INVESTMENT ANALYSIS AND PORTFOLIO

MANAGEMENT ASSIGNMENT
TY BCOM (HONS.)

SEM- 5

PRATIK GOEL

SAP- 45202200160

ROLL NO.- A039

FUNDAMENTAL
ANALYSIS
INTRODUCTION
Larsen & Toubro Limited, commonly known as L&T, is an Indian multinational conglomerate
company, with business interests in engineering, construction, Hi-Tech Manufacturing, EPC
Projects, technology, information technology and financial services, headquartered in Mumbai. The
company is counted among world's top five construction companies. It was founded by Henning Holck-
Larsen and Søren Kristian Toubro in 1946 in Bombay, who were two Danish engineers taking refuge in
India.
Larsen & Toubro Limited engages in engineering, construction, and manufacturing operations worldwide.

Three key products/services which L&T is engaged in are: Construction and project-related activity;
manufacturing and trading activity; and engineering services. For administrative purposes, the firm has
been structured into five broad categories:

 Construction – this covers buildings & factories, heavy civil infrastructure, transportation
infrastructure, power transmission & distribution, water & effluent treatment, metallurgical &
material handling and smart world & communication;
 EPC Projects – this includes hydrocarbon engineering, power and power developments;

 Manufacturing – this includes defence equipment & systems, heavy engineering, construction,
mining & industrial machinery, industrial valves and electrical & automation systems;
 Services: realty, information technology, technology services and financial services;
 Others: Hyderabad Metro, Infrastructure Development Projects and other corporate functions.

The Company operates in over 50 countries worldwide. A strong, customer-focused approach and the
constant quest for top-class quality have enabled the Company to attain and sustain leadership in its major
lines of business for over eight decades. The Company is engaged in core, high impact sectors of the
economy and its integrated capabilities span the entire spectrum of ‘design to delivery’. Every aspect of
Company’s businesses is characterised by professionalism and high standards of corporate governance.
Sustainability is embedded into its long-term strategy for growth. The Company’s manufacturing
footprint extends across eight countries in addition to India. The Company has several international
offices and a supply chain that extends around the globe.

As of 2022, L&T Group comprises 118 subsidiaries, 6 associates, 25 joint-venture and 35 joint operations
companies, operating across basic and heavy engineering, construction, realty, manufacturing of capital
goods, information technology, and financial services. 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.
L&T INCOME STATEMENT
L&T INCOME STATEMENT ANALYSIS

 The revenues of L&T stood at Rs 1,04,613 Cr in FY22, which was up 36.0% compared to Rs
76,751 Cr reported in FY21.
 L&T's revenue has grown from Rs 76,347 Cr in FY18 to Rs 1,04,613 Cr in FY22. Over the past 5
years, the revenue of L&T has grown at a CAGR of 6.5 %.
 The net profit of L&T stood at Rs 7,612 in FY22, which was up 38.27% compared to Rs 5,505 Cr
reported in FY21. This compares to a net profit of Rs 5,397 Cr in FY20 and a net profit of Rs
5,306 m in FY19.
 Over the past 5 years, L&T net profit has grown at a CAGR of 9.1%.
 The company's operating profit increased by 14.4% YoY during the fiscal. Operating profit
margins witnessed a fall and stood at 12.8% in FY22 as against 12.9% in FY21.
 Depreciation charges increased by 1.5% and finance costs decreased by 20.8% YoY,
respectively.
 Other income grew by 5.5% YoY.
 Net profit margins during the year grew from 3.4% in FY21 to 6.6% in FY22.

L&T BALANCE SHEET ANALYSIS

 The company's current liabilities during FY22 stood at Rs 1,594 billion as compared to Rs
1,374 billion in FY21, thereby witnessing an increase of 16.0%.
 Long-term debt down at Rs 616 billion as compared to Rs 821 billion during FY21, a fall of
25.0%.
 Current assets rose 7% and stood at Rs 2,082 billion, while fixed assets fell 4% and stood at Rs
1,090 billion in FY22.
 Overall, the total assets and liabilities for FY22 stood at Rs 3,172 billion as against Rs 3,086
billion during FY21, thereby witnessing a growth of 3%.

Cash flow statement of L&T for the past 5 years.

Particulars FY18 FY19 FY20 FY21 FY22

Cash Flow from Operating Activities -100,310 -47,558 66,939 230,738 191,636

Cash Flow from Investing Activities 39,145 -110,228 -82,563 -56,585 -36,677

Cash Flow from Financing Activities 93,705 154,402 63,716 -152,744 -151,815
 Particulars FY18 FY19 FY20 FY21 FY22

Net Cashflow 32,539 -3,385 46,577 20,490 3,967

L&T CASH FLOW STATEMENT ANALYSIS

The cash flow statement is the financial statement that presents the cash inflows and outflows of a
company during a given period of time. This statement is one of the most useful tools for judging a
company's liquidity position. The ratios and parameters in this statement helps test a company's financial
health.

The cash flow statement of L&T reveals:

 L&T's cash flow from operating activities (CFO) during FY22 stood at Rs 192 billion on a
YoY basis.
 Cash flow from investing activities (CFI) during FY22 stood at Rs -37 billion on a YoY basis.
 Cash flow from financial activities (CFF) during FY22 stood at Rs -152 billion, an
improvement of 1% on a YoY basis.
 Overall, net cash flows for the company during FY22 stood at Rs 4 billion from the Rs 20
billion net cash flows seen during FY21.

L&T Shares Fundamental Analysis

L&T Share Price Performance

The company’s shares have 52 weeks high of INR 2078.55 and have a market capitalisation of INR 2.77
trillion which makes it a Large-Cap company. Over the last one year, L&T share price has moved up from
Rs 1,679 to Rs 1,950, registering a gain of Rs 270 or around 15.8%.
Meanwhile, the S&P BSE CAPITAL GOODS Index is trading at Rs 33,536. Over the last one year it has
moved up from 26,168.7, a gain of 7,366 points (up 28.14%).
Overall, the S&P BSE SENSEX is up 2.1% over the year.
Current Valuations for L&T

 The Earnings per share (EPS) of the company stands at Rs 61.71, an improvement from the
EPS of Rs 23.82 recorded last year.
 The price to earnings (P/E) ratio, at the current price of Rs 1,950.6, stands at 31.67 times its
trailing twelve months earnings.
 The price to book value (P/BV) ratio at current price levels stands at 2.89 times.
 The company’s BETA is 1.16
 The company's price to cash flow (P/CF) ratio stood at 18.0 times its end-of-year operating
cash flow earnings.
 Per Share Data

No. of Months Year Ending 12 Mar-21* 12 Mar-22*

Sales per share Rs 968.1 1,114.0

TTM Earnings per share Rs 33.2 73.2

Diluted earnings per share Rs 33.2 73.2

Price to Cash Flow x 26.3 18.0

TTM P/E ratio x 42.7 23.0

Price / Book Value ratio x 2.2 2.9

Market Cap Rs m 1,654,566 2,377,731

Dividends per share Rs 36.0 22.0

Now, let’s take a deep dive into the fundamentals of the company.

Economic Moat

The company has a history of over 80 years of engineering excellence and operates in 9 business
verticals. Market dominance in such Industry is achieved by the technical know-how and resources at
disposal. L&T has been able to achieve both of this with the right combination of talent, technology and
its sheer scale of operations.

The company has business tie-ups with many well-known companies in the world including Rolls Royce
and Royal Dutch Shell which gives them the technical know-how in EPC projects. L&T is also
experienced in the upcoming green projects field and already has one of the largest portfolios of projects
in India which includes 17 green buildings and 1 green factory. Overall, the company has an advantage
over other players especially due to its sheer scale and technical expertise which is hard to replicate.

Business Model and Management

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. Overall, the
business model is diversified with a major portion of revenue coming from the core business activities.

International Markets

L&T sharpened its focus on international markets, especially the Gulf, from 2010 onwards. Since then,
from under one-tenth, international business now contributes around one-third to both order inflow and
revenue. L&T has set up a full range of operations in the Middle East catering to the Gulf and North
Africa. Many of the projects are being undertaken through joint ventures with leading companies based in
the Gulf. L&T provides turnkey solutions across key regions: the Middle East (UAE, Qatar, Kuwait,
Oman, Saudi Arabia and Bahrain), Africa (Algeria, Kenya, Ethiopia and Malawi) and ASEAN (Malaysia
and Thailand).

L&T RATIO ANALYSIS

Be it the company's profitability, operations effectiveness or utilization of funds, ratio analysis is an

important tool which helps in making investment decisions.

Growth Ratios

The revenue has seen a growth of 12.3% CAGR over the last 10 years. The operating income and net
income have also increased by 6.5% CAGR and 5.3% CAGR respectively. This indicates the diminishing
profitability with an increase in scale, which is one of the characteristics of Engineering and Construction
business. The working capital has increased with scale and indicates a surplus of current assets over
current liabilities. Overall, the company has shown sustainable growth.
Profitability Ratios

The gross margin has remained flat over the years which indicates that the company is able to pass down
the inflation-related costs to its customers. The operating margin and net margin have shown slight
recovery in recent years. The return on assets, however, has almost remained constant. Overall, the
business model is such that significant improvement in margins is not possible without moving away
from the core business. So, the company focuses on improving the top line in order to increase the
magnitude of profits.

Return on Equity (ROE): The ROE for the company improved and stood at 12.5% during FY22, from
6.2% during FY22. The ROE measures the ability of a firm to generate profits from its shareholders
capital in the company.
Return on Capital Employed (ROCE): The ROCE for the company improved and stood at 16.7% during
FY22, from 13.2% during FY21. The ROCE measures the ability of a firm to generate profits from its
total capital (shareholder capital plus debt capital) employed in the company.
Return on Assets (ROA): The ROA of the company improved and stood at 6.3% during FY22, from 5.4%
during FY21. The ROA measures how efficiently the company uses its assets to generate earnings.

No. of Months Year Ending 12 Mar-21* 12 Mar-22*

Current ratio x 1.4 1.3

Debtors’ Days Days 11 11

Interest coverage x 1.7 2.5

 Debt to equity ratio x 1.1 0.8

Return on assets % 5.4 6.3

Return on equity % 6.2 12.5

Return on capital employed % 13.2 16.7

Liquidity and Solvency Ratios

The financial leverage has been increasing but the debt-to-equity ratio has flattened. This indicates that
the company’s assets are valued at higher levels which is the general case with the industry as new
projects are undertaken and progress is made. The current ratio has remained flat and the quick ratio has
also been stable over the years. This indicates good liquidity and solvency position for the company.

The ratio/financial analysis of L&T reveals:

 Operating profit margins witnessed a fall and stood at 12.8% in FY22 as against 12.9% in
FY21.
 Net profit margins grew from 3.4% in FY21 to 6.6% in FY22.
 Debt to Equity ratio for FY22 stood at 0.8 as compared to 1.1 in FY21.

Here's the ratio/financial analysis of L&T for the past 5 years.

FY18 FY19 FY20 FY21 FY22

Operating Profit Margin (%) 14.0 15.7 15.3 12.9 12.8

 FY18 FY19 FY20 FY21 FY22

Net Profit Margin (%) 7.1 7.2 7.2 3.4 6.6

Debt to Equity Ratio (x) 1.3 1.2 1.2 1.1 0.8

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.

L&T SHAREHOLDING PATTERN

CORPORATE ACTION

Dividend
Bonus

Future Prospects

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.

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.

MAJOR PROJECTS/ RECENT NEWS

 L&T bags 177.75 million USD contracts for hydrocarbon sector from the Gulf Region
 L&T's Construction group bags contracts worth Rs. 853 crores
 Rs 366 crores order from UAE
 Rs 200 crores contract from Power Grid
 Rs 287 crores water projects contracts
 L&T Construction awarded contracts for its Buildings & Factories Business. The Buildings &
Factories (B&F) Business of L&T Construction has secured contracts from various important
clients.
  The Heavy Engineering arm of Larsen & Toubro has won significant contracts for its various
business segments in Q4 of FY21. L&T Heavy Engineering also won a Critical Reactor system
package order for IOCL’s Petrochemical Project against stiff international competition. This is an
important step in indigenization of High technology equipment and another major contribution
towards Government of India’s Aatmanirbhar Bharat initiative.
 L&T Construction Awarded (Significant) contracts for its Water & Effluent Treatment Business
The Gujarat Water Infrastructure Limited (GWIL) has placed engineering, procurement and
construction orders for the design and construction of the Dhanki-Navda Bulk Pipeline project.
 The project mainly includes capacity augmentation of existing RFCC Unit and conversion of this
existing unit into INDMAX FCC unit, to maximize propylene yield. The expansion will enhance
the crude processing capacity of the Barauni Refinery from 6.0 MMTPA to 9.0 MMTPA. This
order is a testimony of IOCL’s faith in L&T Heavy Engineering’s capabilities for engineering,
manufacturing, and integration of technology intensive revamps in this sector.
 Other orders secured by L&T Heavy Engineering include Critical Hydrocracker and Hydrotreater
Reactors for the Residue Processing and Treating Unit of the Numaligarh Refinery; Ethylene
Oxide Reactors for a Mono-ethylene Glycol (MEG) project in Poland from a European client &
High-Pressure Heat Exchangers for IOCL Barauni Refinery.
 L&T Wins (Large*) Contract from Indian Oil Corporation
The Hydrocarbon-Onshore division of L&T’s Energy Business has secured a large contract from
(IOCL). IOCL is implementing the Panipat Refinery Expansion (P-25) Project to enhance refining
capacity from 15 MMTPA to 25 MMTPA to meet the growth in demand of petroleum products
and to increase their profitability and competitiveness in the long run.
 L&T dispatches Special Construction Equipment to Border Roads Organisation for strategic needs
Mumbai: L&T Construction Equipment Limited (LTCEL), a 100% subsidiary of L&T, has
dispatched the first batch of 25 special variant Wheel Loaders that are suitable for operation in
harsh terrains – high altitudes and extreme weather conditions to the Border Roads Organisation
(BRO), an organisation engaged in serving strategic requirements of the nation.
Commenting on the development, Mr S N Subrahmanyan, Chief Executive Officer &
Managing Director, Larsen & Toubro, said, “These machines, as part of our contribution to
Make in India and Aatmanirbhar Bharat initiative, are designed and developed by our Product
Development Centre at Coimbatore and have more than 90% indigenous content in line with
Government’s vision to promote local manufacturing.”
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. Mr R. Shankar
Raman is the CFO of the company and has 26+ years of experience in the L&T group. Overall, the
management has shown stability and has been able to drive the company on a path of sustainable growth.