Company Description L&T, headquartered in Mumbai, is a technology-driven engineering and construction company, and one of the largest companies

in Indias private sector. It has additional interests in manufacturing, services, and information technology. A strong customer focused approach and constant quest for topclass quality has enabled the company attain and sustain leadership in major lines of businesses over seven decades. L&T has international presence with a global spread of offices. L&T has recently build up a world class BTG facility in Hazira which can cater upto 5 sets per year. With factories and offices located around the country, further supplemented by a wide marketing and distribution network, L&Ts image and equity extend to virtually every district of India. The company aspires to increase its in-house manufacturing scope through its entry into power equipment (mainly BTG) manufacturing. Investment Rationale Best equipped to ride infrastructure capex cycle: L&T is Indias largest infrastructure and EPC company with presence across major verticals like process, hydrocarbons, power, core infrastructure like roads, ports, bridges, industrial structures etc. Diversified business dominance: L&T has a dominant position and market share in most operating verticals, be it oil & gas, process projects, roads, bridges, or industrial structures. It has dedicated key business divisions with skilled manpower. New business verticals to enhance revenue base: We expect Ship building, Power BTG & Nuclear tie up to enhance revenue in the future. Key Risks Economy slowdown: Being a play across the India growth spectrum, any slowdown in the broad economy will impact L&Ts operations. Also, given that a large part of the infrastructure capex is government-driven, any political instability could impact the roll-out plans and, in turn, the companys growth plans. Raw material costs and execution risks: Any sudden surge in prices of base raw material comprising steel, aluminum, cement etc., could detrimentally affect the companys margin/operations, despite most contracts having a built-in price escalation clause. Also, given the scale of projects being executed, any execution delay could cost the company dearly. Larsen and Toubro (L&T) posted a good set of numbers for 4QFY2012, which were broadly in-line with our expectations; however, the company disappointed on the order inflow front. As of 4QFY2012, L&Ts order backlog stands at `1,45,723cr, 11.0% yoy growth. Order inflow for the quarter declined by 30.2% to `21,159cr, taking the order inflow for FY2012 to `70,574cr (down 12% yoy). We prefer L&T over its peers, as it is a market leader and fundamentally the strongest infrastructure company. We maintain L&T as our top pick in the sector and, hence, continue to recommend Buy on the stock. Performance in-line with estimates: On the top-line front, L&T reported decent top-line growth of 20.0% yoy to `18,461cr, marginally below our estimate of `18,945cr. On the EBITDA front, performance was as per our expectations, with the company reporting a yoy dip of 130bp to 13.9% against

our expectation of 13.7%. On the bottom-line front, L&T reported 13.9% yoy growth to `1,920cr, marginally higher than our estimate of `1,862cr, owing to exceptional gain (`55cr) and lower tax rate (26.9%).

Outlook and valuation: For FY2013, management has given a guidance of 15-20% growth for both revenue and order inflow. We believe although the company can achieve this guidance on the revenue front, given its robust order backlog, it would be difficult to achieve 15-20% growth on the order inflow front, considering the challenging macro environment and hence are factoring order inflow growth of 10.6% for FY2013. We believe L&T is best placed to benefit from the gradual recovery in capex cycle, given its diverse exposure to sectors, strong balance sheet and cash flow generation as compared to peers.

Top line grows by healthy 20% For 4QFY2012, L&T reported decent top-line growth of 20.0% yoy to `18,461cr, marginally below our estimate of `18,945cr. This was mainly on account of

pick-up in the E&C segment, which recorded 23.4% top-line growth to `16,638cr. Revenue and order inflow guidance for FY2013 at 15-20% For FY2013, management has given a guidance of 15-20% growth for both revenue and order inflow. L&Ts order backlog currently stands at `1,45,723cr, 11.0% yoy growth. Order inflow for the quarter declined by 30.2% to `21,159cr, taking the order inflow for FY2012 to `70,574cr (down 12% yoy). However, management is confident of achieving order inflow of `80,000cr84,000cr during FY2013. We believe although the company can achieve this guidance on the revenue front, given its robust order backlog, it would be difficult to achieve 15-20% growth on the order inflow front, considering the challenging macro environment. EBITDA margin in-line with estimates On the EBITDA front, performance was as per our expectations, with the company reporting a yoy dip of 130bp to 13.9% against our expectation of 13.7% for the quarter. For FY2012, EBITDAM stood lower by 100bp to 11.8%. EBITDAM was lower as: 1) MCO expenses were impacted by higher input costs; and 2) staff cost increased primarily due to compensation restructuring and manpower buildup. We note that the dip in EBITDAM is in the range guided by the management (75-125bp for FY2012). This guidance was on the back of change in order book mix towards infrastructure projects (which yields lower margins compared to the other segments), enhanced competition witnessed in all segments with no respite in sight and fluctuations in commodity prices. Further, going ahead, management believes that EBITDAM should be at 11.3-12.3%. Bottom line beats estimates owing to lower tax rate On the bottom-line front, L&T reported yoy growth of 13.9% to `1,920cr in 4QFY2012, marginally higher than our estimate of `1,862cr, due to exceptional gain (`55cr) and lower tax rate (26.9%). Segmental performance Engineering and construction (E&C): The E&C segment, which contributed ~90% to the companys gross revenue, witnessed good traction and recorded growth of 22.3% yoy for the quarter to `16,709cr, primarily on account of strong execution of its order book. On the margin front, the segment witnessed a dip of 100bp on a yoy basis to 13.6%, but reported a jump of 330bp on a sequential basis. Machinery and industrial products (MIP): The MIP segment witnessed pressures of low level of mining activities and slowing industrial capex, resulting into a decline of 5.7% on a yoy basis to `817cr; however, the segment grew by 13.5% on a sequential basis. EBIT margin, at 16.3%, also witnessed contraction of 370bp yoy and 180bp qoq during the quarter.

Electrical and electronics (E&E): The E&E segment witnessed decent revenue during the quarter, as it recorded 14.2% yoy growth to `1,143cr. EBIT margin came in at 13.9%, registering a dip of 130bp on a yoy basis

Subsidiary performance L&T InfoTech registers decent performance L&T InfoTech, the companys technology subsidiary, reported a decent performance for 4QFY2012, registering 16.5% yoy growth in revenue to `817cr. On the profitability front, the subsidiary reported NPM of 13.2% with profit of `110cr during the quarter. Order book analysis

As of 4QFY2012, L&T stands tall on an order backlog of `1,45,723cr. Order inflow for 4QFY2012 came in at `21,159cr, down 30.2% yoy, taking the order inflow for FY2012 to `70,574cr. For FY2012, ~18% orders came from the international market, owing to traction on the hydrocarbon/T&D space. L&Ts order book is majorly dominated by the infra (43%) and power (28%) segments. Process (15%), hydrocarbon (10%) and others (4%) constitute the remaining part of the order book. The company has given a guidance of 1520% for order booking in FY2013, which is above our expectations. Client wise, 35% of L&Ts outstanding order book comes from the public sector and 48% comes from the private sector. Captive work orders account for the balance 17%. Notably, there has been a drop in the share of public sector orders in the past few quarters

Competition Breakup

Balance Sheet

------------------- in Rs. Cr. ------------------Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 12 mths 12 mths 12 mths 12 mths 58.47 58.47 0.00 0.00 9,470.71 25.90 9,555.08 308.53 3,275.46 12 mths 56.65 56.65 0.00 0.00 5,683.85 27.93 5,768.43 245.40 1,832.35

Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans

121.77 120.44 117.14 121.77 120.44 117.14 368.31 25.09 0.00 0.00 0.00 0.00 21,334.05 18,142.82 12,317.96 22.13 23.29 24.59 21,846.26 18,311.64 12,459.69 1,063.04 955.73 1,102.38 6,098.07 5,845.10 5,453.65

Total Debt Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs)

7,161.11 6,800.83 6,556.03 3,583.99 29,007.37 25,112.47 19,015.72 13,139.07 8,897.02 2,220.82 6,676.20 785.00 14,684.82 1,577.15 12,427.61 1,518.98 15,523.74 19,499.23 211.37 35,234.34 0.00 26,139.56 2,233.43 28,372.99 6,861.35 0.00 29,007.37 1,647.66 352.40 7,235.78 1,727.68 5,508.10 857.66 13,705.35 1,415.37 11,163.70 1,104.89 13,683.96 12,662.55 326.98 26,673.49 0.00 19,443.77 2,188.36 21,632.13 5,041.36 0.00 25,112.47 1,719.39 303.28 5,575.00 1,421.39 4,153.61 1,040.99 8,263.72 5,805.05 10,055.52 693.13 16,553.70 7,198.85 82.16 23,834.71 0.00 15,211.04 3,066.53 18,277.57 5,557.14 0.26 19,015.72 1,371.86 212.32

2,077.75 7,846.18

4,188.91 2,876.30 1,242.47 1,122.83 2,946.44 1,753.47 699.00 471.22 6,922.26 3,104.44 4,305.91 3,001.14 7,365.01 5,504.64 779.86 993.68 12,450.78 9,499.46 3,861.10 2,449.14 184.60 100.75 16,496.48 12,049.35 0.00 0.00 11,892.75 8,362.01 2,035.42 1,180.13 13,928.17 9,542.14 2,568.31 2,507.21 3.06 9.84 13,139.07 7,846.18 1,013.51 325.98 270.22 202.65

Profit & Loss account

------------------- in Rs. Cr. ------------------Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 12 mths 12 mths 12 mths 12 mths 12 mths

Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses

44,055.55 37,187.50 34,249.85 25,280.49 17,983.37 398.84 317.31 393.31 334.38 338.08 43,656.71 36,870.19 33,856.54 24,946.11 17,645.29 1,781.28 2,321.67 1,612.58 616.69 459.80 559.49 -422.99 105.11 746.17 121.76 45,997.48 38,768.87 35,574.23 26,308.97 18,226.85 12,372.32 9,593.53 9,316.38 8,256.46 5,320.98 355.45 334.08 456.39 365.25 308.13 2,884.53 2,379.14 1,998.02 1,535.44 1,258.21 19,886.12 16,913.31 15,659.17 10,632.83 7,451.07 2,103.38 1,854.23 1,844.83 1,393.80 1,222.80 773.70 325.58 569.32 280.69 166.15 -37.87 -36.25 -24.48 -11.42 -3.30 38,337.63 31,363.62 29,819.63 22,453.05 15,724.04

Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)

5,878.57 5,083.58 4,142.02 3,239.23 2,043.01 7,659.85 7,405.25 5,754.60 3,855.92 2,502.81 1,199.23 995.37 770.00 501.83 331.46 6,460.62 6,409.88 4,984.60 3,354.09 2,171.35 575.81 383.65 284.83 195.94 160.13 23.41 30.95 21.16 15.66 0.00 5,861.40 5,995.28 4,678.61 3,142.49 2,011.22 -49.05 -45.13 -21.09 12.21 -5.34 5,812.35 5,950.15 4,657.52 3,154.70 2,005.88 1,858.47 1,577.02 1,176.19 982.05 601.87 3,957.89 4,375.52 3,481.66 2,173.42 1,403.02 25,965.31 21,770.09 20,503.25 14,196.59 10,403.06 0.00 0.00 0.00 0.00 0.00 882.84 752.75 614.97 495.32 368.25 112.82 110.25 101.83 76.26 53.34 6,088.52 65.01 725.00 352.40 6,021.95 72.66 625.00 303.28 5,856.88 59.45 525.00 212.32 2,923.27 74.35 850.00 325.98 2,832.71 49.53 650.00 202.65

Cash Flow

------------------- in Rs. Cr. ------------------Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 12 mths 12 mths 5880.67 5482.75 -6071.73 1245.56 656.58 775.29 1431.87 12 mths 3940.41 1478.57 -3308.53 1640.79 -189.17 964.46 775.29 12 mths 3155.47 1945.24 -5241.89 3166.68 -129.97 1094.43 964.46 12 mths 2004.89 2130.45 -1588.17 -31.05 511.23 583.20 1094.43 5832.91 3861.30 -2437.98 -1124.84 298.48 1431.87 1730.35

Net Profit Before Tax Net Cash From Operating Activities Net Cash (used in)/from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents

Key Financial Ratios Mar '11 Investment Valuation Ratios Face Value Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Free Reserves Per Share (Rs) Bonus in Equity Capital Profitability Ratios Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%) 2.00 14.50 96.55 717.03 347.12 73.86 13.46 11.82 12.14 8.96 8.96 8.82 8.82 22.35 Mar '10 2.00 12.50 84.42 612.26 294.74 74.67 13.78 12.41 12.74 9.21 9.21 11.56 11.56 22.49 Mar '09 2.00 10.50 70.72 578.06 205.21 76.77 12.23 11.14 11.39 8.50 8.50 10.06 10.06 24.14 Mar '08 2.00 17.00 110.81 853.36 319.09 53.71 12.98 11.97 12.19 8.78 8.78 8.54 8.54 26.72 Mar '07 2.00 13.00 71.77 622.91 197.15 55.44 11.52 10.34 13.24 8.63 8.60 7.74 7.72 29.82

Return On Net Worth(%) Adjusted Return on Net Worth(%) Return on Assets Excluding Revaluations Return on Assets Including Revaluations Return on Long Term Funds(%) Liquidity And Solvency Ratios Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio Post Tax Management Efficiency Ratios Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio Average Raw Material Holding Average Finished Goods Held Number of Days In Working Capital Profit & Loss Account Ratios Material Cost Composition Imported Composition of Raw Materials Consumed Selling Distribution Cost Composition Expenses as Composition of Total Sales Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit Dividend Payout Ratio Cash Profit

18.44 15.94 352.40 352.76 23.23 1.20 1.18 0.33 0.30 10.01 0.33 5.90 4.80 29.73 3.70 29.73 5.03 1.52 5.03 25.77 4.21 56.58 28.34 36.78 0.80 14.58 25.15 21.84

23.95 16.81 303.28 303.66 23.19 1.19 1.15 0.37 0.33 11.17 0.37 6.09 5.81 28.73 3.48 28.73 5.20 1.48 5.20 32.32 3.54 49.22 26.01 54.43 0.83 18.62 19.72 18.01

27.99 21.21 212.31 212.73 25.62 1.22 0.97 0.53 0.44 13.09 0.53 6.35 5.92 6.01 3.89 6.01 6.23 1.80 6.23 38.11 4.02 59.09 27.51 44.34 0.92 21.70 20.58 18.92

22.81 21.21 325.87 326.76 28.73 1.09 0.86 0.38 0.28 28.57 0.38 7.41 5.75 6.00 3.88 6.00 6.09 1.92 6.09 34.14 5.21 37.06 33.09 39.78 1.28 22.67 26.29 23.96

24.44 24.39 202.30 203.29 32.59 1.16 0.93 0.36 0.25 25.07 0.36 7.52 5.72 6.03 3.42 6.11 9.52 2.27 6.21 34.05 5.56 51.15 30.15 49.28 1.13 21.36 30.04 26.97

Earning Retention Ratio Cash Earning Retention Ratio Adjusted Cash Flow Times

70.90 75.24 1.78

71.91 75.25 1.95

72.84 75.66 2.23

71.72 74.40 1.61

69.85 72.95 1.33