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Centrum Broking
L&T (Buy)
Target: ₹1,124
CMP: ₹904.55
Larsen & Toubro’s Q1-FY21 earnings were below estimates led by lower margins and higher interest costs. Consolidated revenue declined 28.3 per cent y-o-y to ₹21,300 crore (in-line) and adjusted PAT declined 86.7 per cent y-o-y to ₹200 crore (est: ₹280 crore).
Reported PAT declined 79.4 per cent y-o-y to ₹300 crore after including pre-tax gain of ₹225 crore from sale of wealth management business. EBITDA declined by 47 per cent y-o-y to ₹1,620 crore (est ₹1,800 crore) while EBITDA margin contracted 270 bps yoy to 7.6 per cent (est: 8.4 per cent).
Other income grew 22.4 per cent y-o-y to ₹780 crore while effective tax rate at 30.2 per cent was higher than estimate of 27 per cent. Order inflow declined 39 per cent y-o-y to ₹23,500 crore (est ₹25,000 crore). Order backlog grew 3.8 per cent y-o-y to ₹3.05 lakh crore (3.2x TTM E&C revenues).
Client mix of order book is comfortable, prospects strong but uncertainty on conversion. Given its diversified presence, proven execution capabilities and strong balance sheet, we expect L&T to consolidate its leadership position further and be well-placed for recovery.
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