Morgan Stanley - L&T

Morgan Stanley in their report on L&T

Upside Surprise on the Margin Front With L&T’s revenues growing at an average of 12% YoY for the last eight quarters and its order book jumping by an average 33.5%, we expected execution to begin soon leading to a spurt in revenues. While revenue
growth was in line with guidance (up 36% YoY to Rs62.7 billion), the company surprised significantly on the upside with strong EBIDTA margins (up 170 bps to
13.3%) despite a traditional inverse relationship between revenue and profit booking in the construction sector. Order booking also continued to grow strongly, with a 25% increase in orders (despite a large base in F4Q06) with order backlog growing by 48% YoY.

F2008 Guidance Creates Upside Risk to Estimates L&T’s guidance of 25–30% revenue growth in F2008 and operating margins held flat at the high levels of F2007 (10.14%) is aggressive, but looks achievable, especially in light of the F4Q07 performance. Matching guidance would result in 12–17% higher operating profit (based on the lower and upper end of guidance) compared to our estimates. We follow up with more
details to incorporate the earnings surprise in the last two quarters into our estimates.