CORPORATE FINANCE

Term Assignment

On “RISK,RETURN & OTHER ASPECTS OF LARSEN & TOUBRO”

POST GRADUATE DIPLOMA IN MANAGEMENT

(Term-II; Batch 2019-21)

Under the Supervision of

Dr. Moid Uddin Ahmad

Associate Professor- Corporate Finnce

Submitted by

GROUP 1

Akhil Kumar Thakur PGMA 1908

Aastha Singh PGMA 1901

Uttkarsh Singhal PGMA 1942

Abdullah Khan PGMA 1902

Ankita Verma PGMA 1911

JAIPURIA INSTITUTE OF MANAGEMENT

A-32 A, Sector 62, Institutional Area, Noida- 201309 (U.P.)

NOVEMBER 21, 2019

Page 1 of 8
 PART 1
1.
INTRODUCTION
Larsen & Toubro, with global operations, is a multinational company in software,
infrastructure, building, manufacturing and financial services. The company is one
of India's largest and most respected private sector companies. The company
operates in the segment of Engineering & Construction, Electrical & Electronics,
Machinery & Industrial Products, and other three segments.

PROMOTERS
In 1946, Larsen & Toubro Ltd. became a private limited company. The business
was established earlier as a collaboration company in Mumbai, created by two
Danish engineers, Henning Holk Larsen & Soren Kristian Toubro. The business
became a public company with a paid-up capital of Rs.2 million in December
1950. During this time, they implemented prestigious orders including the Amul
Dairy at Rourkela Steel Plant's Anand and Blast Furnaces.

PRODUCT
The Engineering, Construction & Contracts Department (ECCD) of the business is
responsible for the engineering, design and construction of facilities, structures,
warehouses, water supply and metallurgical and material handling activities
including structural, mechanical, electrical and instrumentation planning
disciplines. Our Technology & Development Group models, technicians and
programs with front-end design for the hydrocarbon business. The heavy
construction business was divided into two separate companies: the Independent
Heavy Construction Company and the Individual Ship Building Company. Their
division of Electrical & Electronics comprises the business of the Independent
Company of Electrical and Automation and Medical Equipment and Systems.

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 SOME NEW PROJECTS
Larsen & Toubro (L&T) bagged a turnkey deal on June 25, 2019 to build a power
generation project worth more than Rs 7,000 crore after a three-year dry spell.
The firm will do design, procurement and construction (EPC) for the 1,320 mw
ultra supercritical power plant in Buxar district in Bihar, for SJVN Thermal Limited.
This contract, one of the largest earned by the firm for a power generation
venture, would support its power equipment sector that was struggling under the
news.
Engineering and construction giant L&T on Thursday on October 10, 2019 said it
received contracts worth up to Rs 2,500 crore from domestic and international
markets. L&T's engineering arm secured contracts for 400kV transmission line in
Mozambique and 220Kv venture in the UAE.

MARKET
L&T has an international presence, with branches expanding internationally.
Overseas earnings have grown significantly as a result of a drive for international
business. With facilities in China and the Gulf region, it continues to grow its
manufacturing footprint overseas. The businesses of the company are supported
by a wide network of marketing and distribution and have established a
reputation for strong customer support.

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 FINANCING OF L&T
STANDALONE

3.70
Market Cap (Rs Cr.) 1,93,785.46 Market Lot 1 Price/Book

Book Value (Rs) 373.31 EPS (TTM) 52.64 Face Value (RS) 2.00

Dividend (%) 900.00 P/C 22.92 Deliverables (%) 55.51

INCOME STATEMENT
Sep 2019 June 2019 March 2019 Dec 2018 Sep 2018

Net Sales 18,751.69 16,498.99 30,822.41 22,342.98 18,648.76

Other Income 1,022.16 462.11 796.62 887 723.79

PBDIT 1,553.05 1,215.96 3,460.91 2,140.29 1,659

Net Profit 1,983.60 1,392 2,377.42 1,634.78 1,753.71

BALANCE SHEET
Mar 2019 Mar 2018
Total Share Capital 280.55 280.28
Net worth 52,397.52 49,021.05
Total Debt 10,344.07 9,777.93
Net Block 7,181.71 6,940.53
Investments 24,834.45 27,339.24
Total Assets 62,742.29 58,798.98

YEAR YEAR END SHARE DIVIDENDS PAID

PRICE DURING THE YEAR (%)
2014 858.81 712.50
2015 1152.56 812.50
2016 811.17 912.50
2017 1038.35 700
2018 1310.90 800
2019 1385.30 1489.85

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  Larsen & Toubro          
2 Market end share price          
Average Holding
Dividen YOY Annual Period (5
    Price d Return Return   Years)
10.752413 6 61.30459
  2012-13       46 Years 59
Average
12.902896 5 Annual
  2013-14 858.81 14.25   16 Years Return
0.122609
  2014-15 1152.56 16.25 34.204     19
  2015-16 811.17 18.25 -29.620      
  2016-17 1038.35 14 28.006      
  2017-18 1310.9 16 26.248      
  2018-19 1385.3 18 5.675      
    Historical Return        
  2012-13            
  2013-14 0.000          
  2014-15 34.204          
  2015-16 -29.620          
  2016-17 28.006          
  2017-18 26.248          
  2018-19 5.675          
               
  Average Mean 10.752        

  Mean + σ Maximum Return 34.665        

  Mean - σ Minimum Return -13.161        

  Historical Return          
  Standard Deviation 23.913        

Average annual return: (from Excel) AVERAGE (Year on year) = 0.12260

(share price of 2019−share price of 2014)

Holding period (5 years): ∗100
share price of 2014

= (1385.3-858.81/858.81) *100 = 61.304

Average annual Return: 61.304/5 = 12.26

The portfolio,
Standard therefore,
Deviation outperformed
or risk return = 23.91 the index by more than a percentage
point. Holding
Maximumperiod return
return (mean + σ)is=useful
(10.752 for making
+ 23.913) like comparisons between
= 34.665
Minimum return (mean – σ) = (10.752 -23.913) = -13.161
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Returns on investments purchased at different periods in time which is 61.304.

Conversely, the standard deviation of a portfolio measures how much the

investment returns deviate from the mean of the probability distribution of
investments. The standard deviation of a two-asset portfolio is calculated by
squaring the weight of the first asset and multiplying it by the variance of the
first asset, added to the square of the weight of the second asset, multiplied by
the variance of the second asset which is 23.913.

 
 
 

5.1400
3 Risk Free Rate (182 days) %        

      0.0514        
    Beta 1.31        
  Cost of Equity By CAPM Method        
        3 Year 2 Year 1 Year  
28.06
  Sensex Return (1Year) YTD 5.68% 26.25% %  
0.280
        0.0568 0.2625 6  
Risk Free
Rate +
Beta *
( Market
return -
Risk free
  Expected Rate of return   E (r) Rate)    
 
    1 Year   E (r) 32.7941  

Average market return = 1.390

Cost of Equity by CAPM method,

E(R) = Risk free rate + Beta*(Market Return – Risk free rate)
=5.14 + 1.31*(0.0568 – 5.14) = 1.0254

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ARR can be used when considering multiple projects since it provides the
expected rate of return from each project. ARR is helpful in determining the
annual percentage rate of return of a project. So, in this it is 13.90 which is
acceptable.

PART B
 
 

Dividen Dividend
4 Years Price d %      
  2012-13 597.42 18.5 616.55      
  2013-14 858.81 14.25 712.50%      
  2014-15 1152.56 16.25 812.50%      
  2015-16 811.17 18.25 912.50%      
  2016-17 1038.35 14 700%      
  2017-18 1310.9 16 800%      
  2018-19 1385.3 18 900%      
               
  Expected value of share in 2019-18        
          g=0.048    
12467.
  D0 900% OF 1385.3 7        
               
13066.
  D1 D0*(1+g) 15        
               
  P0 D1/(COST OF Equity - G) 399.01      
             

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 5 Calculation of Cost of Capital        

               
               
               
               
               
               
 Net
  Ke 4.08     Worth 83.51  
  Cost of Debt 2.47      Total debt 0.165  
           
  WACC 6.55          
               
               
               
           
     WACC 6.55%   means the company   must
  pay its  investors an
  average
  of
     Rs.0.0655 in return
  for every Rs.1
  in extra
  funding.
     
               
               
               
               
               
               
               

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