RESULT UPDATE
LARSEN & TOUBRO Transition to Ind-AS could be a long-term positive
India Equity Research| Engineering and Capital Goods
Larsen & Toubro’s (L&T) Q1FY17 net income missed Street’s and our EDELWEISS 4D RATINGS estimates primarily as transition to Ind-AS required much higher-than- Absolute Rating BUY expected provisioning. Business outlook indicates a slow and steady Rating Relative to Sector Outperform improvement with orders rising 14% YoY and international revenue, once Risk Rating Relative to Sector Medium again, surprising us on the upside. We perceive a few challenges: (a) weak Sector Relative to Market Overweight revenue prospects for realty business in interim; (b) domestic execution up mere ~5% YoY; and (c) NWC/sales at 23.5%. We trim FY17/18E EPS ~20% each building in the Ind-AS impact. We maintain ‘BUY’ with revised MARKET DATA (R: LART.BO, B: LT IN) TP of INR 1650 (INR1750 earlier) valuing L&T core E&C at 25x, in line with CMP : INR 1559 S&P BSE Cap goods index. Target Price : INR 1650 52-week range (INR) : 1,844 / 1,016 Share in issue (mn) : 932.0 Interim results appear good on what probably may be a new goal post M cap (INR bn/USD mn) : 1,453/ 21,688 We agree with management that L&T’s Q1FY17 net income at INR 219 bn, up 9% YoY, Avg. Daily Vol.BSE/NSE(‘000) : 2,290.8 is impressive, given the sluggish capital formation growth in the economy. Order wins
at INR 250 bn(ex-services), up 14%, are in line with the annual run-rate set by SHARE HOLDING PATTERN (%) management. 50 bps margin expansion helped EBITDA rise 15% YoY. Current Q3FY16 Q2FY16
Promoters * - - - Our challenge is the timelines for full disclosures on transition to Ind-AS MF's, FI's & BK’s 38.7 38.3 38.4 Post adoption of Ind-AS, Q1FY17 net income was impacted by INR1.65bn (same as last FII's 16.6 16.2 16.4 year) due to Expected Credit Loss (ECL) on receivables beyond 3 months. Also, the first Others 44.7 45.5 45.2 balance sheet under Ind-AS may not be immediately available. Based on management * Promoters pledged shares : NIL commentary that provisions do not have quarterly volatility and other IND AS charges, (% of share in issue)
we revise down FY17/18E EPS to INR46/INR62. PRICE PERFORMANCE (%)
Guidance maintained; bid pipeline healthy at INR4.2tn EW Management maintained 12-15% sales & 15% order intake guidance led by healthy bid Stock Nifty Construction Index pipeline of INR4.25tn (INR3.1tn from India) and strong execution in export businesses. NWC/sales remained at Q4 level despite a good intake, indicating that a sustained 1 month 7.0 6.6 6.9 inflection in revenue is still a few quarters away. 3 months 25.2 10.4 17.8 12 months (10.3) 3.9 (12.0)
Outlook and valuations: A good medium-term play; maintain ‘BUY’
Post realignment of EPS in Ind-AS, we realign our TP to INR 1,650. We continue using SOTP. We assign P/E to 25x, in line with S&P-BSE cap good index for core E&C business (v/s 19x standalone estimate). With EPS CAGR (FY16-18E) estimate of 30%+ in core E&C
, valuations appear reasonable v/s position in cycle. We maintain ‘BUY/SO’. Manish Saxena
Financials (Consolidated) (INR bn) +91 22 6620 3105 [email protected] Year to March Q1FY17 Q1FY16 % change Q4FY16 % change FY16 FY17E FY18E
Net rev. 218.7 200.5 9.1 331.6 (34.0) 1,026 1,142 1,321 Amit Mahawar EBITDA 19.1 16.4 16.1 48.6 (60.8) 123 114 138 +91 22 4040 7451 [email protected] Adjusted profit 6.1 4.2 45.5 24.1 (74.7) 47 42 58
Diluted EPS (INR) 6.6 4.5 45.5 25.9 (74.7) 50.9 45.5 61.9 Swarnim Maheshwari Diluted P/E (x) 30.6 34.2 25.1 +91 22 4040 7418 [email protected] EV/EBITDA (x) 19.3 21.7 18.3
ROAE (%) 10.7 8.8 11.0 July 29, 2016 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL
Engineering and Capital Goods
Con-call highlights: FY17 guidance (consol) maintained: Revenue: 12-15% growth, Order intake: 15% growth , Margins: 50bps improvement (ex-services business).
Ordering pipeline: Total ordering pipeline for next 9 months stands at INR4.25tn. 25% of order prospects are from international projects and balance from the domestic market.
Large jobs drive strong order intake: Telangana barrage (water segment) order received in Q1FY17 apart from Saudi Aramco are some of the large projects awarded in Q1FY17 which drove 15% growth in order intake.
IND-AS : P&L impacted by INR1.65bn mainly due to Expected Credit loss (ECL) in Q1FY17 apart from provisioning for performance link reward. A large part of ECL expense of INR10bn has been adjusted against opening reserves of March 15 B/S.
Power segment: Power segment sales up 60% YoY led by Bangladesh, Chhabra etc., large project execution.
Hydrocarbon segment: Large order inflow in Q1 adds significantly to FY18E revenue growth visibility. L&T has completely exited old jobs in HC segment and is now expects improving margin profile for this segment.
HC, Hydrocarbon & MMH will see rationalization in manpower. The company continues to add manpower in infra division which has sustained reasonable growth, especially in international jobs.
Development projects (IND AS): Nabha Power, Kattupali port & Hyderabad metro included. However, in PAT profits/losses from road projects are also included. In capital employed, Equity-Accumulated losses of IDPL have been also recorded. Loss of road revenues from the development project segment was compensated by Hyderabad Metro revenue (Under IND-AS, whatever execution is done by outside party gets recognised as revenue).
Real estate business: Revenues are expected to be a bit weak in near term till the time the company gets permission for IInd phase of Powai, Parel projects. Bengaluru project is expected to contribute in sometime. Realty revenues were INR4bn during Q1FY17.
Other business: Margins have declined due to inventory write down (INR1bn) in the shipbuilding business and lower revenues in the realty business. There have been cost overruns in certain ship contracts which are under arbitration.
Working capital: Working capital under IND-AS is at similar levels to those of March 16 which was 23.5% as % of sales. No real improvement seen as such.
Other key highlights: SGA has risen sharply due to NPAs in fin services and on doubtful debts & expected credit loss.
Salary cost for technology services has been included in staff cost versus other expenses earlier.
Excise duty was NR1.5bn during Q1FY16.
Kuwait, Saudi still continue to award many projects . But ordering from Oman & UAE has reduced. The company is not facing any working capital related challenges in Saudi Arabia unlike Korean engineering majors.
2 Edelweiss Securities Limited Larsen & Toubro
Table 2: Key segmental performance Segments Consolidated Q1FY17 Q1FY16 % change Revenues Infra 90,700 83,100 9.1 Power 17,200 10,800 59.3 Heavy Engineering 6,500 6,200 4.8 Electrical Automation 9,300 9,600 (3.1) Hydrocarbons 21,300 21,200 0.5 IT & services 23,500 20,500 14.6 Financial Services 20,907 17,817 17.3 Development projects 11,500 9,900 16.2 Others 16,200 19,400 (16.5) Total 217,107 198,517 9.4 EBITDA margins Infra 9.2 8.9 Power 5.8 1.2 Heavy Engineering 14.9 8.9 Electrical Automation 7.8 5.8 Hydrocarbons 2.0 2.3 IT & services 21.9 18.4 Financial Services 13.3 11.7 Development projects 9.8 5.9 Others (2.5) 11.9 Total 9.3 9.0
Table 2: Edelweiss bottoms-up order intake assumptions (INR bn) FY14 FY15 FY16 FY17E FY18E Process (MMH) 29 62 41 49 58 Power 28 155 27 97 155 BoP/Gas/EPC etc 28 75 27 28 52 BTG 0 80 0 69 103 Hydrocarbons 97 108 95 150 174 India 32 40 45 50 54 Exports 65 68 50 100 120 Infrastructure 762 854 849 804 863 T&D- Middle East 61 64 51 50 55 T&D- India 67 126 133 143 140 Factories & Buildings (Residential) 109 134 90 60 65 Factories & Buildings (Commercial/IT 154 171 154 175 184 park/ Industrials) Transportation/Urban Infra (India) 107 120 150 120 130 Transportation/Urban Infra (Middle 104 120 75 56 68 Roads (Including ME) 70 55 110 100 108 Water 91 64 86 99 114 Developmental Projects - - - - - Defence & shipbuilding 30 45 25 110 140 Others 92 120 113 90 90 TOTAL 1,037 1,345 1,149 1,299 1,481 % change 16.0 29.7 (14.5) 13.0 14.1 Source: Company, Industry,Edelweiss research
3 Edelweiss Securities Limited Engineering and Capital Goods
Table 3: SOTP valuation Valuation L&T's Value Per share Multiple Remark methodology stake (%) (INR mn) (INR) L&T Core Engineering PE 25 100 1,221,643 1,314 In line with S&P BSE Cap Goods Index business adjusted for June Quarter earnings L&T MHI (BTG JVs) DCF - 51 62,960 35 DCF basis L&T Infotech & technology PER 85% 122,340 132 Assuming value in line with Current market services Cap adjusted for minority stake L&T Finance Holdings 67% 98,352 106 Assuming value in line with Current market Cap adjusted for minority stake L&T Develoment Projects P/BV 1.2 80% 62,000 67 Equity Invested till FY16
Hyderabad Metro DCF 100 (6,375) (3) Remains to be seen if Telangana state would like to take a controlling stake in the project Total 1,567,295 1,650 Source: Company, Edelweiss research
Financial snapshot: Consol (INR mn) Year to March Q1FY17 Q1FY16 % change Q4FY16 % change FY16 FY17E FY18E Total revenues (net) 218,738 200,482 9.1 331,570 (34.0) 1,026,317 1,142,351 1,321,144 Direct cost 136,532 127,095 7.4 244,355 (44.1) 749,463 778,612 910,205 Staff cost 34,200 31,494 8.6 22,421 52.5 92,048 124,850 144,477 Other operating expenses 28,955 25,482 13.6 16,203 78.7 61,378 124,741 128,170 Total expenditure 199,687 184,072 8.5 282,979 (29.4) 902,890 1,028,203 1,182,852 EBITDA 19,051 16,411 16.1 48,592 (60.8) 123,427 114,148 138,292 Depreciation 4,648 4,658 (0.2) 8,203 (43.3) 27,560 29,297 30,479 EBIT 14,403 11,752 22.6 40,389 (64.3) 95,867 84,852 107,813 Interest 3,375 3,893 (13.3) 7,737 (56.4) 30,412 15,685 16,663 Other income 3,024 2,833 6.8 2,182 38.6 11,830 10,426 10,974 Add: Exceptional items 0 0 485 3,581 0 0 PBT 14,052 10,692 31.4 35,319 (60.2) 80,866 79,593 102,124 Tax 5,488 4,282 28.2 9,537 (42.5) 25,487 26,266 33,701 Less: Minority Interest 732 258 1,230 4,450 3,466 4,448 Add: Share in profits of assoc. (1,736) (1,963) (15) (25) (7,500) (6,375) Reported Profit 6,097 4,189 45.5 24,537 (75.2) 50,905 42,361 57,601 Adjusted net profit 6,097 4,189 45.5 24,051 (74.7) 47,324 42,361 57,601 Equity capital (FV: INR 2) 1,245 1,245 1,245 1,245 1,246 1,247 # of shares (mn) 930 930 930 930 930 930 Adjusted EPS (INR) 6.6 4.5 45.5 25.9 (74.7) 50.9 45.5 61.9
As % of net revenues 0.0 0.0 0.0 2.0 3.0 4.0 Direct cost 62.4 63.4 73.7 73.0 68.2 68.9 Employee cost 15.6 15.7 6.8 9.0 10.9 10.9 Other operating expenses 13.2 12.7 4.9 6.0 10.9 9.7 EBITDA 8.7 8.2 14.7 12.0 10.0 10.5 Adjsuted net profit 2.8 2.1 7.3 4.6 3.7 4.4 Tax rate 39.1 40.1 27.0 31.5 33.0 33.0
4 Edelweiss Securities Limited Larsen & Toubro
Company Description Larsen & Toubro (L&T), headquartered in Mumbai, is a technology-driven engineering and construction organization, 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 the constant quest for top-class quality has enabled the company attain and sustain leadership in its major lines of businesses over seven decades. L&T has an international presence, with a global spread of offices. A thrust on international business over the past few years has seen overseas earnings growing to 18% of total revenues. 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.
Investment Theme Diversified business dominance imparts unique flexibility: L&T has a dominant position and market share in most operating verticals, be it oil & gas, process projects, roads, bridges, or industrial structures. This imparts flexibility to cherry-pick projects across a wide range of projects and thus helps optimize overall business profitability.
New segments: Potent growth Catalysts: L&T will have to garner INR100-150bn new orders annually over FY17-18E to cover lost ground owing to tepid Middle East market and weak F&B segment. We believe, the much needed succor will come from defense, transportation and power T&D sectors in the domestic market, which are anticipated to gain palpable momentum in light of the government’s ‘Make in India’ focus.
Strong OB and domestic execution pick up to drive earnings from FY18 (+20% core earnings). Diversified presence across key verticals has helped L&T sustain healthy order book traction over past three years of investment slowdown. Though this elongates its execution cycle, it also imparts good revenue visibility over the next few years. L&T could see a substantial scale up in execution as these factors reverse going ahead.
Key Risks Perceived risk of a slowdown in Middle East capex due to sharp drop in global oil prices can severely impact L&T’s order intake and revenue accruals.
Further delay in recovery of the domestic investment cycle.
Continued deterioration in working capital requirement.
5 Edelweiss Securities Limited Engineering and Capital Goods
Financial Statements (Consolidated)
Key assumptions Income statement (INR mn) Year to March FY15 FY16E FY17E FY18E Year to March FY15 FY16 FY17E FY18E Macros Income from operations 920,046 1,026,317 1,142,351 1,321,144 GDP(Y-o-Y %) 7.2 7.4 7.9 8.3 Direct costs 672,937 749,463 778,612 910,205 Inflation (Avg) 5.9 4.8 5.0 5.2 Employee costs 79,222 92,048 124,850 144,477 Repo rate (exit rate) 7.5 6.8 6.0 6.0 Other expenses 54,531 61,378 124,741 128,170 USD/INR (Avg) 61.2 65.0 67.5 67.0 Total operating expenses 806,690 902,890 1,028,203 1,182,852 Key financial assumptions EBITDA 113,356 123,427 114,148 138,292 Order inflow growth vertical wise (%) Depreciation & amortisation 26,225 27,560 29,297 30,479 A) Process 73.1 (33.6) 20.0 20.0 EBIT 87,131 95,867 84,852 107,813 B) Oil & Gas 11.7 (11.9) 55.0 2.0 Interest expenses 28,507 30,412 15,685 16,663 C) Power 463.0 (86.4) 400.0 45.0 Other income 10,072 11,830 10,426 10,974 D) Infra 12.1 (0.7) (8.0) 10.0 Add: Exceptional items 3,477 3,581 - - E) Others 40.0 (20.0) 55.0 13.0 Profit before tax 72,172 80,866 79,593 102,124 Excise duty as a % of sales 0.9 1.0 0.9 1.3 Provision for tax 22,836 25,487 26,266 33,701 Total no. of employees (SA) 46,392 47,784 51,129 54,708 Less: Minority interests 1,710 4,450 3,466 4,448 Empl. cost per head (INR mn) 0.89 0.94 0.99 1.04 Add: Share in profits of assoc. 21 (25) (7,500) (6,375) Depriciation as a % of FA 8.5 7.8 7.4 7.4 Reported Profit 47,648 50,905 42,361 57,601 Net borrowings (INR mn) 8,408 13,086 6,000 4,500 Less: Exceptional Items 3,477 3,581 - - Tax rate (%) 24.3 20.6 26.0 27.0 Adjusted profit 44,171 47,324 42,361 57,601 Capex (INR mn) 9,012 6,434 10,100 5,100 Basic sh. outstanding (mn) 930 930 930 930 Customer adv. (as a % of OI) 7.3 8.6 10.0 10.0 Adjusted Basic EPS 47.5 50.9 45.6 62.0 No. of Dil. Sh. outstand. (mn) 930 930 930 930 Adjusted Diluted EPS 47.5 50.9 45.6 62.0
Adjusted Cash EPS 71.3 80.6 77.1 94.8 Dividend per share (DPS) 13.9 18.3 15.3 16.1 Dividend Payout Ratio (%) 31.6 40.1 42.1 32.5 2% -2% 10% Common size metrics- as % of net revenues Year to March FY15 FY16 FY17E FY18E Direct cost 73.1 73.0 68.2 68.9 Employee expenses 8.6 9.0 10.9 10.9 S G &A expenses 5.9 6.0 10.9 9.7 Operating expenses 87.7 88.0 90.0 89.5 Depreciation & amortization 2.9 2.7 2.6 2.3 Interest expenditure 3.1 3.0 1.4 1.3 EBITDA margins 12.3 12.0 10.0 10.5 EBIT margins 9.5 9.3 7.4 8.2 Net Profit margins 5.0 5.0 4.0 4.7
Growth metrics (%) Year to March FY15 FY16 FY17E FY18E Revenues 8.1 11.6 11.3 15.7 EBITDA 5.6 8.9 (7.5) 21.2 PBT (3.6) 12.0 (1.6) 28.3 Adjusted Profit (2.9) 7.1 (10.5) 36.0 EPS (2.8) 7.1 (10.5) 36.0
6 Edelweiss Securities Limited Larsen & Toubro
Balance sheet (INR mn) Cash flow metrices (INR mn) As on 31st March FY15 FY16 FY17E FY18E Year to March FY15E FY16 FY17E FY18E Equity capital 1,859 1,863 1,863 1,863 Operating cash flow (6,688) (32,289) (32,295) 2,454 Reserves & surplus 407,232 438,054 466,165 508,802 Financing cash flow 78,908 74,885 35,258 33,567 Shareholders funds 409,091 439,917 468,028 510,665 Investing cash flow (54,626) (41,320) (21,388) (21,503) Minority interest 49,986 67,688 71,154 75,602 Net cash flow 17,594 1,276 (18,425) 14,518 Long term borrowings 655,372 737,537 777,537 817,537 Capex (67,714) (50,582) (21,388) (21,503) Short term borrowings 250,336 275,529 300,722 325,916 Dividends paid (12,951) (17,000) (14,251) (14,963) Total Borrowings 905,707 1,013,066 1,078,259 1,143,453 Deffered payment liability 30,588 108,399 108,399 108,399 Profitability & liquidity ratios Net deferred tax (1,846) (3,918) (3,918) (3,918) Year to March FY15 FY16 FY17E FY18E Long Term Liabilities & Prov. 18,505 24,043 24,043 24,043 ROAE (%) (on adj. profits) 10.6 10.7 8.8 11.0 Sources of funds 1,412,031 1,649,195 1,745,965 1,858,243 ROACE (%) 7.5 7.5 6.1 7.1 Gross Block 281,184 280,878 300,764 320,765 Inventory days 33 29 27 26 Net Block 188,105 173,851 176,292 177,689 Debtors days 112 118 120 116 Capital work in progress 149,928 174,899 175,899 176,899 Payable days 123 132 141 135 Intangible Assets 159,275 258,965 247,615 236,242 Cash conversion cycle (days) 21 15 5 7 Total Fixed Assets 497,308 607,715 599,806 590,830 Current ratio (x) 2.7 2.7 2.9 2.8 Non current investments 16,468 19,744 19,744 19,744 Gross Debt/EBITDA (x) 8.0 8.2 9.4 8.3 Inventories 65,084 53,620 59,729 69,824 Interest coverage (x) 3.1 3.2 5.4 6.5 Sundry debtors 300,894 359,899 388,699 449,804 Fixed assets t/o (x) 2.7 2.6 2.7 3.2 Cash and cash equivalents 138,208 141,088 122,663 137,181 Gross Debt/equity (x) 2.0 2.0 2.0 2.0 Loans and advances 665,719 797,106 843,912 935,949 Adjusted debt/Equity (x) 2.0 2.0 2.0 2.0 Other current assets 247,133 288,045 302,448 332,692 Total current assets (ex cash) 1,278,830 1,498,670 1,594,788 1,788,269 Operating ratios (x) Trade payable 483,346 581,123 576,786 662,818 Year to March FY15 FY16 FY17E FY18E Other Current Liab. & ST Prov. 35,438 36,900 14,251 14,963 Total asset turnover 0.7 0.7 0.7 0.7 Total CL & provisions 518,784 618,023 591,037 677,781 Fixed asset turnover 2.7 2.6 2.7 3.2 Net current assets (ex cash) 760,046 880,647 1,003,750 1,110,487 Equity turnover 2.1 2.1 2.2 2.3 Uses of funds 1,412,031 1,649,195 1,745,965 1,858,243 Adjusted BV per share (INR) 440 473 503 549 Valuation parameters Contingent liabilities Year to March FY15 FY16 FY17E FY18E Free cash flow (INR mn) Diluted EPS (INR) 47.5 50.9 45.6 62.0 Year to March FY15E FY16 FY17E FY18E Y-o-Y growth (%) (2.8) 7.1 (10.5) 36.0 Reported Profit 47,648 50,905 42,361 57,601 CEPS (INR) 71.3 80.6 77.1 94.8 Depreciation 26,225 27,560 29,297 30,479 Diluted P/E (x) 32.8 30.6 34.2 25.1 Interest (Net of Tax) 19,487 20,827 10,509 11,164 Price/BV (x) 3.5 3.3 3.1 2.8 Others (91,049) (109,933) (24,262) (59,154) EV/Sales (x) 2.5 2.3 2.2 1.9 Less:Changes in WC 8,999 21,648 90,199 37,637 EV/EBITDA (X) 20.0 19.3 21.7 18.3 Operating cash flow (6,688) (32,289) (32,295) 2,454 Dividend yield (%) 0.9 1.2 1.0 1.0 Less: Capex 67,714 50,582 21,388 21,503 Free cash flow (74,402) (82,871) (53,683) (19,049)
7 Edelweiss Securities Limited Engineering and Capital Goods
Additional Data Directors Data AM Naik Group Executive Chairman MR. D. K. SEN Whole-time Director & Sr. Executive Vice President (Infra) S N Subrahmanyan Deputy Managing Director & President Shailendra Roy Whole Time Director & Senior Executive Vice President MR. SUSHOBHAN SARKER Nominee Director - LIC MRS. SUNITA SHARMA Nominee Director - LIC MR. M. V. SATISH Whole Time Director & Sr. EVP R Shankar Raman Whole-time Director & Chief Financial Officer V K Magapu Whole Time Director AK Jain Nominee Director M M Chitale Non Executive Director S N Talwar Non Executive Director S Rajgopal Non Executive Director Subodh Bhargava Non Executive Director
Auditors - Sharp Tannan & Co. *as per last annual report
Holding – Top10 Perc. Holding Perc. Holding Life insurance corp 15.71 L&t employ welfare f 12.31 Unit trust of india 8.15 Hdfc asset managemen 2.23 General insurance co 1.84 Prudential icici ass 1.54 Gic private limited 1.48 Icici prudential lif 1.34 Reliance capital tru 1.24 Blackrock 1.05
*in last one year
Bulk Deals Data Acquired / Seller B/S Qty Traded Price
No Data Available
*in last one year
Insider Trades Reporting Data Acquired / Seller B/S Qty Traded
No Data Available
*in last one year
8 Edelweiss Securities Limited RATING & INTERPRETATION
Company Absolute Relative Relative Company Absolute Relative Relative reco reco risk reco reco Risk ABB India REDUCE SP L Bajaj Electricals HOLD SP M Bharat Forge BUY SP M Bharat Heavy Electricals REDUCE SP M Crompton Greaves HOLD SP M Cummins India BUY SO L Greaves Cotton BUY SO M Havells India BUY SP M Kalpataru Power BUY SO M KEC International BUY SP M Larsen & Toubro BUY SO M Praj Industries BUY None None Ramkrishna Forgings BUY SP M Siemens REDUCE SP L TD Power Systems BUY None None Techno Electric & Engineering BUY SP M Thermax REDUCE SU L Triveni Turbine BUY None None VA Tech Wabag BUY None None Voltas BUY SO 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
9 Edelweiss Securities Limited Engineering and Capital Goods
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098. Board: (91-22) 4009 4400, Email: [email protected]
Manoj Bahety
Deputy Head Research [email protected]
Coverage group(s) of stocks by primary analyst(s): Engineering and Capital Goods ABB India, Bharat Heavy Electricals, Bharat Forge, Bajaj Electricals, Crompton Greaves, Greaves Cotton, Havells India, KEC International, Cummins India, Kalpataru Power, Larsen & Toubro, Praj Industries, Ramkrishna Forgings, Siemens, TD Power Systems, Techno Electric & Engineering, Thermax, Triveni Turbine, VA Tech Wabag, Voltas
Recent Research
Date Company Title Price (INR) Recos
25 -Jul-16 Praj Slow start to the year; growth 85 Buy Industries matrix intact; Result Update
25-Juj-16 Havells Beat on all counts; well 376 Buy India equipped for next leg of growth; Result Update 22-Jul-16 Bharat Heavy Breaking shackles of extreme 141 Buy Electricals pessimism; Company Update
Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Rating Interpretation
Buy Hold Reduce Total Rating Expected to
Rating Distribution* 158 59 12 229 Buy appreciate more than 15% over a 12-month period * - stocks under review Hold appreciate up to 15% over a 12-month period > 50bn Between 10bn and 50 bn < 10bn 743 Reduce depreciate more than 5% over a 12-month period Market Cap (INR) 156 62 11 594
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10 Edelweiss Securities Limited Larsen & Toubro
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