L&T has benefitted from the previous 3 years of wholesome ordering.
The telling step-up. Last 3 years of wholesome ordering has strengthened the backlog of L&T and the sector. It has tested the capacity of competitors to scale up and benefitted L&T by means of current share gains. The concentrate really should now shift on L&T’s capacity to execute and reap pricing gains more than on the impending plateauing of new orders. We enhance the FV by 8% to Rs 1,410 on current buoyancy in orders and roll-forward.
L&T has benefitted from the previous 3 years of wholesome ordering. Over FY2019-21, the ordering levels would typical ~1.4X FY2020 sales and backlog would move up to ~3.3X FY2020 sales. The previous 3 years have observed assistance on substantial-sized orders (>Rs 25 billion) spanning across most crucial organization segments of L&T – transportation infrastructure, energy, hydrocarbon, water. These accounted for >45% of quantum of domestic orders booked. The final of the 3-year period has been telling as it reflected inability of L&T’s peers to scale up capacities, partly on account of lack of assistance from lenders. L&T has cashed in meaningfully, winning most of the substantial orders it has bid.
Large order wins more than a 3-year period really should ideally set L&T up for a sweet 2-3-year period of execution. Larger orders generally are supportive of speedier execution as L&T can deploy more of its sources to such choose projects. Several such substantial orders additional enhance L&T’s capacity to sustain very good execution levels as it limits effect of project-certain dangers. We appear forward to L&T’s capacity to scale up its Rs 1 trillion FY2020 revenues to Rs 1.4 trllion by FY 2024. We also envisage pricing gains from incremental order wins for L&T as peers of L&T are higher on backlog and are going slow of expanding capacities. Do study the interview of L&T’s CFO in such a context.
With assistance from numerous substantial orders finalised more than the previous 3 years and added benefits of share gains for L&T in FY 2021, we note prospects of FY2022 ordering hovering about FY2020 levels. The National Rail Plan suggests lull in higher-speed rail corridors beyond the present Mumbai-Ahmedabad prospect. Key refinery orders might get formally ordered in the second half of FY2021 (L&T is L1 in a couple of them). Large airport orders might also be restricted to Chennai and Kolkata.