates

2015

9,20,046

8.1

1,13,356

5.4

12.3

26,225

87,131

28,507

10,072

68,696

22,836

33.2

49,337

1,710

21

3,477

44,171

-3.3

47,648

2016

10,19,753

10.8

1,04,628

-7.7

10.3

17,867

86,761

16,551

9,044

79,254

24,848

31.4

55,348

3,118

-9,902

942

41,387

-6.3

42,329

2017

10,93,118

7.2

1,11,305

6.4

10.2

23,699

87,606

13,387

13,441

87,659

20,066

22.9

68,808

4,443

-3,953

1,214

59,198

43.0

60,412

2018

11,96,832

9.5

1,35,714

21.9

11.3

19,287

1,16,427

15,385

14,120

1,15,162

31,989

27.8

84,403

6,346

-4,359

1,230

72,469

22.4

73,699

2019

13,52,203

13.0

1,53,296

13.0

11.3

19,230

1,34,066

18,026

18,365

1,34,406

40,671

30.3

1,02,376

13,115

-210

8,641

80,411

11.0

89,051

2020E

15,61,270

15.5

1,93,470

26.2

12.4

20,310

1,73,160

28,074

17,538

1,62,625

41,704

25.6

1,27,386

19,014

700

6,466

1,02,607

27.6

1,09,072

(INR m)

2021E

17,88,916

14.6

2,28,392

18.1

12.8

21,910

2,06,483

28,767

20,465

1,98,180

50,020

25.2

1,57,042

22,415

700

8,882

1,26,445

23.2

1,35,326

Balance Sheet

Y/E March

Equity Capital

Reserves and Surplus

Net Worth

Debt

Deferred Tax Liability

Minority Interest

Capital Employed

Gross Fixed Assets

Less : Depreciation

Add : Capital WIP

Net Fixed Assets

Investments

Inventory

Sundry Debtors

Cash & Bank

Loans & Advances

Other Current Assets

Current Assets

Current Liabilities

Net Current Assets

Capital Deployed

E: MOFSL Estimates

2015

1,859

4,10,222

4,12,081

7,67,297

-3,504

19,706

11,95,580

1,68,322

6,555

1,03,416

2,65,184

1,13,089

59,812

2,22,544

44,126

13,491

4,16,488

13,13,997

4,96,690

8,17,307

11,95,579

2016

1,863

4,39,941

4,41,804

8,81,352

-7,364

28,928

13,44,719

1,67,706

23,518

1,51,651

2,95,839

1,10,791

48,542

2,60,250

53,899

16,889

4,81,865

15,27,390

5,89,299

9,38,092

13,44,722

2017

1,866

5,00,299

5,02,165

9,39,761

-11,252

35,636

14,66,310

1,71,779

38,375

1,67,374

3,00,778

1,97,530

41,397

2,79,696

55,725

19,547

4,88,977

16,05,954

6,37,950

9,68,004

14,66,312

2018

2,803

5,53,767

5,56,570

10,75,241

-14,941

56,250

16,73,120

2,19,694

57,939

1,58,481

3,20,236

1,53,113

48,478

3,46,541

80,325

23,536

5,59,215

19,41,245

7,41,474

11,99,771

16,73,120

2019

2,806

6,20,943

6,23,748

12,55,552

-31,078

68,261

19,16,483

2,62,141

74,024

1,63,017

3,51,134

2,11,203

64,139

3,70,382

1,17,262

24,890

6,14,870

21,94,782

8,40,637

13,54,146

19,16,483

2020E

2,806

6,99,715

7,02,521

14,05,552

-31,078

87,275

21,64,269

2,82,141

94,333

1,63,017

3,50,825

3,11,203

74,056

4,27,647

86,777

28,738

7,09,936

24,72,851

9,70,609

15,02,242

21,64,269

(INR m)

2021E

2,806

7,95,776

7,98,581

15,70,552

-31,078

1,09,690

24,47,745

3,02,141

1,16,243

1,63,017

3,48,915

3,11,203

84,854

4,90,002

1,76,077

32,929

8,13,451

28,99,760

11,12,132

17,87,627

24,47,745

9 December 2019

12

Larsen & Toubro

Financials and Valuation

Ratios

Y/E March

Basic (INR)

Consolidated EPS Adj

Growth (%)

Con. EPS (Fully Diluted)

Growth (%)

Cash EPS

Book Value

Dividend Per Share

Div. Payout (Incl. Div Tax ) %

Valuation (x)

P/E (Consolidated)

Price / CEPS

EV/EBITDA

EV/ Sales

Price / Book Value

Dividend Yield

Return Ratio (%)

RoE

RoCE

Turnover Ratios

Debtors (Days)

Inventory (Days)

Asset Turnover (x)

Leverage Ratio

Current Ratio (x)

Net D/E (x)

E: MOSt Estimates

2015

31.5

-3.3

31.5

-3.3

50.2

294.0

8.2

26.1

40.5

25.4

22.2

3.0

4.7

0.6

11.2

5.4

88.3

23.7

0.8

2.6

2.1

2016

29.5

-6.3

29.5

-6.3

42.3

315.2

8.1

27.5

43.2

30.2

25.0

2.7

4.3

0.6

9.7

5.2

93.2

17.4

0.8

2.6

1.9

2017

42.2

43.0

42.2

43.0

59.1

358.3

8.9

21.0

30.2

21.6

24.0

2.6

4.0

0.7

12.5

5.5

93.4

13.8

0.8

2.5

1.8

2018

51.7

22.4

51.7

22.4

65.5

397.1

15.9

30.8

24.7

19.5

20.5

2.4

3.6

1.2

13.7

6.0

105.7

14.8

0.7

2.6

1.8

2019

57.3

10.9

63.5

22.8

77.2

444.7

18.0

28.4

22.3

19.1

20.9

2.4

2.9

1.2

13.6

5.9

100.0

17.3

0.7

2.6

1.8

2020E

73.1

27.6

77.8

22.5

92.2

500.8

23.3

30.0

17.4

15.9

17.5

2.2

2.5

1.6

15.5

6.9

100.0

17.3

0.7

2.5

1.9

2021E

90.1

23.2

96.5

24.1

112.1

569.3

28.9

30.0

14.2

13.1

15.1

1.9

2.2

2.0

16.8

7.4

100.0

17.3

0.7

2.6

1.7

Cash Flow Statement

Y/E March

PBT before EO Items

Add : Depreciation

Others

Less : Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

(Inc)/Dec in FA

Free Cash Flow

(Pur)/Sale of Investments

CF from Investments

(Inc)/Dec in Net Worth

(Inc)/Dec in Debt

Others

Dividend Paid

CF from Fin. Activity

Inc/Dec of Cash

Add: Beginning Balance

Closing Balance

E: MOFSL Estimates

2015

47,648

26,225

-6,879

-1,47,185

-80,191

1,74,351

94,161

-31,999

1,42,352

699

-34,233

-12,086

-13,383

-59,002

3,160

40,966

44,126

2016

42,329

17,867

-3,860

-1,11,011

-54,675

-48,523

-1,03,198

2,298

-46,225

627

1,14,058

9,222

-13,233

1,10,674

9,774

44,126

53,900

2017

92,429

23,699

-3,888

-32,017

-28,086

52,138

-28,638

23,499

-86,740

-1,15,378

14,378

58,408

6,708

-14,429

65,065

1,825

53,900

55,725

2018

1,07,733

19,287

-3,689

-34,034

-2,06,662

-1,17,365

-38,745

-1,56,110

44,417

5,168

6,609

1,35,478

20,614

-25,902

1,36,798

24,601

55,725

80,325

2019

1,42,862

20,840

-11,636

-45,816

-23,921

82,329

-1,73,298

-90,969

-35,366

-35,366

113

1,78,653

10,978

-26,471

1,63,273

36,937

80,325

1,17,262

2020E

1,62,625

20,310

7,166

-41,704

-36,082

1,12,314

-1,62,500

-50,186

-1,00,000

-1,00,000

0

1,50,000

0

-30,299

1,19,701

-30,486

1,17,262

86,777

(INR m)

2021E

1,98,180

21,910

9,582

-50,020

-39,335

1,40,317

-1,76,750

-36,433

0

0

0

1,65,000

0

-39,266

1,25,734

89,301

86,777

1,76,077

9 December 2019

13

Larsen & Toubro

NOTES

9 December 2019

14

Larsen & Toubro

Explanation of Investment Rating

Investment Rating

Expected return (over 12-month)

BUY

>=15%

SELL

< - 10%

NEUTRAL

< - 10 % to 15%

UNDER REVIEW

Rating may undergo a change

NOT RATED

We have forward looking estimates for the stock but we refrain from assigning recommendation

*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within

following 30 days take appropriate measures to make the recommendation consistent with the investment rating legend.

Disclosures

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

Motilal Oswal Financial Services Ltd. (MOFSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOFSL, the Research Entity (RE) as defined in the

Regulations, is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial

products. MOFSL is a subsidiary company of Passionate Investment Management Pvt. Ltd.. (PIMPL). MOFSL is a listed public company, the details in respect of which are

available on www.motilaloswal.com. MOFSL (erstwhile Motilal Oswal Securities Limited - MOSL) is registered with the Securities & Exchange Board of India (SEBI) and is a

registered Trading Member with National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Multi Commodity Exchange of India Limited (MCX) and

National Commodity & Derivatives Exchange Limited (NCDEX) for its stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) National

Securities Depository Limited (NSDL),NERL, COMRIS and CCRL and is member of Association of Mutual Funds of India (AMFI) for distribution of financial products and Insurance

Regulatory & Development Authority of India (IRDA) as Corporate Agent for insurance products.

Details of associate entities of Motilal Oswal Financial Services Limited are

available on the website at

http://onlinereports.motilaloswal.com/Dormant/documents/List%20of%20Associate%20companies.pdf

MOFSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and

buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other

compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have

any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the

specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even

though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report

MOFSL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report

should be aware that MOFSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific

merchant banking, investment banking or brokerage service transactions. Details of pending Enquiry Proceedings of Motilal Oswal Financial Services Limited are available on the

website at

https://galaxy.motilaloswal.com/ResearchAnalyst/PublishViewLitigation.aspx

A graph of daily closing prices of securities is available at

www.nseindia.com, www.bseindia.com.

Research Analyst views on Subject Company may vary based on Fundamental

research and Technical Research. Proprietary trading desk of MOFSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated

from MOFSL research activity and therefore it can have an independent view with regards to Subject Company for which Research Team have expressed their views.

Regional Disclosures (outside India)

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability

or use would be contrary to law, regulation or which would subject MOFSL & its group companies to registration or licensing requirements within such jurisdictions.

For Hong Kong:

This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong

Kong Securities and Futures Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst

Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of

research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity

to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these

securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not

located in Hong Kong & are not conducting Research Analysis in Hong Kong.

For U.S.

Motilal Oswal Financial Services Limited (MOFSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under

applicable state laws in the United States. In addition MOFSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers

Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any

brokerage and investment services provided by MOFSL , including the products and services described herein are not available to or intended for U.S. persons. This report is

intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as

"major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which

this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration

provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange

Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOFSL has entered into a chaperoning agreement with a U.S. registered broker-

dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this

chaperoning agreement.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S.

registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public

appearances and trading securities held by a research analyst account.

For Singapore

In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets

services license and an exempt financial adviser in Singapore.As per the approved agreement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and

Paragraph 11 of First Schedule of Financial Advisors Act (CAP 110) provided to MOCMSPL by Monetary Authority of Singapore. Persons in Singapore should contact MOCMSPL

in respect of any matter arising from, or in connection with this report/publication/communication. This report is distributed solely to persons who qualify as “Institutional Investors”,

of which some of whom may consist of "accredited" institutional investors as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (“the

SFA”). Accordingly, if a Singapore person is not or ceases to be such an institutional investor, such Singapore Person must immediately discontinue any use of this Report and

inform MOCMSPL.

Specific Disclosures

1 MOSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.

2 MOSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company

3 MOSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months

4 MOSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report

5 Research Analyst has not served as director/officer/employee in the subject company

6 MOSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

7 MOSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months

8 MOSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months

9 MOSL has not received any compensation or other benefits from third party in connection with the research report

10 MOSL has not engaged in market making activity for the subject company

9 December 2019

15

Larsen & Toubro

***************************************************************************************

*****************************************

The associates of MOFSL may have:

- financial interest in the subject company

- actual/beneficial ownership of 1% or more securities in the subject company

- received compensation/other benefits from the subject company in the past 12 months

- other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the

specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even

though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.

- acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

- be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the

company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies)

- received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.

The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report

Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not

consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from

clients which are not considered in above disclosures.

Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the

research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

Terms & Conditions:

This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and

may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent

of MOFSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in

nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty,

representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The

report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial

instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOFSL will not treat recipients as

customers by virtue of their receiving this report.

Disclaimer:

The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or

distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for

informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing

in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances.

The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment

objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this

document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this

document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views

expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade

securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of

the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and

should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make

modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from

time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to

perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a

separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of

information that is already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or

may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on,

directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or

entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law,

regulation or which would subject MOFSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in

all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost

revenue or lost profits that may arise from or in connection with the use of the information.

The person accessing this information specifically agrees to exempt MOFSL or any of its

affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOFSL or any of its affiliates or employees responsible for any such

misuse and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses, costs, damages,

expenses that may be suffered by the person

accessing this information due to any errors and delays.

Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263;

Website

www.motilaloswal.com.CIN

no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road,

Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000.

Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst:

INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company

Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth

Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is

a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt.

Ltd. which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL.

Research & Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no

assurance or guarantee of the returns. Investment in securities market is subject to market risk, read all the related documents carefully before investing. Details of Compliance

Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.

* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National

Company Law Tribunal, Mumbai Bench.

9 December 2019

16