VISIT NOTE

LARSEN & TOUBRO Geared up for a long haul

India Equity Research| Engineering and Capital Goods

EDELWEISS 4D RATINGS We met up with L&T management recently and came back positive on its medium to long term business potential and new business initiatives. Absolute Rating BUY Rating Relative to Sector Outperformer RoCE improvement in focus; aims to leverage new capacities Risk Rating Relative to Sector Medium Sector Relative to Market Equalweight L&T targets to achieve an improvement in RoCEs over next 2‐3 years by exiting non‐ core businesses which are not scalable, value unlocking in select developmental

projects and optimizing the current manufacturing base in ship‐building, defense, MARKET DATA (R: LART.BO, B: LT IN) heavy forgings and power equipment. L&T expects to utilize its upcoming shipyard for CMP : INR 1,409 both defense and commercial vessels, and is eyeing improved ordering from FY14E. It Target Price : INR 1,587 currently has INR15bn worth of order book in this segment. In switchgears, L&T has 52‐week range (INR) : 1,673 / 969 incurred capex for new switchgears plant (at Baroda) and new control panel plants (LV Share in issue (mn) : 613.8 & MV) at Ahmednagar and Coimbatore which will help reduce overall costs and arrest M cap (INR bn/USD mn) : 865/ 15,671 margin decline in the EBG business. Avg. Daily Vol.BSE/NSE(‘000) : 2,494.2

Growth guidance reiterated; no major capex incrementally SHARE HOLDING PATTERN (%)

L&T has guided for a 15%‐20% growth in OI and 15% growth in revenue for FY13E Current Q4FY12 Q3FY12 (which the management hopes to maintain as of now). Outlook for hydrocarbons, Promoters % ‐ ‐ ‐

power T&D, railways, etc remains healthy, adding to near term order book growth MF's, FI's & BK’s 38.4 38.4 36.6 visibility. The company has incurred INR70bn+ in the last 2‐3 years for building FII's 14.1 14.1 15.6 manufacturing capabilities in power equipment, forgings, ship‐building etc hence does others 47.5 47.5 47.8 : not expect any fresh capacity addition incrementally other than maintenance capex. * Promoters pledged shares NIL (% of share in issue)

Outlook and valuations: Positioned for growth; maintain ‘BUY’ PRICE PERFORMANCE (%) Our recent visit to the company boosted our confidence on the order intake and earnings EW growth outlook in the near to medium term. Order inflows in power EPC, ship‐building, Stock Nifty Construction Index defense and heavy forgings would help L&T reposition itself over the long run. Any major traction on the policy front clearly poses a major upside risk to our growth assumptions 1 month (3.5) 0.1 5.5 3 months 7.3 5.8 22.0 for FY13E‐14E. We reiterate our positive stance on L&T for its long term positioning in the industrial and infrastructure space, scalability of current businesses and the sustained 12 months (18.6) 4.2 (4.9)

focus on profitability. We maintain our BUY/SO rating with a revised TP of INR 1587 (earlier ‐1528). We maintain our parent valuation at INR1278/share.

Financials ‐ SA Year to March FY11 FY12 FY13E FY14E Revenues (INR mn) 439,049 529,158 607,403 699,380 Amit Mahawar Rev. growth (%) 18.6 20.5 14.8 15.1 +91 22 4040 7451 [email protected] EBITDA (INR mn) 55984 60298.7 69,098 79,766 Net profit (INR mn) 38858 44015 44515 50171 Rahul Gajare +91 22 4063 5561 Share outstanding (mn) 615 617 617 617 [email protected] EPS (INR) 63.2 71.3 72.1 81.3 EPS growth (%) (8.6) 12.9 1.1 12.7 Swarnim Maheshwari +91 22 4040 7418 Diluted P/E (x) 22.3 19.8 19.5 17.3 [email protected]

EV/EBITDA (x) 13.7 13.0 11.3 9.7 September 12, 2012 ROE (%) 19.4 18.7 16.5 16.4 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL , Thomson First Call, Reuters and Factset. Edelweiss Securities Limited Engineering and Capital Goods

New mfg capacities: Weak in near term, but scalable over long term • Eyeing EPC based power projects for Hazira facility: L&T has limited revenue visibility for manufacturing plants at Hariza for revenues beyond FY14E given the zero BTG order inflows in FY12. It recently commissioned the critical piping and Electro Static Precipitators (ESP) plant and could now deliver more than 75% of the scope in a power plant on a turnkey basis. On the opportunity side, L&T expects projects worth 8GW on EPC basis and 6GW on BTG basis to come up for bidding over the next few quarters.

• Ship‐building, defense to gain size going ahead: L&T expects to see an improved traction in ship‐building from FY14E given that it has entered into a JV with Mazgaon Dock for submarines and expects major ordering potential for private sector in defense vessels and submarine from Ministry of defense (Indian Navy). The company currently has INR15bn worth of orders in hand for Interceptor boats for the Indian Navy and few more for commercial vessels.

Other key highlights • With NHAI expected to award 9500 km of road projects during FY13E (including 3000‐ 4000 km of EPC projects), L&T targets to opt for higher share of EPC projects. • L&T expects an increased traction in Western DFCC towards 2HFY13E, and expect at least two packages worth INR 80 bn to be awarded in FY13E. L&T‐Sojitz consortium is one of the two pre‐qualified entities for Western DFCC. • Apart from routine railway capex, L&T expects 250‐300 km of additional private railway siding business to accrue during the current year.

• Current order book of INR 15 bn in ship‐building would be executed from Katupalli & Hazira equally. L&T expects to bag Submarine orders from Mazgaon dock from FY14E onwards.

• L&T expects Hydrocarbons to see a strong growth in fresh order intake during FY13E and expects a 30 %+ growth in Hydrocarbons project awards this year. .

2 Edelweiss Securities Limited Larsen & Toubro

Segment wise Order intake assumption for L&T

Table 1: Order intake assumption for FY13E and FY14E (All figures in INR bn) FY12 FY13E FY14E Comments Process 786571Spending in metals& mining space is expected to remain weak in the near term. Power 148 170 188 T&D‐ Middle East 50 56 62 L&T increased focus in key marketrs like Qatar/Oman/Abu Dhabi has helped it gain significant traction in Middle East T&D inflows. We expect the growth momentum to continue. T&D‐ India 384044Strong ordering momentum led by PGCIL has helped the company in gaining significant momentum which is likely to continue. BoP/Gas/EPC etc 603842We are assuming no gas EPC orders in FY13. BTG ‐ 36 40 We have assumed atleast one EPC contract through the developmental project in FY13E & FY14E Hydrocarbons 78 93 102 India 15 20 22 Expect growth momentum to continue in domestic Oil& Gas Industry . We have not build any orders from fertlizer sector pending policy clarity. Exports 63 73 80 We expect order inflow traction to improve in the coming quarters given historical pattern of middle east ordering in 2H of fiscal year.

Infrastructure 338 394 425 Factories & Buildings 164 172 181 We expect 5% growth in F&B segment. Railways (DFC+Metro)146075We expect Western DFCC project award before Q4FY13 where L&T consortium is one of the two qulified entities. Also, private Railway sidings will be an additional opportunity (250‐300kMs). Roads 657080We expect NHAI to award 3000‐4000Kms EPC projects during FY13E. Airport/Urban Infra1089We don’t expect any significant ordering in this space in the near term. Water 252935L&T has shown good traction in municipality orders in the last 12 months and we expect this segment to do well in coming years, given strong project award pipeline. Developmental Projects 60 55 45 We expect L&T to go slow in new development projects Others 63 66 79 TOTAL 706 788 864 Source: Industry, Edelweiss research

3 Edelweiss Securities Limited Engineering and Capital Goods

Table 2: SOTP valuation Valuation L&T's Value Per share Multiple Remark methodology stake (%) (INR mn) (INR) L&T Parent PE 16.8 100 783,403 1,278 Assigning 15% discount to avg 1 Yr Fwd FY05‐12 PE on FY14E EPS (Ex dividend from subsidairies) L&T MHI (BTG JVs) PE ‐ 51 ‐ We assign a nil value to this subsidiary L&T Infotech PER 12.0 100 62,093 101 In line with other mid cap IT companies L&T Finance Holdings 82 51,739 85 20% discount to market cap L&T IDPL P/BV 1.00 100 63,119 103 1.0x book Others PE 8.4 50 9,941 19 50% discount to L&T standalone valuations Total 970,296 1,587 Source: Edelweiss research

Chart 1: L&T 1 year fwd PE band 60.0

48.0

Average at 19.2x 36.0 (FY05-12) (x) 24.0

12.0

0.0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 Source: Edelweiss research

4 Edelweiss Securities Limited Larsen & Toubro

Company Description L&T, headquartered in Mumbai, is a technology‐driven engineering and construction company, and one of the largest companies in India’s private sector. It has additional interests in manufacturing, services, and information technology. A strong customer‐ focused approach and constant quest for top‐class quality has enabled the company attain and sustain leadership in major lines of businesses over seven decades. L&T has international presence with a global spread of offices. L&T has recently build up a world class BTG facility in Hazira which can cater upto 5 sets per year. With factories and offices located around the country, further supplemented by a wide marketing and distribution network, L&T’s image and equity extend to virtually every district of India. The company aspires to increase its in‐house manufacturing scope through its entry into power equipment (mainly BTG) manufacturing.

Investment Rationale Best equipped to ride infrastructure capex cycle: L&T is India’s largest infrastructure and EPC company with presence across major verticals like process, hydrocarbons, power, core infrastructure like roads, ports, bridges, industrial structures etc.

Diversified business dominance: L&T has a dominant position and market share in most operating verticals, be it oil & gas, process projects, roads, bridges, or industrial structures. It has dedicated key business divisions with skilled manpower.

New business verticals to enhance revenue base: We expect Ship building, Power BTG & Nuclear tie up to enhance revenue in the future.

Key Risks Economy slowdown: Being a play across the India growth spectrum, any slowdown in the broad economy will impact L&T’s operations. Also, given that a large part of the infrastructure capex is government‐driven, any political instability could impact the roll‐out plans and, in turn, the company’s growth plans.

Raw material costs and execution risks: Any sudden surge in prices of base raw material comprising steel, aluminum, cement etc., could detrimentally affect the company’s margin/operations, despite most contracts having a built‐in price escalation clause. Also, given the scale of projects being executed, any execution delay could cost the company dearly.

5 Edelweiss Securities Limited Engineering and Capital Goods

Financial Statements (Standalone) Key Assumptions Year to March FY10 FY11 FY12 FY13E FY14E Macro ‐ GDP(Y‐o‐Y %) 8.4 8.4 6.5 5.8 6.5 Inflation (Avg) 3.6 9.9 8.8 7.8 6.0 Repo rate (exit rate) 5.0 6.8 8.5 7.5 6.8 USD/INR (Avg) 47.4 45.6 47.9 53.5 52.0 Company ‐ Order inflow assumptions Process 90,444 127,630 77,631 65,210 71,731 Oil & Gas 139,144 55,838 77,631 93,157 102,473 Power 229,588 255,261 148,205 170,436 187,479 Infrastructure 187,844 303,122 338,755 392,956 432,251 Others 48,700 55,838 63,517 66,693 70,027 Total 695,720 797,690 705,739 788,452 863,962

Year to March FY10 FY11 FY12 FY13E FY14E Income from operations 370,348 439,049 529,158 607,403 699,380 Direct costs 285,374 334,317 410,182 468,145 540,167 Employee costs 23,791 28,845 36,635 41,252 46,347 Other expenses 13,789 19,903 22,043 28,908 33,100 Total operating expenses 322,954 383,065 468,859 538,305 619,614 EBITDA 47,394 55,984 60,299 69,098 79,766 Depreciation and amortisation 3,797 5,624 6,995 8,774 9,566 EBIT 43,597 50,360 53,304 60,324 70,201 Interest expenses 5,053 6,474 6,681 9,082 10,676 Other income 20,250 14,430 15,930 14,895 15,008 Profit before tax 58,794 58,316 62,553 66,136 74,533 Provision for tax 16,409 19,459 18,538 21,627 24,372 Core Profit 42,385 38,858 44,015 44,510 50,161 Extraordinary items/Exceptional items 1,370 720 550 ‐ ‐ Profit after tax 43,755 39,578 44,565 44,510 50,161 Adjusted net profit 42,385 38,858 44,015 44,510 50,161 Diluted equity shares (mn) 613 615 617 617 617 EPS (INR) fully diluted 69.2 63.2 71.3 72.1 81.3 Dividend per share 14.3 16.4 16.4 16.4 16.4 Dividend payout (%) 20.7 25.9 22.9 22.7 20.1

Common size metrics‐ as % of net revenues Year to March FY10 FY11 FY12 FY13E FY14E Direct cost 77.1 76.1 77.5 77.1 77.2 EBITDA margins 12.8 12.8 11.4 11.4 11.4 Core net profit margins 11.4 8.9 8.3 7.3 7.2

Growth metrics (%) Year to March FY10 FY11 FY12 FY13E FY14E Revenues 9.1 18.6 20.5 14.8 15.1 EBITDA 20.1 18.1 7.7 14.6 15.4 EPS 55.1 (8.6) 12.9 1.1 12.7

6 Edelweiss Securities Limited Larsen & Toubro

Balance sheet (INR mn) As on 31st March FY10 FY11 FY12 FY13E FY14E Equity capital 1,204 1,218 1,225 1,225 1,225 Employee stock option O/S 251 ‐ ‐ ‐ ‐ Reserves & surplus 178,822 213,562 251,005 285,523 325,691 Net ESOP charges 2,8393,683000 Shareholders funds 183,116 218,463 252,230 286,747 326,915 Secured loans 9,557 10,630 14,533 21,033 27,533 Unsecured loans 58,451 60,981 84,424 86,424 87,424 Borrowings 68,008 71,611 98,958 107,458 114,958 Sources of funds 251,125 290,074 351,188 394,205 441,873 Gross block 72,901 89,567 105,364 119,341 129,341 Depreciation 17,985 23,125 29,426 37,177 46,742 Net block 54,916 66,442 75,938 82,164 82,598 Capital work in progress 8,742 8,139 7,587 7,687 7,787 Total fixed assets 63,658 74,581 83,525 89,851 90,385 Investments 137,054 146,848 158,719 163,719 178,719 Inventories 14,154 15,772 17,766 23,087 25,158 Sundry debtors 111,637 124,276 187,298 234,416 279,774 Cash and equivalents 14,319 17,304 17,781 22,466 26,309 Loans and advances 59,975 81,887 91,280 95,844 105,429 Other current assets 63,532 110,273 120,448 126,470 139,117 Total current assets 263,616 349,511 434,574 502,283 575,788 Sundry creditors and others 190,545 255,898 300,430 336,447 377,818 Provisions 21,884 22,334 23,871 23,871 23,871 Total CL & provisions 212,429 278,233 324,300 360,318 401,689 Net current assets 51,188 71,279 110,274 141,965 174,099 Net deferred tax (774) (2,635) (1,330) (1,330) (1,330) Uses of funds 251,125 290,074 351,188 394,205 441,873 Adjusted BV per share (INR) 7690103117134 00000 Free cash flow Year to March FY10 FY11 FY12 FY13E FY14E Net profit 43,755 39,578 44,565 44,510 50,161 Depreciation 3,797 5,624 6,995 8,774 9,566 Others (10,306) (3,817) (5,666) 9,082 10,676 Gross cash flow 37,246 41,385 45,894 62,366 70,402 Less:Changes in WC (17,582) 2,772 35,077 27,007 28,290 Operating cash flow 54,828 38,613 10,816 35,359 42,112 Less: Capex 15,598 15,468 15,971 15,100 10,100 Free cash flow 39,230 23,145 (5,155) 20,259 32,012

Cash flow metrices Year to March FY10 FY11 FY12 FY13E FY14E Operating cash flow 54,828 38,613 10,816 35,359 42,112 Financing cash flow 12,456 (11,248) 10,156 (10,575) (13,169) Investing cash flow (62,008) (24,380) (19,223) (20,100) (25,100) Net cash flow 5,275 2,985 1,750 4,685 3,843 Capex (15,598) (15,468) (15,971) (15,100) (10,100) Dividends paid (7,192) (8,670) (9,996) (9,993) (9,993)

7 Edelweiss Securities Limited Engineering and Capital Goods

Profitability & liquidity ratios Year to March FY10 FY11 FY12 FY13E FY14E ROAE (%) (on adjusted profits) 27.5 19.4 18.7 16.5 16.4 ROACE (%) 39.3 39.1 31.8 28.5 28.4 Inventory days 18 16 15 16 16 Debtors days 104 98 107 127 134 Payable days 216 244 248 248 241 Cash conversion cycle (94) (129) (125) (106) (91) Current ratio 1.2 1.3 1.3 1.4 1.4 Debt/EBITDA 1.4 1.3 1.6 1.6 1.4 Interest coverage 8.6 7.8 8.0 6.6 6.6 Fixed assets t/o (x) 7.7 7.2 7.4 7.7 8.5 Debt/equity 0.4 0.3 0.4 0.4 0.4 Adjusted debt/Equity 0.4 0.3 0.4 0.4 0.4

Operating ratios Year to March FY10 FY11 FY12 FY13E FY14E Total asset turnover 1.7 1.6 1.7 1.6 1.7 Fixed asset turnover 7.7 7.2 7.4 7.7 8.5 Equity turnover 2.4 2.2 2.2 2.3 2.3

Valuation parameters Year to March FY10 FY11 FY12 FY13E FY14E Diluted EPS (INR) 69.2 63.2 71.3 72.1 81.3 Y‐o‐Y growth (%) 55.1 (8.6) 12.9 1.1 12.7 CEPS 19.2 18.3 20.9 21.8 24.4 Diluted P/E (x) 20.4 22.3 19.8 19.5 17.3 Price/BV (x) 18.5 15.7 13.7 12.0 10.5 EV/Sales (x) 2.1 1.7 1.5 1.3 1.1 EV/EBITDA (X) 16.1 13.7 13.0 11.3 9.7 Dividend yield (%) 1.0 1.2 1.2 1.2 1.2

8 Edelweiss Securities Limited Larsen & Toubro

Financial Statements (Consolidated)

Income statement (INR mn) Year to March FY10 FY11 FY12 FY13E FY14E Income from operations 439,698 520,891 643,131 720,534 819,055 Direct costs 323,400 375,409 472,185 530,916 607,170 Employee costs 30,654 38,020 49,950 57,630 65,551 Other Expenses 21,246 30,553 33,297 35,456 37,208 Total operating expenses 375,300 443,982 555,432 624,003 709,930 EBITDA 64,398 76,910 87,700 96,531 109,126 Depreciation & Amortization 9,793 12,443 15,803 18,494 19,227 EBIT 54,605 64,467 71,897 78,036 89,898 Other income 7,585 11,153 8,290 8,352 9,012 Interest expenses 6,919 8,309 11,019 12,012 13,626 Profit before tax 55,271 67,312 69,167 74,376 85,285 Provision for tax 20,388 23,479 22,912 24,693 28,144 Net profit 34,884 43,833 46,255 49,683 57,141 Extraordinary income/ (loss) 19,540 719 568 ‐ ‐ Profit After Tax 54,423 44,552 46,823 49,683 57,141 Minority interest 975 786 348 894 1,029 Share in profit of associates 1,060 871 462 1,303 1,482 Profit after minority interest 54,508 44,637 46,937 50,092 57,594 Shares outstanding (mn) 613 615 617 617 617 Diluted EPS (INR) 57.1 71.4 75.2 81.2 93.3 Dividend payout (%) 21.2 19.9 18.4 17.8 16.3

Common size metrics ‐ as % of net revenues Year to March FY10 FY11 FY12 FY13E FY14E Operating expenses 85.4 85.2 86.4 86.6 86.7 EBITDA margins 14.6 14.8 13.6 13.4 13.3 Net profit margins 7.9 8.4 7.2 6.9 7.0

Growth ratios (%) Year to March FY10 FY11 FY12 FY13E FY14E Rev. growth (%) 8.5 18.5 23.5 12.0 13.7 EBITDA 28.8 19.4 14.0 10.1 13.0 Net profit 15.9 25.2 5.2 8.0 15.0

9 Edelweiss Securities Limited Engineering and Capital Goods

Balance sheet (INR mn) As on 31st March FY10 FY11 FY12 FY13E FY14E Equity capital 1,204 1,218 1,225 1,225 1,225 Employee stock option O/S 3,244 4,139 ‐ ‐ ‐ Reserves & surplus 205,214 245,149 292,643 333,711 381,831 Shareholders funds 209,913 250,506 293,868 334,936 383,056 Minority interest (BS) 10,873 10,260 17,535 18,429 19,457 Secured loans 141,859 234,490 334,420 352,420 364,420 Unsecured loans 104,214 93,796 137,071 137,071 137,071 Borrowings 246,073 328,285 471,491 489,491 501,491 Deferred liability ‐ 45,117 44,177 44,177 44,177 Sources of funds 466,858 634,167 827,070 887,033 948,181 Gross block 161,081 205,216 257,568 259,189 272,189 Depreciation (37,476) (48,975) (63,570) (66,684) (85,912) Net block 123,605 156,242 193,999 192,504 186,277 Capital work in progress 66,184 125,396 149,127 150,627 152,127 Total fixed assets 189,789 281,637 343,126 343,132 338,404 Investments 99,279 92,158 87,895 87,895 87,895 Inventories 23,782 30,403 42,299 55,273 63,212 Sundry debtors 125,280 144,802 204,054 246,704 291,839 Cash and equivalents 33,216 36,454 33,786 23,464 32,270 Loans and advances 160,299 235,366 322,654 332,333 365,567 Other current assets 74,433 121,099 154,831 159,476 175,424 Total current assets 417,009 568,124 757,623 817,251 928,312 Sundry creditors and others 212,946 280,517 334,203 351,403 396,137 Provisions 24,743 24,126 26,553 9,023 9,474 Total current liabilities & provisions 237,689 304,642 360,756 360,426 405,611 Net current assets 179,320 263,482 396,867 456,825 522,700 Net Deferred tax (1,530) (3,109) (818) (818) (818) Uses of funds 466,858 634,167 827,070 887,033 948,181 Book value per share (INR) 348.2 411.5 481.0 548.2 626.9

Free cash flow (INR mn) Year to March FY10 FY11 FY12 FY13E FY14E Net profit 54,508 44,637 46,937 50,092 57,594 Depreciation 9,793 12,443 15,803 18,494 19,227 Deferred tax (1,530) (3,109) ‐ ‐ ‐ Others (32,582) (62,184) (68,817) 12,907 14,655 Gross cash flow 30,188 (8,214) (6,077) 81,492 91,476 Less: Changes in WC 28,318 7,943 57,323 70,279 57,069 Operating cash flow 21,513 (16,156) (63,400) 11,213 34,407 Less: Capex 44,800 68,661 71,039 18,500 14,500 Free cash flow (23,287) (84,817) (134,440) (7,287) 19,907

Cash flow metrics Year to March FY10 FY11 FY12 FY13E FY14E Operating cash flow 21,513 (16,156) (63,400) 11,213 34,407 Investing cash flow (52,703) (59,353) (58,642) (18,500) (14,500) Financing cash flow 50,099 78,749 120,815 (3,036) (11,100) Net cash flow 18,909 3,239 (1,227) (10,322) 8,806 Capex (44,800) (68,661) (71,039) (18,500) (14,500) Dividends paid (7,528) (8,828) (8,594) (9,023) (9,474)

10 Edelweiss Securities Limited Larsen & Toubro

Peer comparison valuation PE (x) P/BV (x) ROE (%) Name of the companies Price (KRW) Market cap (USD mn) 2013E 2014E 2013E 2014E 2013E 2014E Hyundai Heavy 218,500 15,047 7.2 6.4 0.9 0.8 12.7 13.0 Samsung Engineering 177,500 6,220 9.6 7.7 2.9 2.7 34.4 34.5 L&T (INR) 1,409 15,360 17.4 15.1 2.6 2.2 15.9 16.0 Source: Bloomberg, Edelweiss research

11 Edelweiss Securities Limited EngineeringRATING and & Capital INTERPRETATION Goods

Company Absolute Relative Relative Company Absolute Relative Relative reco reco risk reco reco Risk ABB India REDUCE SU L Bajaj Electricals BUY SO M BGR Energy REDUCE SU M Bharat Electronics BUY SO H Bharat Heavy Electricals HOLD SP L Crompton Greaves BUY SO M Cummins India BUY SO L Havells India BUY SO M Jyoti Structures HOLD SP M Kalpataru Power HOLD SP M KEC International BUY SO M Larsen & Toubro BUY SO M Siemens HOLD SO L Sterlite Technologies HOLD SP H Techno Electric & Engineering BUY SO M Thermax HOLD SP L Voltamp Transformers REDUCE SU M Voltas HOLD SP L

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return

12 Edelweiss Securities Limited Larsen & Toubro

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098. Board: (91‐22) 4009 4400, Email: [email protected] Vikas Khemani Head Institutional Equities [email protected] +91 22 2286 4206 Nischal Maheshwari Co‐Head Institutional Equities & Head Research [email protected] +91 22 4063 5476

Nirav Sheth Head Sales [email protected] +91 22 4040 7499

Coverage group(s) of stocks by primary analyst(s): ABB India, BGR Energy, Bharat Electronics, Bharat Heavy Electricals, Bajaj Electricals, Crompton Greaves, Havells India, Jyoti Structures, KEC International, Cummins India, Kalpataru Power, Larsen & Toubro, Siemens, Sterlite Technologies, Techno Electric & Engineering, Thermax, Voltamp Transformers, Voltas

Recent Research Date Company Title Price (INR) Recos

10‐Sep‐12 Blue Star More pain before gain; 173 Not Visit Note Rated 04‐Sep‐12 KEC Changing course; time to BUY; 55 Buy International Visit Note 24‐Aug‐12 Bharat Sustaining ace defence play 1258 Buy Electronics tag ; Visit Note

Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Rating Interpretation

Buy Hold Reduce Total Rating Expected to

Rating Distribution* 113 53 19 186 Buy appreciate more than 15% over a 12‐month period * 1 stocks under review Hold appreciate up to 15% over a 12‐month period > 50bn Between 10bn and 50 bn < 10bn

Reduce depreciate more than 5% over a 12‐month period Market Cap (INR) 114 58 14

13 Edelweiss Securities Limited Engineering and Capital Goods

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