L&T Shares Complete Fundamental Analysis and Future Outlook
Larsen & Toubro, commonly known as L&T is India’s largest engineering and construction company with interests in Projects, Infrastructure development, Manufacturing, IT and Financial services. It is one of Asia’s largest vertically integrated Engineering Procurement and Construction (EPC) company and also a market leader in turnkey projects.
- Some of their well-known projects include the Statue of Unity in Gujrat, Mumbai International Airport, Petronas Refinery in Malaysia, Twin Towers in Dubai and Stadium at Barbados.
- The company operates in 9 business verticals and 8 major subsidiaries and joint ventures.
- The main business verticals include Building and factories, transportation and infrastructure, Civil Engineering, Power, Defence, Electrical and Automation. The subsidiaries are involved in some non-core businesses like IT services, Realty, Machinery, Financial services etc.
- The company had a combined order inflow of INR 1286 billion in the first three quarters of FY 2020. L&T is known to be the nation builder of India and has a large order book with the government. The company, therefore, stands to benefit in the long run from the increased government expenditure on construction and infrastructure projects.
- Mr S.N. Subrahmanyan is the Chief Executive Officer and Managing Director of the company. He started his career in 1984 as a project planning engineer and has 3 decades of experience in L&T. He was also recognized as the CEO of the Year by CNBC-Awaaz in 2020.
- Mr R. Shankar Raman is the CFO of the company and has 26+ years of experience in the L&T group.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: L&T Shares Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The COVID-19 outbreak and the subsequent lockdown has halted all the major project sites for the company. The losses will mostly be due to the fixed cost of operations and project delays. However, the company is not expected to take a big hit on the revenue side. The order book will face a double-digit decline, especially in India due to the weakening economic outlook.
- The company witnessed a strong international order inflow of INR 416 billion (+2%YoY). The domestic orders declined by 20% YoY, whereas international business grew by 64% YoY to INR 179 billion. International orders contributed 43% of total order inflow for the 3rd quarter of 2020 just before the COVID-19 pandemic.
- The management has maintained its guidance for FY 2020 including revenue growth of 12–15%, order inflow growth of 10–12% and core E&C margin of 10.5%. This will be negatively impacted due to the lockdown.
- IT business: Mind Tree consolidation has led to a 65% growth in revenue.
Defence business: Revenue growth led by artillery gun project execution for the armed forces
Hydrocarbon business: Strong revenue growth is on account of a robust order book with margin expansion
Realty Business: The company is witnessing improved sales of moderately priced apartments. However, a slowdown is expected in the coming years.
L&T has a solid order book and strong fundamentals. The only concern is the weakening economic outlook and temporary losses due to the lockdown across the world.
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