L&T’s new 5-year (FY 17-21) plan envisages 12-15% annual sales growth, 120bps margin improvement and reducing net working capital intensity from 24% to 18%, leading to Return (RoE) improvement from 12% to 18% and higher Free cash Flow (FCF).
At the core of this plan is asset sales/ restructuring in which management is already “walking the talk” through the sale of Dhamra Port and real estate assets (Elante mall & L&T Infocity).
Over the short term management is selling stakes in L&T General Insurance and Kattupalli Port and restructuring investments in the road portfolio of L&T IDPL.
Management sees prospects of $85 billion which include $40 billion from infra, $20 billion from power, $12 billion from hydrocarbons, $ 5billion from defence/ heavy engineering, $4billion from process and $4billion from others.
Out of these prospects, the company hopes to win $ 23 billion of orders. Our new TP factors in 4-10% increases in FY17E-18E standalone & consolidated EPS based on: 2-5% higher sales, 16bps higher margins and lower losses from L&T General Insurance.
Over the next 5 years, L&T does not expect to enter any new areas of business. The 3 high growth areas could be defence, nuclear and smart cities. The target is to generate sales of R1,500 billion by 2020.