India Construction - Mar12 - BNP Paribas

SECTOR REPORT
EQUITIES RESEARCH
BNPP RECOMMENDATIONS
Company BBG Code SINF IN LT IN NJCC IN IVRC IN PUNJ IN Rating Share Price Target Price Upside / Downside +22% +18% -1% -1% -13% Simplex Infra Larsen & Toubro NCC Ltd IVRCL Ltd Punj Lloyd BUY 223.70 272.00 BUY 1,266.75 1,500.00 HOLD 59.80 59.00 HOLD 53.65 53.00 REDUCE 54.00 47.00
INDIA INDIA CONSTRUCTION
NEUTRAL
INDUSTRY OUTLOOK
One swallow doesnt t make spring

SUMMARY
Cautiously optimistic on recent developments We remain cautiously optimistic after some of the policy changes and CRR cut over the last nine months. However, several issues still need to be ironed out before we turn positive on the sector: : 1) resolution of the fuel supply issues for the power sector, 2) lowering of key policy po rates, 3) land acquisition and 4) expediting environmental clearances.
TOP STOCK PICK

Company BBG Code Share Price Target Price 1 Year - high 1 year - low
Mar-11 1,931 1,731 1,531 1,331 1,131 931 (INR) Larsen & Toubro Rel to MSCI India Jun-11 Sep-11 Dec-11
Larsen & Toubro LT IN

1,266.75 1,500.00 1,863.45 977.70
Mar-12 17 7 (3) (13) (23) (33) (%)
OUTLOOK
Several hurdles still remain Key forthcoming catalysts that could have a significant impact: 1) outcomes of assembly elections in five states; 2) RBI monetary policy; policy and 3) budget for the next year. Additionally, inflows into equities (e.g. LTRO II) could also result in a re-rating of these names.
VALUATION
Valuations attractive, but stick to quality We think that valuations for each of the companies are attractive (below one standard deviation from the mean). However, we put our faith in the clear leader in the space, Larsen & Toubro. Larsen & Toubro T is our top pick for: 1) quality of order book; 2) diversity of orders; 3) balance sheet strength; and 4) best-in-class class execution capabilities. Our SoTP-based TP of INR1,500 is comprised of the standalone companys contribution of INR1,235 and subsidiary contribution of INR265.
VALUATION SUMMARY
Company FY1 Simplex Infra Larsen & Toubro NCC Ltd IVRCL Ltd Punj Lloyd 13.7 18.3 27.0 17.8 37.7 P/E (x) FY2 8.0 15.9 12.5 11.7 11.1 Yld (%) FY2 1.0 1.2 2.1 1.1 0.6
MAJOR CHANGES
Company IVRCL Ltd NCC Ltd Source: BNP Paribas From BUY From BUY HOLD HOLD
Vishal Sharma, CFA

vishal.sharma@asia.bnpparibas.com +91 22 33704377
Shashank Abhisheik
shashank.abhisheik@asia.bnpparibas.com +91 22 33704336
BNP Paribas Securities (Asia) Ltd. research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://eqresearch.bnpparibas.com/index. http://eqresearch.bnpparibas.com/index Please contact your salesperson for authorisation. Please see the important notice on the inside back cover.
PREPARED BY BNP PARIBAS SECURITIES ASIA IM DISCLOSURES CAN BE FOUND IN THE DISCLOSURES APPEND NDIX THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. IMPORTANT
6 MARCH 2012
India Construction
Vishal Sharma, CFA
CONTENTS
Signs of improvement coupled with liquidity led to rally __________________________________________ 3
Softening interest rates will be key _________________________________________________________________________________ 3
Baby steps in the right direction anecdotal evidence ____________________________________________ 5

Power_________________________________________________________________________________________________________ 5 Environmental issues ____________________________________________________________________________________________ 5 Airport ________________________________________________________________________________________________________ 5
3QFY12 performance execution picked up but profitability was a key concern ______________________ 6
Two downgrades, four TP changes and some estimates tweaked _________________________________________________________ 7
Historical financials A snapshot ______________________________________________________________ 7

Valuation ______________________________________________________________________________________________________ 9
Company reports ___________________________________________________________________________ 11 Please see India Research Team list on page 43.
To find out more about BNP Paribas Equities Research:

Visit : http://eqresearch.bnpparibas.com/ For ipad users : http://appstore.apple.com/BNPP-equities/
BNP PARIBAS
6 MARCH 2012
India Construction
Vishal Sharma, CFA
Signs of improvement coupled with liquidity led to rally

Although the on-the-ground situation in terms of the fundamental positions of companies in the sector has not materially changed, there is anecdotal evidence of small, encouraging steps taken by policy makers having led to positive sentiment, resulting in a stock rally. To top these developments, RBIs gesture on easing interest rates added to the positive sentiment. In our note Play on the interest rate (5 September 2011), we suggested playing the interest rate cycle through a basket of construction stocks, and highlighted the strong correlation between relative valuations of the sector and Sensex/short-term interest rates. Softening interest rates will be key We reiterate our finding that approximately 45% of the expansion in P/E multiples for construction names can be explained by the change in interest rates with a four-month lag. Please refer to Exhibit 1 for the movement in 12-month commercial paper rates and the relative P/E of the sector (vs the Sensex). EXHIBIT 1: Interest rates vs relative sector P/E
(%) 16 14 12 10 8 6 4 2 0 Jul-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09
Sources: Bloomberg; BNP Paribas
Interest rates (LHS) Industry P/E divided by Sensex P/E (RHS) Ex LT (RHS) R-Squared of 45% with a 4m lag
(x) 0.5 0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5
Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12
EXHIBIT 2: RBI Policy statement on 16 December 2011 While Inflation remains on its projected trajectory, downside risks to growth have clearly increased. The guidance given in the SQR was that, based on the projected inflation trajectory, further rate hikes might not be warranted. In view of the moderating growth momentum and higher downside risks to growth, this guidance is being reiterated. From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth.
Source: RBI
EXHIBIT 3: Stock performance

(%) 80 60 40 33 20 0 (20) (40) (60) 6-Sep 20-Sep 4-Oct 18-Oct 1-Nov 15-Nov 29-Nov 13-Dec 27-Dec 10-Jan 24-Jan 7-Feb 21-Feb
SENSEX
LT
PUNJ
IVRC
NJCC
SINF
Average -21% underperformance
Average +24% outperformance
4 (3) (14) (20)
BNP PARIBAS
6 MARCH 2012
India Construction
Vishal Sharma, CFA
EXHIBIT 4: Price performance 4 Sep-15 Dec 2011

(%) 30 20 10 0 (10) (20) (30) (40) (5) (8) (20) (30) (32) (40)
EXHIBIT 5: Price performance 16 Dec 2011-27 Feb 2012

(%) 120 100 80 60 40 20 0 (20) 16-Dec 63 49 32 22 13
SENSEX IVRC
LT NJCC
PUNJ SINF
SENSEX IVRC
LT NJCC
PUNJ SINF
(50) 6-Sep 20-Sep 4-Oct 18-Oct 1-Nov 15-Nov 29-Nov 13-Dec

30-Dec
13-Jan
27-Jan
10-Feb
24-Feb
Exhibits 4 and 5 compare price performance of our coverage universe up to 15 December 2011; when the Reserve Bank of India, as part of its policy announcement, softened its hawkish stance on interest rates and indicated in its guidance that further rate hikes may not be warranted.
BNP PARIBAS
6 MARCH 2012
India Construction
Vishal Sharma, CFA
Baby steps in the right direction anecdotal evidence

Over the past nine months, we have noticed small steps being taken by authorities in different segments that we believe are steps in the right direction. A brief compilation is presented below: Power The Appellate Tribunal (AT) passed a suo moto directive to all State Electricity Regulators asking them to implement power tariff hikes in their respective states even if the State Electricity Boards (SEB) do not file for a rate revision. The SEBs have been in a bad financial position because of aggregate technical and commercial losses and expensive power (due to higher fuel costs). Further, they have not been able to pass these costs on, in the form of higher tariffs, due to political compulsion. Therefore, we believe this suo moto action by the AT is something to take note of and can be considered as a positive step by the regulator. After this move, two major states went for rate hikes. Tariffs pertaining to industrial consumers have been de-regulated. This development encourages bilateral contracts between industrial consumers and IPPs. Most IPPs have been reporting lower-than-optimum capacity utilisation due to lower (or no) fuel supply or high cost of fuel. Since this development, if the IPPs are able to negotiate slightly higher tariffs with industrial consumers in return for a guaranteed and stable supply of power, projects could still be viable if they are able to import fuel (coal or gas) and combine it with their domestic supplies. Coal India [COAL IN] has been directed to sign fuel supply agreements with power plants that have entered into long-term PPAs with power distribution companies and that have been commissioned, or will get commissioned, on or before 31 March 2015. For power plants that have been commissioned up to 31 December 2011, FSAs will be signed before 31 March 2012. The FSAs will be signed for the full quantity of coal mentioned in the Letters of Assurance (LoAs) for a period of 20 years with a trigger level of 80% for levy of disincentive and 90% for levy of incentive. In case of any shortfall in fulfilling its commitment under the FSAs from its own production, Coal India Limited will arrange for supply of coal through imports or through arrangement with State/Central PSUs who have been allotted coal blocks. The proposed course of action has been approved by the Prime Minister. These arrangements would provide relief to power plants with estimated capacity of more than 50,000MW. Environmental issues In November 2011, the Environmental Ministry gave clearance to the first phase of Lavasa, a landmark township development project (probably the only project of its kind), majority-owned by Hindustan Construction [HCC IN]. We like the way this clearance was granted. Most bureaucrats in the present environment of cracking down on corruption are extremely cautious of passing any order. However, in this case, there were three parties involved the Central Ministry, the State Ministry and the Mumbai High Court who solved this issue together and no single entity took the onus of passing the order. Certain other large projects have been put on fast track. Potential beneficiaries are Jindal Power (JSP IN), Hinduja Power (unlisted), and L&T (LT IN). Airport The airport regulator allowed the resumption of the collection of a development fee at Delhi airport after a six-month long stay issued by the High Court. Earlier, due to protests and a suit in the Delhi High Court, the collection of an airport development fee (DF) had been stayed by the High Court. After six months of paperwork and red-tape, the collection of DF was restored, beginning 1 December 2011. This DF was being used to partly fund the capex of Delhi airport. In the latest development, the regulator released a consultation paper removing uncertainties about the Delhi revenue model. This was something that the regulator was supposed to pass last year.
BNP PARIBAS
6 MARCH 2012
India Construction
Vishal Sharma, CFA
3QFY12 performance execution picked up but profitability was a key concern

During 3QFY12, most companies reported a drop in EBITDA margin primarily attributable to anticipated losses or cost overruns on projects under execution. In certain cases, the loss recorded or decline in EBITDA margin has been very significant. For instance, HCC had included a INR1.67b loss due to this in its quarterly results. NCC had also accounted for INR150m of write-offs of certain advances/receivables. Punj Lloyd [PUNJ IN] incorporated certain losses due to de-consolidation of Simon Carves after the latter went into liquidation. Stocks of these companies have reacted positively since results, despite these losses, possibly due to an improved macro environment and liquidity, and partly pinned to hopes that no more losses will be reported in the near term. EXHIBIT 6: 3QFY12 performance
3QFY11 (INR m) Revenue Larsen & Toubro Punj Lloyd IVRCL Simplex Infra NCC Total Total (ex L&T) EBITDA Larsen & Toubro Punj Lloyd IVRCL Simplex Infra NCC Total Total (ex L&T) EBITDA margin (%) Larsen & Toubro Punj Lloyd IVRCL Simplex Infra NCC Total Total (ex L&T) Interest Larsen & Toubro Punj Lloyd IVRCL Simplex Infra NCC Total Total (ex L&T) Net profit (recurring) Larsen & Toubro Punj Lloyd IVRCL Simplex Infra NCC Total Total (ex L&T) 8,108 (621) 425 232 404 8,547 440 9,916 132 68 180 (95) 10,201 285 22.3 (121.3) (84.0) (22.4) (123.5) 19.3 (35.2) 7,984 248 81 192 114 8,619 635 24.2 (46.7) (16.6) (6.3) (183.2) 18.3 (55.1) 8,678 128 114 191 199 9,309 632 14.3 3.2 (40.6) (5.7) (147.7) 9.6 (54.9) 1,757 845 592 362 438 3,994 2,237 1,907 1,372 661 550 694 5,184 3,277 8.5 62.4 11.6 52.0 58.3 29.8 46.5 1,970 1,299 652 512 709 5,142 3,172 (3.2) 5.7 1.3 7.6 (2.2) 0.8 3.3 2,300 1,300 670 511 700 5,481 3,181 (17.1) 5.6 (1.4) 7.7 (0.9) (5.4) 3.0 10.8 4.5 9.9 9.3 9.6 9.8 7.8 9.6 5.2 7.9 8.1 6.1 8.6 6.5 10.4 8.4 9.0 9.1 9.5 9.9 8.9 10.8 8.6 9.0 8.5 9.5 10.2 8.8 12,379 958 1,404 1,085 1,276 17,102 4,723 13,431 1,404 948 1,294 777 17,854 4,423 8.5 46.6 (32.5) 19.2 (39.1) 4.4 (6.4) 11,741 2,015 938 1,204 1,032 16,929 5,188 14.4 (30.3) 1.1 7.5 (24.7) 5.5 (14.8) 14,254 2,184 1,041 1,211 1,176 19,867 5,613 (5.8) (35.7) (8.9) 6.9 (34.0) (10.1) (21.2) 114,131 21, 23 14,188 11,676 13,355 174,873 60,742 139,986 27,012 12,025 15,964 12,640 207,626 67,641 22.7 25.5 (15.2) 36.7 (5.4) 18.7 11.4 11 ,452 23,917 10,461 13,233 10,903 170,966 58,514 24.5 12.9 15.0 20.6 15.9 21.4 15.6 131,761 25,400 11,568 14,244 12,430 195,403 63,642 6.2 6.3 4.0 12.1 1.7 6.3 6.3 3QFY12 (INR m) Change (y-y %) 2QFY12 (INR m) Change (q-q %) BNPP ests (INR m) vs BNPP ests (%)
Sources: Companies data; BNP Paribas estimates
BNP PARIBAS
6 MARCH 2012
India Construction
Vishal Sharma, CFA
Two downgrades, four TP changes and some estimates tweaked EXHIBIT 7: Summary of changes
----- Larsen & Toubro ----Old New Change (%) ------ Simplex Infra ------ -------------- NCC -------------- ------------- IVRCL ------------Old (INR m) New (INR m) Change (%) Old (INR m) New (INR m) Change (%) Old (INR m) New (INR m) Change ------- Punj Lloyd ------Old New Change (%)
(INR m) (INR m) FY12E Revenue EBITDA EBITDA margin (%) Interest Net profit FY13E Revenue EBITDA EBITDA margin (%) Interest Net profit FY14E Revenue EBITDA EBITDA margin (%) Interest Net profit Rating Target price (INR) 714,947 724,073 84,530 85,523 11.80 7,823 11.81 7,823 646,647 650,266 76,810 77,203 11.90 7,561 11.87 7,561 533,065 533,065 63,148 63,148 11.85 7,499 11.85 7,499
(%) (INR m) (INR m)
51,795 5,161 9.96
57,657? 5,034 8.73 2,336 811
11.3 (2.5)
52,197 5,098 9.77
51,620? 4,300 8.33 2,700 572
(1.1) (15.6)
56,516 4,971 8.80
52,719 4,465 8.47 2,602 809
(6.7) (10.2)
99,847 101,235 9,117 9.13 7,608 7.52 5,046 476
1.4 (16.5)
1,854 967
26.0 (16.1)
2,680 1,137
0.7 (49.7)
2,512 1,124
3.6 (28.0)
4,702 1,242
7.3 (61.7)
42,718 42,718
0.6 0.5
58,549 5,833 9.96
66,355 6,297 9.49 2,462 1,382
13.3 8.0
55,009 5,327 9.68
59,345 5,343 9.00 2,624 1,242
7.9 0.3
63,260 5,848 9.24
62,058 5,342 8.61 2,567 1,230
(1.9) 109,316 130,336 (8.7) 9,918 9.07 0.9 (22.4) 4,275 1,973 11,098 8.51 5,362 1,621
19.2 11.9
0.5
1,562 1,457
57.6 (5.2)
2,438 1,378
7.6 (9.8)
2,543 1,585
25.4 (17.9)
48,750 49,013
1.3 1.2
65,364 6,510 9.96
72,666 6,896 9.49 2,444 1,641 BUY 272
11.2 5.9
57,712 5,582 9.67
69,324 6,243 9.00 2,776 1,666 HOLD 59
20.1 11.8
72,490 6,699 9.25
73,561 6,330 8.60 2,315 1,985 HOLD 49
1.5 120,837 155,166 (5.5) 10,955 9.07 10.0 (16.3) 4,009 2,649 13,214 8.52 4,907 3,104
28.4 20.6
1.3
1,875 1,522 BUY
30.3 7.8
2,247 1,603 BUY
23.5 3.9
2,105 2,373 BUY
22.4 17.2
52,950 53,614 BUY 1,425 BUY 1,500
REDUCE REDUCE 16.7 47 47 -
5.3
267
1.9
70
(15.7)
42
Source: BNP Paribas estimates
Historical financials A snapshot

L&Ts performance over FY08-12E in terms of both order inflow growth and order book growth has been significantly better than other construction names and far more consistent (see Exhibits 8 and 9); this clearly indicates L&Ts dominant leadership position in the sector. L&Ts FY08-12E order inflow CAGR is 20% and order book CAGR is 33% over this period, according to our estimates. The companys presence across the infrastructure spectrum has allowed it to make up for a slowdown in one sector by procuring orders from another, possibly new, sector. Further testament to the consistent performance is that the company has managed high growth in spite of a much higher base. EXHIBIT 8: Order inflow comparison
(INR m) 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 Larsen & Toubro Punj Lloyd IVRCL Simplex Infra NCC -5% FY08 FY09 FY10 FY11 FY12E
EXHIBIT 9: Order book comparison

(INR m) 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 5% -1% 10% 400,000 200,000 0 9% 25% 14% 16% FY08 FY09 FY10 FY11 FY12E
20%
33%
Larsen & Toubro
Punj Lloyd
IVRCL
Simplex Infra
NCC
Note: Percentages indicate FY08-12 CAGR Sources: Companies; BNP Paribas estimates
L&Ts strong order book and order inflows have been supported by strong execution as well. FY08-12E revenue CAGR is 21% for L&T. NCC is the closest and its CAGR is 10%. Additionally, EBITDA margins have been 200-250bp higher compared with other construction names. FY12 is likely to see a dip margins across the board. L&T management has guided for a 75-125bp decline in EBITDA margin. Other companies are also
BNP PARIBAS
6 MARCH 2012
India Construction
Vishal Sharma, CFA
likely to witness a similar dip. A large portion of the margin erosion is due to lower absorption of fixed overheads resulting from slower execution along with higher raw material prices. EXHIBIT 10: Revenue comparison
(INR m) 600,000 500,000 FY08 FY09 FY10 FY11 FY12E
EXHIBIT 11: EBITDA margin comparison

(%) 14 12 FY08 FY09 FY10 FY11 FY12E
21%
400,000 300,000 200,000 100,000 0 Larsen & Toubro Punj Lloyd IVRCL Simplex Infra NCC 7% 10% 19% 10%
10 8 6 4 2 0 Larsen & Toubro Punj Lloyd IVRCL Simplex Infra NCC
The increase in debt levels across companies has not been uniform. While a large portion of the increase has been for working capital needs, certain companies, such as Simplex [SINF IN] and Punj Lloyd have also invested in equipment. Surprisingly, the FY08-12E CAGR in interest cost is highest for L&T (57%); we believe this is primarily due to the availability of low cost Yen-denominated debt that the company had that was later converted into Rupee-denominated debt. Simplex has had the lowest CAGR in interest costs in spite of having one of the highest increases in debt levels. EXHIBIT 12: Total debt
(INR m) 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Larsen & Toubro Punj Lloyd IVRCL Simplex Infra NCC FY08 FY09 FY10 FY11 FY12E
EXHIBIT 13: Interest cost

(INR m) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Larsen & Toubro Punj Lloyd IVRCL Simplex Infra NCC 29% 54%
FY08 57%
FY09
FY10
FY11
FY12E
23%
39%
Sources: Companies; BNP Paribas estimates
The increase in debt, along with the high interest rate regime, has resulted in poor profitability (see Exhibits 12 and 13). L&T is the only company that has reported a consistent increase in net profit y-y in each of the years, with a CAGR of 20%. Simplex has the next best performance, where net profit CAGR has been flat. In the case of each of the others, net profits have declined over this period. On the margin front, again, L&T stands out as the only consistent performer.
BNP PARIBAS
6 MARCH 2012
India Construction
Vishal Sharma, CFA
EXHIBIT 14: Net profit

(INR m) 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 (5,000) Larsen & Toubro Punj Lloyd IVRCL Simplex Infra NCC -40% -20% -3% -23% FY08 FY09 FY10 FY11 FY12E
EXHIBIT 15: Net profit margin

(%) 10 FY08 FY09 FY10 FY11 FY12E
20%
8 6 4 2 0 (2) (4) Larsen & Toubro Punj Lloyd IVRCL Simplex Infra NCC
Balance sheet strength L&Ts key strength is its balance sheet, along with its ability to manage its working capital cycle. Amongst the others, Simplex has a higher net debt-to-equity ratio but this is primarily due to capital expenditure for equipment; the company also has the lowest working capital requirement per unit revenue as compared to the other construction names. EXHIBIT 16: Net debt to equity
(%) 180 160 140 120 100 80 60 40 20 0 FY08 FY09 FY10 FY11 FY12E
EXHIBIT 17: Working capital to revenue

(%) 70 60 50 40 30 20 10 FY08 FY09 FY10 FY11 FY12E
Larsen & Toubro
Punj Lloyd
IVRCL
Simplex Infra
NCC
Larsen & Toubro
Punj Lloyd
IVRCL
Simplex Infra
NCC
Valuation EXHIBIT 18: Relative valuation

BBG code Company Share price Avg vol -- EV/EBITDA -11E 12E 13E (x) (x) (x) EV/EBITDA ex Others 11E 12E 13E (x) 10.6 5.6 5.7 (x) 9.4 5.3 6.6 (x) 7.7 4.2 5.5 ------ P/E -----11E (x) 21.5 9.0 8.9 9.4 12E (x) 18.3 13.7 17.8 27.0 37.7 22.9 18.3 13E (x) 15.9 8.0 11.7 12.5 P/E - ex Others 11E (x) 17.0 8.7 6.2 3.9 --- P/BV ---------- ROE -------11E (%) 18.1 13.1 8.4 7.1 12E (%) 18.1 12.0 4.0 2.4 13E (%) 18.0 8.1 5.9 5.1
12E 13E 11E 12E 13E (x) (x) (x) 3.5 1.0 0.7 0.7 0.6 1.3 0.7 (x) 3.1 1.0 0.7 0.7 0.6 1.2 0.7 (x) 2.7 0.9 0.7 0.6
(INR) (USD m) LT IN SINF IN IVRC IN NJCC IN PUNJ IN Larsen & Toubro Simplex Infrastructures IVRCL Ltd NCC Ltd/India Punj Lloyd Ltd Mean Median Prices as of 5 March 2012 Sources: Bloomberg; BNP Paribas estimates 1,267 224 54 60 54 76.8 0.1 10.4
15.1 13.4 11.0 5.7 6.6 5.3 7.6 4.3 6.3
14.4 12.6 13.3 12.4 11.2 7.8 8.1 5.2
1.6 (10.7) (9.1) (7.9) 5.0 8.2 5.0 6.6 6.7 4.8 6.7 4.6 3.7 4.6
(8.2) (7.0) (6.1) 8.2 4.4 5.7 6.7 4.2 6.6
4.6 (35.4) 3.2 4.6 2.7 9.0
11.1 (35.4) 11.8 11.7 0.1 6.2
37.7 11.1 17.8 13.3 8.9 8.1
0.6 (79.2) (103.4) (127.6) 1.1 0.7 (6.5) 8.4 (13.4) 4.0 (18.1) 5.9
BNP PARIBAS
6 MARCH 2012
India Construction
Vishal Sharma, CFA
EXHIBIT 19: Price performance

Share BBG code Company price (INR) Coverage Universe LT IN SINF IN IVRC IN NJCC IN PUNJ IN SENSEX Index Larsen & Toubro Simplex Infra IVRCL Ltd NCC Ltd Punj Lloyd SENSEX 1,267 224 54 60 54 17,363 (4) (3) 4 10 1 (2) (5) 12 (4) 1 4 1 (1) 14 49 51 13 5 (19) (1) 56 7 (6) 5 31 28 95 82 44 14 (19) (30) (26) (41) (10) (3) ------------------------------ Performance -----------------------------1-wk (%) 1-mth (%) 3-mth (%) 6-mth (%) YTD (%) 1-yr (%)
Prices as of 5 March 2012 Sources: Bloomberg: BNP Paribas
10
BNP PARIBAS
6 MARCH 2012
CHANGE IN NUMBERS
COMPANY REPORT
EQUITIES RESEARCH LT IN
HOW WE DIFFER FROM THE STREET

BNPP Target Price (INR) EPS 2012 (INR) TARGET PRIOR TP CLOSE UP/DOWNSIDE INR1,500.00 INR1,425.00 INR1,266.75 +18.4% Market Recs EPS 2013 (INR) 1,500.00 69.37 79.63 Positive 35 Consensus 1,456.00 68.42 77.11 Neutral 7 % Diff 3.0 1.4 3.3 Negative 6
LARSEN & TOUBRO

INDIA / CONSTRUCTION
BUY
UNCHANGED INDUSTRY OUTLOOK
KEY STOCK DATA

YE Mar (INR m) Revenue 2012E 533,065 42,718 69.37 69.37 0.0 17.6 18.3 1.2 9.8 3.1 (1.5) 18.1
Jun-11 Sep-11 Dec-11
Stick to quality
CHANGE
Quality company poised to reap benefits from policy action; BUY L&T remains our top pick in the sector due to its balance sheet quality and diversified source of orders. The stock has rallied 31% YTD (vs Sensex up 14%), on increased investor risk appetite triggered by positive global developments and encouraging policy action in the Indian infrastructure industry. We maintain our BUY rating.
2013E 650,266 49,013 79.63 79.21 0.5 14.8 15.9 1.2 8.6 2.7 (1.0) 18.0
2014E 724,073 53,614 87.11 86.03 1.3 9.4 14.5 1.2 7.9 2.3 0.8 17.0
Mar-12 17 7 (3) (13) (23) (33)
Rec. net profit Recurring EPS (INR) Prior rec. EPS (INR) Chg. In EPS est. (%) EPS growth (%) Recurring P/E (x) Dividend yield (%)
CATALYST
FY13 outlook and guidance, major order wins FY13 guidance issued at 4QFY12 result announcement, in addition to major order wins this quarter, should be the catalyst for the stock in FY13. We expect 11% order flow growth, 22% revenue growth and flat EBITDA margin (11.9%) for FY13. We believe that policy action coupled with lower interest rates should spur order activity in 2HFY13.
EV/EBITDA (x) Price/book (x) Net debt/Equity (%) ROE (%)

Mar-11 1,931 1,731
VALUATION
Revising SoTP-based TP to INR1,500 (from INR1,425) We revise our TP to INR1,500 from INR1,425. Our standalone valuation is INR1,235 (vs INR1,155 earlier) based on 9.6x FY13E EV/EBITDA (16x P/E). Subsidiaries contribute INR265 (vs INR270 earlier) due to higher market value of L&Ts finance subsidiary. Risks to our TP include: 1) lower order intake, 2) higher raw material costs, and 3) no reduction in interest rates.
1,531 1,331 1,131 931 (INR) Larsen & Toubro Rel to MSCI India
(%)
Share price performance Absolute (%) Relative to country (%) Next results Mkt cap (USD m)
1 Month 3 Month 12 Month (6.5) (5.8) (3.7) (8.9) (21.4) (15.5) May 2012 15,629 79.9 90
KEY CHART
Order book of INR1,433b (as of 31 Dec 2011)
Others 18.5% Process 3.4% Oil & Gas 15.9% Power 2.0%
3m avg daily turnover (USD m) Free float (%) Major shareholder 12m high/low (INR) 3m historic vol. (%) ADR ticker ADR closing price (USD) Issued shares (m) Sources: Bloomberg consensus; BNP Paribas estimates
Life Insurance Corporation of India (19%) 1,863.45/977.70 40.4 611
Infrastructure 60.2%
Sources: Larsen & Toubro; BNP Paribas
Vishal Sharma, CFA

vishal.sharma@asia.bnpparibas.com +91 22 33704377
Shashank Abhisheik
shashank.abhisheik@asia.bnpparibas.com +91 22 33704336
11
6 MARCH 2012
Larsen & Toubro
Vishal Sharma, CFA
RISK EXPERTS
Key Earnings Drivers & Sensitivity
Macro
BUY
UNCHANGED FY13E EPS 12.0% ---EBITDA margin--9.8% 10.8% 11.8% 12.8% 13.8% 59.76 66.2 72.81 79.33 85.86
LARSEN & TOUBRO

LT IN
------------------------ Revenue growth -----------------------17.0% 62.60 69.41 76.22 83.03 89.85

22.0% 65.43 72.53 79.63 86.73 93.84 27.0% 68.26 75.65 83.04 90.43 97.83 32.0% 71.09 78.77 86.45 94.13 101.82
A 5% change in our FY13 revenue growth estimate has a 4.3% impact on our FY13 EPS of INR79.63.
A 100bp change in our FY13 EBITDA margin estimate of 11.8% has an 8.9% impact on our FY13 EPS.
Larsen & Toubro and IRCP12M INDEX (3M and 6M Realised-Vol)

May-05 90 80 70 60 50 40 30 20 10 0
(%) Larsen & Toubro - 3M Realised - Vol Larsen & Toubro - 6M Realised - Vol India FIMMDA INR paper rates 12m - 3M Realised - Vol India FIMMDA INR paper rates 12m - 6M Realised - Vol
Regression Larsen & Toubro to IRCP12M INDEX

May-11
-14.00% 24.00% 14.00% 4.00% -6.00% -16.00% -26.00% Larsen & Toubro -9.00% -4.00% India FIMMDA INR paper rates 12m
May-06
May-07
May-08
May-09
May-10
1.00%
6.00%
11.00%
16.00%
Larsen & Toubro = 1737 + -31.8697 * IRCP12M Index R Square = 0.0245 Regression based on 261 observations of 5 years weekly data. Please refer to Appendix 1 for the explanation of R-square Sources: Bloomberg; BNP Paribas
India Sector Correlation Matrix at 30 December 2011

Autos Banks Engineering & Construction Metals & Mining Oil & Gas IT Services Telecom Utilities Property Autos 1.00 Banks 0.66 1.00
Engineering & Construction 0.61 0.71 1.00
Metals & Mining 0.62 0.72 0.69 1.00
Oil & Gas 0.51 0.59 0.56 0.66 1.00
IT Services 0.43 0.53 0.48 0.55 0.50 1.00
Telecom 0.36 0.41 0.41 0.42 0.36 0.29 1.00
Utilities 0.56 0.62 0.63 0.65 0.59 0.46 0.45 1.00
Property 0.58 0.70 0.68 0.74 0.59 0.43 0.42 0.65 1.00
Source: BNPP Paribas Sector Strategy
The Risk Experts

Our starting point for this page is a recognition of the macro factors that can have a significant impact on stock-price performance, sometimes independently of bottom-up factors. With our Risk Expert page, we identify the key macro risks that can impact stock performance. This analysis enhances the fundamental work laid out in the rest of this report, giving investors yet another resource to use in their decision-making process.
Long/Short Chart
Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11
5.49 4.49 3.49
+1s +2s
2.49 1.49 0.49 -0.51

-2s Mean
-1s
-1.51
(x)
Larsen & Toubro - Bharat Heavy Elect
Sources: Bloomberg, BNP Paribas
12
BNP PARIBAS
6 MARCH 2012
Larsen & Toubro
Vishal Sharma, CFA
RISK EXPERTS Environmental

Principal Activities
Operating Activities
Architectural, engineering, and related services Switchgear and switchboard apparatus manufacturing Other industrial machinery manufacturing
% of Turnover
82.93 8.16 5.67
BUY
UNCHANGED
LARSEN & TOUBRO

LT IN
Key Ratios (2010)

Impact Ratio (%) EBITDA Impact Ratio (%) Direct Impact Ratio (%) Direct Cost / EBITDA (%) Supply Chain Impact Ratio (%) Cost Ratios (%) 0.87 4.28 0.16 0.77 0.71 3.51
Larsen & Toubro is an Indian technology, engineering, construction and manufacturing

company. The firm operates through the following divisions: Engineering & Construction
Projects, Heavy Engineering, Construction, Power, Electrical & Electronics, Machinery & Industrial Products, IT & Engineering Services, Railway Projects, Financial Services and
Shipbuilding. The Engineering & Construction Projects division provides design-build/
'turnkey EPC solutions in all engineering disciplines, including civil, mechanical, electrical
and process control/automation.
*Impact Ratio = Total Environment Damage Cost/Turnover
Direct Environment Damage Issues

The direct environmental damage costs are those incurred when Larsen & Toubro emits pollutants or uses natural resources as part of its own activities. The five most significant direct impacts are listed below.
Emission Resource (2010) (Tonnes) Carbon Dioxide Non-hazardous Waste Landfill (Non-Hazardous) Lake (Process Water) Hazardous Waste Other Total Direct Impact Ratio (%) 0.16 External Cost (INR m) 449.83 57.19 49.78 44.37 27.99 93.69 722.85 0.77
Supply Chain Environment Damage Issues
Vishal Sharma, CF A
The Supply Chain environmental damage costs are those that are incurred as a result of the activities carried out by Larsen & Toubros supply chain. The five most significant Supply Chain impacts are listed below.
Emission Resource (2010) (Tonnes) Carbon Dioxide Other (Process Water) Particulates Sulphur Dioxide Sum of VOCs Other Total Supply Chain Impact Ratio (%) 0.71 External Cost (INR m) 1,335.65 832.89 209.60 206.38 86.68 630.25 3,301.46 3.51
Source ENV* ENV TC ENV ENV
Quantity 257,779 24,778 21,570 1,791,319

7,003
Quantity 765,402 33,627,420 340 3,099 1,094 139,432,918 173,830,274
233,976 2,336,426 Direct Cost / EBITDA (%)
Supply Chain Cost / EBITDA (%)
Peer Analysis Country

16.0
14.0 12.0 RELI IN 13.60
Peer Analysis - Sector

3.50
3.00 2.50 BHEL IN 2.85
CRG IN EQUITY 2.36
Impact Ratio (%)
Impact Ratio (%)
10.0 8.0 6.0 4.0 2.0 .0 -2.0 BHEL IN 2.85 LT IN 0.87
2.00 1.50 1.00 .50 .00
1072 HK 1.49 LT IN 0.87
Bubble size indicates BHARAT HEAVY RELIANCE Market Cap ELECT INFRASTRUCTU BHEL IN RELI IN
Impact Ratio (%) Turnover (INR m) Market Cap (US $ bn) Year 2.85 356,278.4 14.11 2010 13.60 152,599.0 3.54 2010
LARSEN & TOUBRO LT IN

0.87 462,225.8 15.63 2010
Bubble size indicates BHARAT HEAVY Market Cap ELECT BHEL IN

Impact Ratio (%) Turnover (INR m) Market Cap (US $ bn) Year 2.85 356,278.4 14.11 2010
CROMPTON GREAVES CRG IN

2.36
DONGFANG ELECTRIC 1072 HK

1.49 43,109.0 5.45 2010
LARSEN & TOUBRO LT IN

0.87 462,225.8 15.63 2010
97,800.8
1.77 2010
Impact ratio and turnover of Larsen & Toubro (LT IN) against its peers in the same country. A higher Impact ratio indicates higher external environment costs and weaker environment performance.
Impact ratio and turnover of Larsen & Toubro against its regional peers.
13
BNP PARIBAS
6 MARCH 2012
Larsen & Toubro
Vishal Sharma, CFA
Remains our top sector pick

L&T continues to be our top pick in the sector due to its balance sheet quality and diversified source of orders. The stock has rallied 31% YTD (vs Sensex up 14%), due to increased investor risk appetite triggered by positive global developments and encouraging policy action in the Indian infrastructure sector. The intervention by Prime Ministers Office for resolution of issues in the power sector and expectation of possible rate cuts by the RBI were two major positive developments domestically that resulted in the rerating of the entire sector. Going forward, we believe L&T is the best positioned company within the sector for winning orders, due to its segmental and geographical diversification. Additionally, the company is forming JVs in the Middle East and expects these to contribute USD1b of orders incrementally in 2HFY13. Ability to meet guidance hinges on certain large orders L&T revised its FY12 guidance to 0-5% y-y growth in order flow, 25% y-y growth in revenue, and 75-125bp pressure on E&C EBITDA margin. To achieve its order flow guidance, L&T must win INR303b-340b of orders in 4QFY12. There are certain large orders in the pipeline that could help the company achieve the lower end of its guidance. Catalyst: FY13 outlook and guidance Typically, L&T announces its forward looking guidance along with 4Q results, which in our view will be the catalyst for the stock beyond 4Q. We expect the company to grow its E&C orders by 11% y-y in FY13, as policy action coupled with lower interest rates should spur order activity in 2HFY13. We expect L&T to generate FY13 revenue growth of 22% y-y driven by its E&C order book (at an execution rate of 29%, vs 27.5% for FY12E) with flat EBITDA margin y-y at 11.9%. Changes in estimates EXHIBIT 1: Changes in estimates
Year-end 31 Mar ------------ 2012E -----------Old (INR m) New orders Order growth (%) Revenue EBITDA EBITDA margin (%) Interest Net profit EPS (INR) 739,257 1.3 535,065 63,148 11.8 7,499 42,718 69.37 New (INR m) 739,257 1.3 535,065 63,148 11.8 7,499 42,718 69.37 Change (%) -------------- 2013E -------------Old (INR m) 817,863 10.6 646,647 76,810 11.9 7,561 48,750 79.21 New (INR m) 817,863 10.6 654,566 77,203 11.9 7,561 49,013 79.63 0.5 0.5 0.6 0.5 Change (%) --------------- 2014E --------------Old (INR m) 910,007 11.3 714,947 84,530 11.8 7,823 52,950 86.03 New (INR m) 910,007 11.3 728,073 85,523 11.8 7,823 53,614 87.11 1.3 1.3 1.9 1.2 Change (%)
14
BNP PARIBAS
6 MARCH 2012
Larsen & Toubro
Vishal Sharma, CFA
Valuation EXHIBIT 2: Change in TP

------------------------- Old ------------------------Entities Metric Equity value (INR m) L&T Standalone Larsen & Toubro Infotech L&T Finance Holdings L&T Shipbuilding Larsen & Toubro International FZE L&T Infrastructure Development Projects Limited L&T MHI Turbine JV L&T MHI Boiler JV L&T Power Development L&T Forgings EV/EBITDA P/E Mkt value P/BV P/BV & P/E P/BV P/BV P/BV P/BV P/BV 710,888 32,072 58,759 6,199 18,323 31,615 3,152 2,357 11,396 2,167 876,928 Source: BNP Paribas estimates Value/ share (INR) 1,155 52 96 10 30 51 5 4 19 4 1,425 9x EV/EBITDA; implies 15x P/E 8.0x FY13 20% discount to market value 1.0x FY11 book value 1.0x FY11 book value 2.0x FY11 book value 4.0x FY11 book value 4.0x FY11 book value 1.0x equity 1.0x FY10 book value Comments ----------------------------- New ----------------------------Equity value (INR m) 760,043 31,948 54,622 6,199 18,323 31,615 3,152 2,357 11,396 2,167 921,823 Value/ share (INR) 1,235 52 89 10 30 52 5 4 19 4 1,500 9.6x EV/EBITDA; implies 16x P/E 8.0x FY13 P/E 20% discount to market value 1.0x FY11 book value 1.0x FY11 book value or 5.0x FY13E P/E 2.0x FY11 book value 4.0x FY11 book value 4.0x FY11 book value 1.0x equity 1.0x FY10 book value Comments
We are revising our TP to INR1,500 from INR1,425. Our standalone valuation has increased to INR1,235 from INR1,155 based on slightly higher multiple assumptions. Our revised multiple of 9.6x EV/EBITDA or 16x FY13E P/E is at a slight premium to the historical average due to the improved macro environment. Our revised subsidiary valuation is INR265 (vs INR270 earlier). Risks to our target price include: 1) lower order intake, 2) higher raw material costs, and 3) no reduction in interest rates. EXHIBIT 3: Historical P/E band chart
(x) 50 45 40 35 30 25 20 15 10 5 Mean - 1SD, 13 Current, 15.0 Mean + 2SD, 35 Mean + 1SD, 28 Mean, 21
EXHIBIT 4: Historical EV/EBITDA band chart

(x) 30 25 20 15 10 5 Mean-1SD, 8.3 Current, 11.1 Mean+2SD, 20.2 Mean+1SD, 16.3 Mean, 12.3
0 Oct-00 Apr-02 Oct-03 Apr-05 Oct-06 Apr-08 Oct-09 Apr-11

0 Oct-00 Apr-02 Oct-03 Apr-05 Oct-06 Apr-08 Oct-09 Apr-11

15
BNP PARIBAS
6 MARCH 2012
Larsen & Toubro
Vishal Sharma, CFA
Financial statements
Larsen & Toubro
Profit and Loss (INR m) Year Ending Mar Revenue Cost of sales ex depreciation Gross profit ex depreciation Other operating income Operating costs Operating EBITDA Depreciation Goodwill amortisation Operating EBIT Net financing costs Associates Recurring non operating income Non recurring items Profit before tax Tax Profit after tax Minority interests Preferred dividends Other items Reported net profit Non recurring items & goodwill (net) Recurring net profit Per share (INR) Recurring EPS * Reported EPS DPS Growth Revenue (%) Operating EBITDA (%) Operating EBIT (%) Recurring EPS (%) Reported EPS (%) Operating performance Gross margin inc depreciation (%) Operating EBITDA margin (%) Operating EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout on recurring profit (%) Interest cover (x) Inventory days Debtor days Creditor days Operating ROIC (%) Operating ROIC - WACC (%) ROIC (%) ROIC - WACC (%) ROE (%) ROA (%)
*Pre exceptional, pre-goodwill and fully diluted
2010A 366,752 (284,536) 82,216 3,597 (37,657) 48,156 (4,146) 0 44,010 (5,053) 0 9,103 10,748 58,807 (16,210) 42,597 0 0 0 42,597 (10,748) 31,849
2011A 434,959 (334,316) 100,643 4,090 (48,507) 56,226 (5,992) 0 50,234 (6,474) 0 11,949 2,621 58,329 (19,459) 38,871 0 0 0 38,871 (2,621) 36,250
2012E 533,065 (413,355) 119,710 2,000 (58,562) 63,148 (7,153) 0 55,995 (7,499) 0 14,331 0 62,827 (20,109) 42,718 0 0 0 42,718 0 42,718
2013E 650,266 (507,088) 143,178 4,300 (70,276) 77,203 (8,300) 0 68,902 (7,561) 0 12,050 0 73,391 (24,379) 49,013 0 0 0 49,013 0 49,013
2014E 724,073 (572,515) 151,559 4,300 (70,336) 85,523 (9,468) 0 76,055 (7,823) 0 12,050 0 80,281 (26,667) 53,614 0 0 0 53,614 0 53,614
52.69 71.81 14.63
58.98 64.16 14.63
69.37 69.95 14.60
79.63 80.11 14.57
87.11 87.63 14.63
9.0 22.8 21.7 14.9 20.1
18.6 16.8 14.1 12.0 (10.6)
22.6 12.3 11.5 17.6 9.0
22.0 22.3 23.1 14.8 14.5
11.4 10.8 10.4 9.4 9.4
Revenue growth should be strong based on the current order book
21.3 13.1 12.0 8.7 27.6 27.8 10.5 46.3 105.6 217.0 31.0 15.9 25.0 9.9 20.7 8.4 2010A 318,420 21,906 28,690 2,648 (4,913)
21.8 12.9 11.5 8.3 33.4 24.8 9.6 16.3 99.0 243.7 31.1 16.0 23.8 8.7 18.1 7.8 2011A 382,187 27,931 32,139 6,604 (13,901)
21.1 11.8 10.5 8.0 32.0 21.0 9.4 74.5 94.2 230.5 27.3 12.2 21.4 6.3 18.1 7.9 2012E 471,936 29,685 33,872 9,512 (11,940)
20.7 11.9 10.6 7.5 33.2 18.3 10.7 122.5 94.2 205.8 27.4 12.3 20.6 5.5 18.0 7.9 2013E 585,500 34,411 37,259 2,348 (9,252)
19.6 11.8 10.5 7.4 33.2 16.8 11.3 127.3 98.4 197.4 25.1 10.0 19.3 4.2 17.0 7.8 2014E 647,018 41,626 40,985 2,620 (8,176)
EBITDA margin should be steady at these levels; we see limited downside from current levels
Revenue By Division (INR m) E&C MIP EBG Others Unallocable Sources: Larsen & Toubro; BNP Paribas estimates
16
BNP PARIBAS
6 MARCH 2012
Larsen & Toubro Larsen & Toubro

Cash Flow (INR m) Year Ending Mar Recurring net profit Depreciation Associates & minorities Other non-cash items Recurring cash flow Change in working capital Capex - maintenance Capex - new investment Free cash flow to equity Net acquisitions & disposals Dividends paid Non recurring cash flows Net cash flow Equity finance Debt finance Movement in cash Per share (INR) Recurring cash flow per share FCF to equity per share Balance Sheet (INR m) Year Ending Mar Working capital assets Working capital liabilities Net working capital Tangible fixed assets Operating invested capital Goodwill Other intangible assets Investments Other assets Invested capital Cash & equivalents Short term debt Long term debt * Net debt Deferred tax Other liabilities Total equity Minority interests Invested capital 60.68 63.82 2010A 249,297 (212,429) 36,869 62,396 99,265 0 1,261 57,408 3,119 161,053 (93,964) 0 68,008 (25,956) 3,893 0 183,116 0 161,053 69.73 2.61 2011A 332,208 (278,233) 53,975 72,659 126,635 0 1,922 74,008 2,863 205,428 (90,143) 0 71,611 (18,532) 5,497 0 218,463 0 205,428 81.66 (7.74) 2012E 386,882 (306,679) 80,203 80,160 160,364 0 1,755 89,008 2,863 253,990 (82,384) 0 78,611 (3,773) 5,497 0 252,265 0 253,990 93.67 13.08 2013E 455,342 (350,459) 104,884 86,750 191,633 0 1,567 99,008 2,863 295,071 (81,400) 0 78,611 (2,789) 5,497 0 292,363 0 295,071 103 5.76 2014E 500,438 (360,845) 139,593 92,410 232,004 0 1,357 109,008 2,863 345,232 (80,904) 0 83,611 2,707 5,497 0 337,028 0 345,232 2010A 31,849 4,146 0 0 35,995 17,582 0 (15,719) 37,858 (3,116) (7,192) (14,148) 13,402 21,327 (1,680) 33,050 2011A 36,250 5,992 0 0 42,242 (2,772) 0 (37,891) 1,579 (7,058) (8,670) 8,752 (5,397) 3,473 (6,051) (7,976) 2012E 42,718 7,153 0 0 49,871 (25,108) 0 (29,487) (4,724) 0 (8,915) (1,120) (14,759) 0 7,000 (7,759) 2013E 49,013 8,300 0 0 57,313 (24,611) 0 (24,701) 8,001 0 (8,915) (69) (984) 0 0 (984) 2014E 53,614 9,468 0 0 63,082 (34,641) 0 (24,920) 3,522 0 (8,948) (69) (5,496) 0 5,000 (496)
Vishal Sharma, CFA
Likely to remain net cash positive next year as well; demonstrates balance sheet strength
* includes convertibles and preferred stock which is being treated as debt
Per share (INR) Book value per share Tangible book value per share Financial strength Net debt/equity (%) Net debt/total assets (%) Current ratio (x) CF interest cover (x) Valuation Recurring P/E (x) * Recurring P/E @ target price (x) * Reported P/E (x) Dividend yield (%) P/CF (x) P/FCF (x) Price/book (x) Price/tangible book (x) EV/EBITDA (x) ** EV/EBITDA @ target price (x) ** EV/invested capital (x) (14.2) (5.6) 1.6 11.6 2010A 24.0 28.5 17.6 1.2 20.9 19.8 4.1 4.1 12.8 15.2 4.5 (8.5) (3.2) 1.5 7.1 2011A 21.5 25.4 19.7 1.2 18.2 486.0 3.5 3.5 10.8 12.9 3.6 (1.5) (0.6) 1.5 4.3 2012E 18.3 21.6 18.1 1.2 15.5 (163.8) 3.1 3.1 9.8 11.6 3.0 (1.0) (0.4) 1.5 5.3 2013E 15.9 18.8 15.8 1.2 13.5 96.9 2.7 2.7 8.6 10.2 2.6 0.8 0.3 1.6 4.6 2014E 14.5 17.2 14.5 1.2 12.3 220.1 2.3 2.3 7.9 9.4 2.3 309 307 361 357 413 410 478 475 551 549
* Pre exceptional, pre-goodwill and fully diluted** EBITDA includes associate income and recurring non-operating income
Sources: Larsen & Toubro; BNP Paribas estimates
17
BNP PARIBAS
6 MARCH 2012
CHANGE IN NUMBERS
COMPANY REPORT
EQUITIES RESEARCH SINF IN

BNPP Target Price (INR) EPS 2012 (INR) TARGET PRIOR TP CLOSE UP/DOWNSIDE INR272.00 INR267.00 INR223.70 +21.6% Market Recs EPS 2013 (INR) 272.00 16.39 27.92 Positive 18 Consensus 265.00 19.23 26.85 Neutral 10 % Diff 2.6 (14.8) 4.0 Negative 2
SIMPLEX INFRA
BUY
KEY STOCK DATA

YE Mar (INR m) Revenue 2012E 57,615 811 16.39 19.53 (16.1) (34.2) 13.7 1.0 5.2 1.0 154.1 7.3
From strength to strength

CHANGE
Turnaround in international operations
2013E 66,355 1,382 27.92 29.44 (5.2) 70.4 8.0 1.0 4.4 0.9 144.5 11.4
2014E 72,666 1,641 33.14 30.75 7.8 18.7 6.8 1.0 4.2 0.8 134.1 12.2
Mar-12 8
After seven quarters of y-y declines in international revenue, 3QFY12 saw a turnaround, with a 15% y-y increase. Domestic operations improved even further with 40% y-y growth. The companys ability to secure orders from across the infrastructure spectrum allows it to maintain a strong order pipeline even during times when certain sectors are depressed.
CATALYST
Margin improvement, traction in Libya could be key catalysts We believe q-q EBITDA margin expansion is likely in 4QFY12. EBITDA margin was subdued in 3QFY12 as several projects did not attain the margin recognition stage. Additionally, Libya could be the joker in the pack. As the political situation stabilises, contracts worth INR7b that the company had taken out of its order book could get reinstated.

Mar-11
338 288 238 188 138 (INR) Simplex Infra Rel to MSCI India
(2) (12) (22) (32) (42) (52) (%)
VALUATION
BUY with SoTP-based TP of INR272 We arrive at our TP of INR272 based on a SoTP valuation. The construction company contributes INR266 based on 5.0x FY13E EV/EBITDA (implied P/E of 9.5x). The stake in the highway BOT contributes INR6 based on DCF. Risks include further deterioration in the infra investment environment, increase in raw material prices and higher interest costs.
1 Month 3 Month 12 Month 12.7 13.3 9.1 4.0 (30.5) (24.6) May 2012 224 0.1 45 Promoters (55%) 349.55/162.40 49.0 50
KEY CHART
Current order book mix (INR144b)
Others 6.0% Urban 9.0% Power 25.5% Industrial 14.0%
3m avg daily turnover (USD m) Free float (%) Major shareholder 12m high/low (INR) 3m historic vol. (%) ADR ticker
Building & Housing 26.5%

Sources: Simplex Infra; BNP Paribas
Transportation 19.0%
ADR closing price (USD) Issued shares (m) Sources: Bloomberg consensus; BNP Paribas estimates
Shashank Abhisheik
Vishal Sharma, CFA
shashank.abhisheik@asia.bnpparibas.com vishal.sharma@asia.bnpparibas.com +91 22 33704336 +91 22 33704377
18
6 MARCH 2012
Simplex Infra
Shashank Abhisheik
RISK EXPERTS
Macro
BUY
UNCHANGED (INR/share) 5% ---EBITDA margin---
SIMPLEX INFRA
SINF IN
-------------------------- Revenue growth -------------------------10% 15.66 19.94 24.22 28.51 32.79

15% 18.96 23.44 27.92 32.39 36.87 20% 22.27 26.94 31.61 36.28 40.95 25% 25.57 30.43 35.30 40.16 45.03
A 5ppt change in our FY13 revenue growth estimate has a 13.2% impact on our FY13 EPS estimate of INR27.92.
8.5% 9.0% 9.5% 10.0% 10.5%
12.36 16.45 20.53 24.62 28.71
A 50bp change in our FY13 EBITDA margin estimate has a 16.0% impact on our FY13 EPS.
Simplex Infra and MXIN Index (3M and 6M Realised-Vol)

Mar-04 120 100 80 60 40 20 0
(%)
Regression Simplex Infra to IRCP12M INDEX

Mar -10
Mar-11 Mar-12
-14.00% 57.00% 47.00% 37.00% 27.00% 17.00% 7.00% -3.00% -13.00% -23.00% -33.00% Simplex Infra -9.00% -4.00% India FIMMDA INR paper rates 12m
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
1.00%
6.00%
11.00%
16.00%
Simplex Infra - 3M Realised - Vol

MSCI India - 3M Realised - Vol
Simplex Infra - 6M Realised - Vol

Simplex Infra = 429 + -4.747 * IRCP12M Index R Square = 0.0096 Regression based on 261 observations of 5 years weekly data. Please refer to Appendix 1 for the explanation of R-square Sources: Bloomberg; BNP Paribas

Metals & Mining 0.62 0.72 0.69 1.00
Oil & Gas 0.51 0.59 0.56 0.66 1.00
IT Services 0.43 0.53 0.48 0.55 0.50 1.00
Telecom 0.36 0.41 0.41 0.42 0.36 0.29 1.00
Utilities 0.56 0.62 0.63 0.65 0.59 0.46 0.45 1.00
Property 0.58 0.70 0.68 0.74 0.59 0.43 0.42 0.65 1.00
The Risk Experts

Long/Short Chart
Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11
12.578519
+2s
10.578519
+1s
8.5785189
Mean -1s -2s
6.5785189
4.5785189
2.5785189
(x)
Simplex Infra - GMR Infrastructure
19
BNP PARIBAS
6 MARCH 2012
Simplex Infra
Shashank Abhisheik
Things starting to fall into place

Four key points to note after the strong quarter 1 Strong execution demonstrated by 37% y-y revenue growth; particularly positive was the overseas performance. Execution was not at the expense of margins; EBITDA margin of 8.1% was slightly lower than our 8.5% estimate; however, adjusting for a one-time forex loss, EBITDA margin would be 20bp higher. Efforts to strengthen the balance sheet are noticeable after this quarter (working capital days and net debt-to-equity have decreased). Only three of the 20 slow-moving projects at the beginning of FY12 are yet to ramp up.
International projects join the party The company reported 15% growth in international revenue in 3Q12, reversing a declining trend over seven quarters. Two large projects (a flyover in Dhaka, Bangladesh and a sugar factory in Ethiopia) have started to contribute to revenue. International projects contribute approximately 12% of the current order book of INR144b. In the near term, management believes that projects in Oman could be a sizeable opportunity. Oman continues to be the most promising opportunity amongst the foreign countries where Simplex has a presence. In Libya, the situation continues to be very fluid. Although a new government is starting to take control, whether they will honour the contracts signed with the old regime is yet to be seen. In any case, even if these projects are reinstated, there is very little visibility about the time frame for revival. At this time, the company continues to exclude projects that it had secured in Libya (worth INR7b). Strong pipeline of bids and negotiated contracts The company has been named the lowest bidder for contracts of INR25b; the letter of award (LOA) is awaited before these can be added to the order book. Management indicated that the company has bid for orders worth INR300b and has another INR40b worth of orders under negotiation. Based on this bid pipeline, we believe that the company is in a strong position to achieve the INR70b new order inflow target for FY12. Moreover, the bid pipeline provides comfort for FY13 order inflows as well. Balance sheet improving Management had indicated in previous quarters that managing working capital and, thereby, improving profitability, is a key focus area. Net working capital days declined to 120 at the end of 3QFY12 from 139 at the end of 2QFY12 (130 at the end of FY11). Net debt-to-equity has improved to 1.46x in 3QFY12 from 1.57x in 2QFY12 (1.47x at the end of FY11). The reduction in net working capital has largely been due to a reduction in inventories. Management indicated that the focus is now on reducing the collection period and lowering the receivables balance. 3QFY12 results Execution was a pleasant surprise After reporting a y-y decline in international revenue for the last seven quarters the company finally reported a healthy 15% increase in this quarter. Consequently, overall revenue increased a whopping 37% y-y. Although the order inflow during the quarter was subdued, the company has already secured an additional INR21b of orders during 4QFY12 and should be able to comfortably meet the order guidance of INR60b-70b. EBITDA margin of 8.1% was lower than our estimate of 8.5%; however, excluding the foreign exchange loss of INR33m, the margin would have been 8.3%. Increasing estimates We believe that revenue guidance of 15-20% growth in FY12 is on the low side. We estimate higher revenue growth of 21% in FY12 based on improving execution, particularly in international projects. Additionally, management indicated that only three of the 20 slow-moving orders (at the beginning of FY12) have turned around and are now contributing to revenue. Management was also confident of a turnaround of these remaining orders shortly. Management reiterated that EBITDA margin is sustainable in the 9.5-10.0% range.
20
BNP PARIBAS
6 MARCH 2012
Simplex Infra
Shashank Abhisheik
EXHIBIT 1: Estimate changes

Year-end 31 Mar -------------- 2012E -------------Old (INR m) Revenue EBITDA EBITDA margin (%) Interest Net profit 51,795 5,161 10.0 1,854 967 New (INR m) 57,615 5,034 8.7 2,336 811 26 (16) Change (%) 11 (2) -------------- 2013E -------------Old (INR m) 58,549 5,833 10.0 1,562 1,457 New (INR m) 66,355 6,297 9.5 2,462 1,382 58 (5) Change (%) 13 8 -------------- 2014E -------------Old (INR m) 65,364 6,510 10.0 1,875 1,522 New (INR m) 72,666 6,896 9.5 2,444 1,641 30 8 Change (%) 11 6
Valuation We arrive at our TP of INR272 based on a SoTP valuation. The construction company contributes INR266 based on 5.0x FY13E EV/EBITDA (implied P/E of 9.5x). The stake in the highway BOT contributes INR6 based on our DCF valuation. Risks to our TP include deterioration in the overall infra investment environment, increase in raw material prices, and delays in anticipated interest rate cuts. EXHIBIT 2: Historical P/E band chart
(x) 45 40 35 30 25 20 15 10 5 Mean, 16.8 Mean + 2SD, 27.8
EXHIBIT 3: Historical EV/EBITDA band chart

(x) 16 14 12 10 Mean + 1SD, 22.3 Mean - 1SD, 11.3 Current, 8.6 8 6 4 2 0 Apr-05 Apr-06 Apr-07
Mean + 2SD, 11.0 Mean + 1SD, 8.7 Mean, 6.4 Mean - 1SD, 4.0 Current, 3.7 Apr-08 Apr-09 Apr-10 Apr-11
0 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11

21
BNP PARIBAS
6 MARCH 2012
Simplex Infra
Shashank Abhisheik
Simplex Infra
Profit and Loss (INR m) Year Ending Mar Revenue Cost of sales ex depreciation Gross profit ex depreciation Other operating income Operating costs Operating EBITDA Depreciation Goodwill amortisation Operating EBIT Net financing costs Associates Recurring non operating income Non recurring items Profit before tax Tax Profit after tax Minority interests Preferred dividends Other items Reported net profit Non recurring items & goodwill (net) Recurring net profit Per share (INR) Recurring EPS * Reported EPS DPS Growth7 Revenue (%) Operating EBITDA (%) Operating EBIT (%) Recurring EPS (%) Reported EPS (%) Operating performance Gross margin inc depreciation (%) Operating EBITDA margin (%) Operating EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout on recurring profit (%) Interest cover (x) Inventory days Debtor days Creditor days Operating ROIC (%) Operating ROIC - WACC (%) ROIC (%) ROIC - WACC (%) ROE (%) ROA (%)
2010A 44,476 (18,126) 26,350 62 (21,972) 4,440 (1,534) 0 2,907 (1,112) 0 116 0 1,911 (685) 1,226 0 0 0 1,226 0 1,226
2011A 47,557 (18,975) 28,581 67 (23,941) 4,707 (1,608) 0 3,099 (1,308) 0 164 0 1,955 (722) 1,232 0 0 0 1,232 0 1,232
2012E 57,615 (24,375) 33,239 42 (28,248) 5,034 (1,781) 0 3,253 (2,336) 0 277 0 1,193 (382) 811 0 0 0 811 0 811
2013E 66,355 (26,761) 39,593 0 (33,296) 6,297 (2,043) 0 4,254 (2,462) 0 277 0 2,069 (687) 1,382 0 0 0 1,382 0 1,382
2014E 72,666 (29,307) 43,358 0 (36,462) 6,896 (2,273) 0 4,623 (2,444) 0 277 0 2,457 (816) 1,641 0 0 0 1,641 0 1,641
24.78 24.78 2.33
24.91 24.91 2.32
16.39 16.39 2.34
27.92 27.92 2.34
33.14 33.14 2.34
(5.1) 2.4 (4.3) (3.3) (7.7)
6.9 6.0 6.6 0.5 0.5
21.2 6.9 5.0 (34.2) (34.2)
15.2 25.1 30.8 70.4 70.4
9.5 9.5 8.7 18.7 18.7
Revenue growth profile should remain strong especially since international operations are are at an inflection point
55.8 10.0 6.5 2.8 35.8 9.4 2.7 134.4 142.0 346.9 8.7 (0.7) 8.9 (0.5) 13.1 4.8 2010A 44,476
56.7 9.9 6.5 2.6 36.9 9.3 2.5 140.1 156.4 353.8 7.8 (1.5) 8.1 (1.2) 12.0 4.6 2011A 47,557
54.6 8.7 5.6 1.4 32.0 14.3 1.5 137.2 159.9 333.3 7.7 (1.9) 8.2 (1.4) 7.3 4.5 2012E 57,615
56.6 9.5 6.4 2.1 33.2 8.4 1.8 148.1 158.5 348.2 9.2 (0.3) 9.6 0.1 11.4 5.1 2013E 66,355
56.5 9.5 6.4 2.3 33.2 7.1 2.0 148.3 155.3 330.4 9.4 (0.1) 9.7 0.2 12.2 5.2 2014E 72,666
Revenue By Division (INRm) Engg & Construction Sources: Simplex Infra; BNP Paribas estimates
22
BNP PARIBAS
6 MARCH 2012
Simplex Infra Simplex Infra

Cash Flow (INR m) Year Ending Mar Recurring net profit Depreciation Associates & minorities Other non-cash items Recurring cash flow Change in working capital Capex - maintenance Capex - new investment Free cash flow to equity Net acquisitions & disposals Dividends paid Non recurring cash flows Net cash flow Equity finance Debt finance Movement in cash Per share (INR) Recurring cash flow per share FCF to equity per share Balance Sheet (INR m) Year Ending Mar Working capital assets Working capital liabilities Net working capital Tangible fixed assets Operating invested capital Goodwill Other intangible assets Investments Other assets Invested capital Cash & equivalents Short term debt Long term debt * Net debt Deferred tax Other liabilities Total equity Minority interests Invested capital 78.58 (6.97) 2010A 29,726 (17,135) 12,590 9,864 22,454 0 0 277 0 22,731 (873) 0 13,024 12,151 0 0 9,697 0 22,731 77.92 (59.31) 2011A 36,053 (19,899) 16,154 11,324 27,477 0 0 492 0 27,969 (795) 0 16,607 15,812 0 0 10,777 0 27,969 99.56 14.21 2012E 43,236 (24,857) 18,379 11,542 29,922 0 0 607 0 30,528 (2,431) 0 20,107 17,676 0 0 11,472 0 30,528 119 42.37 2013E 46,601 (26,433) 20,168 11,500 31,668 0 0 855 0 32,523 (2,203) 0 20,607 18,404 0 0 12,738 0 32,523 128 37.21 2014E 49,540 (26,857) 22,683 11,227 33,910 0 0 855 0 34,765 (1,985) 0 21,107 19,121 0 0 14,263 0 34,765 2010A 1,226 1,534 0 1,128 3,888 (3,007) (1,225) 0 (345) 0 (116) 111 (350) 0 25 (325) 2011A 1,232 1,608 0 1,014 3,855 (4,341) (2,448) 0 (2,934) 0 (115) 65 (2,984) 0 2,312 (672) 2012E 811 1,781 0 2,336 4,929 (2,226) (2,000) 0 703 0 (116) (115) 473 0 1,164 1,636 2013E 1,382 2,043 0 2,462 5,887 (1,789) (2,000) 0 2,097 0 (116) (248) 1,733 0 (1,962) (229) 2014E 1,641 2,273 0 2,444 6,357 (2,515) 0 (2,000) 1,842 0 (116) 0 1,726 0 (1,944) (217)
Shashank Abhisheik
Company has shown an improvement in net working capital quarter-onquarter
Per share (INR) Book value per share Tangible book value per share Financial strength Net debt/equity (%) Net debt/total assets (%) Current ratio (x) CF interest cover (x) Valuation Recurring P/E (x) * Recurring P/E @ target price (x) * Reported P/E (x) Dividend yield (%) P/CF (x) P/FCF (x) Price/book (x) Price/tangible book (x) EV/EBITDA (x) ** EV/EBITDA @ target price (x) ** EV/invested capital (x)
* Pre exceptional, pre-goodwill and fully diluted
196 196
218 218
232 232
257 257
288 288
125.3 29.8 1.8 0.7 2010A 9.0 11.0 9.0 1.0 2.8 (32.1) 1.1 1.1 5.0 5.5 1.0
146.7 32.5 1.9 (1.2) 2011A 9.0 10.9 9.0 1.0 2.9 (3.8) 1.0 1.0 5.1 5.6 1.0
154.1 30.6 1.8 1.3 2012E 13.7 16.6 13.7 1.0 2.2 15.7 1.0 1.0 5.2 5.7 0.9
144.5 30.1 1.8 1.9 2013E 8.0 9.7 8.0 1.0 1.9 5.3 0.9 0.9 4.4 4.8 0.9
134.1 30.1 1.9 2.6 2014E 6.8 8.2 6.8 1.0 1.7 6.0 0.8 0.8 4.2 4.5 0.9
Net debt to equity is higher than peers, remains a concern
** EBITDA includes associate income and recurring non-operating income
Sources: Simplex Infra; BNP Paribas estimates
23
BNP PARIBAS
6 MARCH 2012
CHANGE IN RECOMMENDATION
COMPANY REPORT
EQUITIES RESEARCH NJCC IN

BNPP Target Price (INR) EPS 2012 (INR) 59.00 2.21 4.80 Consensus 64.00 2.86 4.32 Neutral 9 % Diff (7.8) (22.7) 11.1 Negative 10
NCC LTD
HOLD
FROM BUY INDUSTRY OUTLOOK
TARGET PRIOR TP CLOSE UP/DOWNSIDE
INR59.00 INR70.00 INR59.80 -1.3%
EPS 2013 (INR)
Positive
Market Recs 21
KEY STOCK DATA

Power plant execution is key

CHANGE
Balance sheet repair becomes more challenging With additional power plant investment required both by way of equity and working capital for execution, NCCs balance sheet is likely to remain stretched in the near-future, in our view. We believe the current share price adequately captures these risks. Core business will benefit from an improving macro environment and lower interest rates.
2013E 59,345 1,242 4.80 5.39 (11.0) 116.7 12.5 2.1 7.5 0.6 106.3 5.1
2014E 69,324 1,666 6.43 6.27 2.7 34.1 9.3 2.1 6.9 0.6 112.3 6.5
Mar-12 11 1 (9) (19) (29) (39) (49) (59) (69) (79)
CATALYST
Fuel linkage and power supply agreement are key catalysts NCC is looking to sign long-term supply contracts for at least 75% of its 1,320MW capacity; Andhra Pradesh and Karnataka are two major opportunities in the near-term. Currently, the company has no firm fuel linkages or any contract to supply its power. However, any news flow on successful clearance of these milestones would be positive.

Mar-11 114 94
VALUATION
Reducing TP to INR59; downgrade to HOLD We are reducing our TP to INR59 from INR70 on 10% lower FY13 estimates. This decline comes from our standalone valuation (from INR35 to INR24). Upside risks include achievement of key milestones on its power assets, and better execution and margin than expected in the core business. Downside risks are poor execution and delays in equity funding.
74 54 34 14 (INR) NCC Ltd Rel to MSCI India
(%)
Share price performance

Absolute (%) Relative to country (%) Next results Mkt cap (USD m)
1 Month 3 Month 12 Month (3.3) (2.7) 50.8 45.7 (42.5) (36.6) May 2012 312 1.7 80 Promoter Group (20%) 116.00/32.50 70.9 258
KEY CHART
SoTP Valuation
BOT valuation 28.8% Standalone 40.7%
3m avg daily turnover (USD m)

Free float (%) Major shareholder 12m high/low (INR) 3m historic vol. (%) ADR ticker
Real estate investments 25.4%

Power projects 5.1%
ADR closing price (USD)

Issued shares (m)
Sources: Bloomberg consensus; BNP Paribas estimates
Shashank Abhisheik
Vishal Sharma, CFA
24
6 MARCH 2012
NCC Ltd
Shashank Abhisheik
RISK EXPERTS
Macro
HOLD
FROM BUY FY13E EPS (INR/share) 8.0% EBITDA margin 8.5% 9.0% 9.5% 10.0% 5.0% 2.20 2.90 3.60 4.30 5.00 10.0% 2.73 3.47 4.20 4.93 5.66 15.0% 3.27 4.03 4.80 5.56 6.33
NCC LTD
NJCC IN
-------------------- Revenue growth -------------------20.0% 3.80 4.60 5.40 6.19 6.99 25.0% 4.33 5.16 6.00 6.83 7.66
A 5% change in our FY13 revenue growth estimate has a 12% impact on our FY13 EPS of INR4.80.
A 50bp change in our FY13 EBITDA margin estimate has a 16% impact on our FY13 EPS estimate.
NCC Ltd and MXIN Index (3M and 6M Realised-Vol)

Mar-04 140 120 100 80 60 40 20 0
(%)
Regression NCC Ltd to IRCP12M INDEX

Mar-09
Mar-05
Mar-06
Mar-07
Mar-08
Mar -10
Mar-11
Mar-12
-14.00% 45.00% 35.00% 25.00% 15.00% 5.00% -5.00% -15.00% -25.00% -35.00% -45.00% NCC Ltd -9.00% -4.00%
India FIMMDA INR paper rates 12m
1.00%
6.00%
11.00%
16.00%
NCC Ltd - 3M Realised - Vol

NCC Ltd - 6M Realised - Vol MSCI India - 6M Realised - Vol
NCC Ltd = 151 + -1.0587 * IRCP12M Index R Square = 0.0082 Regression based on 261 observations of 5 years weekly data. Please refer to Appendix 1 for the explanation of R-square Sources: Bloomberg; BNP Paribas

India Autos Banks Engineering & Construction Metals & Mining Oil & Gas IT Services Telecom Utilities Property Source: BNPP Paribas Sector Strategy Autos 1.00 Banks 0.66 1.00
Engineering & Construction

0.61 0.71 1.00
Metals & Mining 0.62 0.72 0.69 1.00
Oil & Gas 0.51 0.59 0.56 0.66 1.00
IT Services 0.43 0.53 0.48 0.55 0.50 1.00
Telecom 0.36 0.41 0.41 0.42 0.36 0.29 1.00
Utilities 0.56 0.62 0.63 0.65 0.59 0.46 0.45 1.00
Property 0.58 0.70 0.68 0.74 0.59 0.43 0.42 0.65 1.00
The Risk Experts

Our starting point for this page is a recognition of the macro factors that can have a significant impact on stock-price performance, sometimes independently of bottom-up factors. With our Risk Expert page, we identify the key macro risks that can impact stock performance.
This analysis enhances the fundamental work laid out in the rest of this report, giving investors yet another resource to use in their decision-making process.
Long/Short Chart
Mar-09
2.02 1.82 1.62 1.42
+1s +2s
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
1.22
Mean
1.02
-1s
0.82
-2s
0.62 0.42
(x)
NCC Ltd - IVRCL Ltd
25
BNP PARIBAS
6 MARCH 2012
NCC Ltd
Shashank Abhisheik
Downgrading to HOLD on weakening balance sheet

Balance sheet repairs could take longer than anticipated NCC has a net debt to equity ratio of close to 1x on its standalone balance sheet and working capital of 0.6x trailing 12-month revenue. One solution to improve their stretched balance sheet, in our view, is to sell stakes in their investments. The company has INR17.5b of investments, loans and advances to its subsidiaries in real estate, power, highway BOTs and construction subsidiaries and associates. The total exposure to real estate is approximately INR7.9b and highway BOT is INR6.8b. In our view, management is currently more focused on selling stakes in its power assets to fund its equity rather than repair its balance sheet by monetizing their real estate and other BOT assets. Consequently, the standalone balance sheet could remain stretched in the near-term. Equity requirements in power plants could lead to dilution NCCs Sompeta power plant project was cancelled as environmental approvals for the project were revoked. The company subsequently purchased a 55% stake in a 1,320MW coal-based thermal project from Nelcast Energy Corp [NELC IN, Not rated]. Gayatri Projects [GAYP IN, Not rated] is the other partner in the project (45%). Together, the two have paid INR2.7b for their purchase, of which NCC has contributed INR1.5b. This consideration was paid against the land acquired and the clearances obtained so far. The project requires total debt of INR52.85b. The terms of financing require the company to contract at least 75% of its total generation by way of long-term power purchase agreements (PPA). So far, NCC has not tied up any of its generation via long-term supply agreements (the earlier PPA with Karnataka has been cancelled by the government), but is hopeful that it will be able to competitively bid and win in Andhra Pradesh (Case 1 bidding), its home state. Total equity required is INR17b, of which NCCs share is INR9.5b (INR3.3b by FY11, and the remaining over a four-year period). The company has so far invested INR1.5b. The company is planning to fund this using proceeds from dilution at its NCC Infra holding company level, and margins from the EPC construction of this project. During 3QFY12, the company recorded the EPC order from this project in its order book (INR52b) and expects to make 10% EBITDA margins over the four year period (INR5.2b of EBITDA is possible from this project over the execution period). The company is looking to Chinese equipment manufacturers for this project. The earlier environmental clearance was obtained based on usage of 100% imported coal. NCC has now filed for a modification of that clearance to allow them to use up to 70% domestic coal. The company has applied to Coal India to transfer its earlier linkage to its new project. Working capital requirements likely to increase With the addition of the power project (INR52b, or 24% of current order book), we believe the company will require incremental working capital. The advance raised from this project was used to fund its share of equity in the project. Therefore, we expect the company will have to borrow short-term debt when the execution of this project commences to fund its working capital. Assuming a four-year execution, and a 25% working capital requirement, NCC will need at least INR3.25b of additional debt (13% of its current debt) to fund this execution, which should further stretch its balance sheet. Real estate investments yet to pay off The company has INR7.9b locked in real estate subsidiaries and associates, including INR4.2b in the form of loans and advances. We think management is more focused on its power venture at this point and has not dedicated sufficient time to monetize this portion of its investments. Also, it does not appear that management has any near-term plans to encash this investment to reduce its debt. EXHIBIT 1: Summary of 2011 investments
Real estate (INR m) Equity Loans Debenture Pref Shares Total Sources: NCC Ltd; BNP Paribas 2,079 4,164 1,211 428 7,881 Power (INR m) 11 674 684 BOT - Road (INR m) 6,676 112 6,788 Construction (INR m) 634 527 1,161 Others (INR m) 970 970 Total (INR m) 10 370 5,477 1,211 428 17,485
26
BNP PARIBAS
6 MARCH 2012
NCC Ltd
Shashank Abhisheik
3QFY12 EBITDA margins disappoint, in line with other mid-cap peers During 3QFY12, the company reported an EBITDA margin of 6.1% compared to 9.6% last year, mainly due to a slowdown in execution and a INR150m provision for certain cost overruns (lying in recoverable advances). The execution slowdown was due to deferral of milestone-based payments on certain projects, which formed 10-15% of their current order book. Broadly, lower turnover, under-recoveries of fixed costs, and the provision equally contributed to the decline in margins y-y. The positive side of provisioning is that the company has anticipated these losses and written them off during 3QFY12 which should reduce downside risks in future earnings from some of its contentious claims on cost overruns. We experienced such provisioning of anticipated losses with other peers in the industry. Changing estimates due to higher interest costs We are changing our estimates for FY12-14 by -1% to +20% in revenue and -50% to 4% in PAT. In FY12, our PAT estimates decline by 50% mainly due to the incorporation of 3QFY12 performance and lower guidance by the company. The company lowered its guidance for revenue to INR52b-53b on a standalone basis from INR58b, which was in line with our expectations. However, NCC negatively surprised us on the EBITDA margin by guiding 8.5% for FY12 compared to our expectation of 9.8%. Consequently, our FY12 PAT estimates decline by 50%. For FY13, we are expecting 15% revenue growth (INR59b) and a 9% EBITDA margin. However, we now estimate that the company will incur higher interest costs because of higher debt required to fund working capital. Consequently, our PAT estimates decline by 10% to INR1.2b. For FY14, although we have increased our revenue expectation by 20% to INR69b or 17% y-y growth, our PAT expectation has increased only 4% due to lower estimated EBITDA margin and higher interest costs. EXHIBIT 2: Change in Estimates
YE 31 Mar ------------------- 2012E ------------------Old (INR m) Revenue EBITDA EBITDA margin (%) Interest Net profit Net margin (%) 52,197 5,098 9.8 2,680 1,137 4.0 New (INR m) 51,620 4,300 8.3 2,700 572 1.1 1 (50) Change (%) (1) (16) ------------------- 2013E ------------------Old (INR m) 55,009 5,327 9.7 2,438 1,378 4.1 New (INR m) 59,345 5,343 9.0 2,624 1,242 2.1 8 (10) Change (%) 8 0 ------------------- 2014E ------------------Old (INR m) 57,712 5,582 9.7 2,247 1,603 2.8 New (INR m) 69,324 6,243 9.0 2,776 1,666 2.4 24 4 Change (%) 20 12
Sources: NCC Ltd; BNP Paribas estimates
Reducing valuation on lower estimates We are reducing our TP to INR59 from INR70 on 10% lower FY13 estimates. The entire decline in TP is from our standalone valuation which declines from INR35 to INR24. The standalone company is valued at 6.2x FY13E EBITDA (implied P/E of 4.9x); our multiple is one standard deviation below the historical mean. We are maintaining our non-standalone valuation intact; power projects at INR3 on 1x investment, real estate investments at INR15 at 0.5x investments, and highway BOTs at INR17 using DCF at 13.5% COE. Downside risks to our recommendation and TP include slower than expected execution or lower margins in its core construction business, delays in execution of its BOTs or power assets. Upside risks to our recommendation include timely achievement of milestones in its power plant, stake sale in its BOT assets, higher than expected orders, revenue or margins in its core business. EXHIBIT 3: Change in TP
--------------------- Old --------------------Method Assumptions Contribution (INR) Standalone EV/EBITDA 6.0x 1-year forward EBITDA (implied P/E of 6.4x) 1.0x BV 0.5x BV 13.5% CoE 35 EV/EBITDA 6.2x 1-year forward EBITDA (implied P/E of 4.9x) 1.0x BV 0.5x BV 13.5% CoE --------------------- New -------------------Method Assumptions Contribution (INR) 24 (31.4) Change (%) Comments
Power projects Real estate investments BOT valuation Target price Source: BNP Paribas estimates
Book value Book value DCF
3 15 17 70
Book value Book value DCF
3 15 17 59
(16)
27
BNP PARIBAS
6 MARCH 2012
NCC Ltd
Shashank Abhisheik
EXHIBIT 4: Historical P/E

(x) 60 50 40 30 20 10 0 Mean - 1SD, 1.6 Mean + 2SD, 41.9 Mean + 1SD, 28.5 Mean, 15.0 Current, 11.4
EXHIBIT 5: Historical EV/EBITDA

(x) 30 25 20 15 10 5 Mean - 1SD, 6.1 Mean + 1SD, 14.3 Mean, 10.2 Mean + 2SD, 18.4
Current, 4.7
Feb-05
Feb-09
Feb-06
Feb-07
Feb-08
Feb-10
Feb-11
Feb-12
0 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12

The stock has de-rated from its highs in the past few years primarily due to balance sheet deterioration and decisions to invest outside their core business going wrong. We believe this de-rating is likely to reverse if the company consistently delivers earnings growth over 2-3 quarters.
28
BNP PARIBAS
6 MARCH 2012
NCC Ltd
Shashank Abhisheik
NCC Ltd
2010A 47,753 (40,133) 7,620 25 (2,811) 4,834 (525) 0 4,309 (1,322) 0 48 591 3,626 (1,109) 2,517 0 0 0 2,517 (591) 1,926
2011A 50,674 (42,221) 8,453 63 (3,640) 4,876 (685) 0 4,191 (1,682) 0 146 0 2,656 (1,021) 1,635 0 0 0 1,635 0 1,635
2012E 51,609 (43,063) 8,546 12 (4,257) 4,300 (825) 0 3,476 (2,700) 0 77 0 853 (281) 572 0 0 0 572 0 572
2013E 59,345 (49,097) 10,248 0 (4,906) 5,343 (938) 0 4,404 (2,624) 0 80 0 1,860 (618) 1,242 0 0 0 1,242 0 1,242
2014E 69,324 (57,359) 11,965 0 (5,723) 6,243 (1,052) 0 5,190 (2,776) 0 80 0 2,494 (829) 1,666 0 0 0 1,666 0 1,666
Interest cost increase due to increase in interest rates and higher debt level
7.87 10.28 1.35
6.37 6.37 1.29
2.21 2.21 1.28
4.80 4.80 1.27
6.43 6.43 1.27
15.9 29.4 34.5 17.1 51.7
6.1 0.9 (2.7) (19.0) (38.0)
1.8 (11.8) (17.1) (65.3) (65.3)
15.0 24.2 26.7 116.7 116.7
16.8 16.8 17.8 34.1 34.1
14.9 10.1 9.0 4.0 30.6 17.1 3.3 68.4 88.9 150.2 12.6 3.0 9.4 (0.2) 9.8 5.6
15.3 9.6 8.3 3.2 38.5 20.2 2.6 71.3 99.2 157.9 8.3 (1.0) 6.4 (2.9) 7.1 4.3
15.0 8.3 6.7 1.1 33.0 57.8 1.3 75.5 101.4 163.2 6.5 (3.0) 5.0 (4.6) 2.4 3.4
15.7 9.0 7.4 2.1 33.2 26.6 1.7 70.4 93.5 154.9 7.7 (1.8) 6.0 (3.5) 5.1 4.1
15.7 9.0 7.5 2.4 33.2 19.8 1.9 69.6 92.8 153.1 8.3 (1.2) 6.5 (3.0) 6.5 4.4
29
BNP PARIBAS
6 MARCH 2012
NCC Ltd NCC Ltd

Cash Flow (INR m) Year Ending Mar Recurring net profit Depreciation Associates & minorities Other non-cash items Recurring cash flow Change in working capital Capex - maintenance Capex - new investment Free cash flow to equity Net acquisitions & disposals Dividends paid Non recurring cash flows Net cash flow Equity finance Debt finance Movement in cash Per share (INR) Recurring cash flow per share FCF to equity per share Balance Sheet (INR m) Year Ending Mar Working capital assets Working capital liabilities Net working capital Tangible fixed assets Operating invested capital Goodwill Other intangible assets Investments Other assets Invested capital Cash & equivalents Short term debt Long term debt * Net debt Deferred tax Other liabilities Total equity Minority interests Invested capital 10.01 (23.30) 2010A 39,086 (18,453) 20,633 5,972 26,605 0 0 9,412 0 36,017 (1,997) 0 15,302 13,305 255 0 22,457 0 36,017 9.04 (31.43) 2011A 48,058 (19,743) 28,315 7,215 35,530 0 0 12,008 0 47,538 (1,397) 0 24,841 23,444 308 0 23,787 0 47,538 5.41 10.96 2012E 48,672 (20,179) 28,493 7,768 36,262 0 0 12,008 0 48,270 (1,357) 0 25,291 23,934 308 0 24,028 0 48,270 8.42 1.16 2013E 54,442 (22,907) 31,535 8,208 39,744 0 0 12,008 0 51,752 (737) 0 27,241 26,504 308 0 24,940 0 51,752 10.50 (0.89) 2014E 62,179 (26,642) 35,537 8,534 44,071 0 0 12,008 0 56,079 (445) 0 29,941 29,495 308 0 26,276 0 56,079 2010A 1,926 525 0 0 2,452 (3,817) 0 (4,339) (5,704) 496 (294) 575 (4,928) 3,580 891 (457) 2011A 1,635 685 0 0 2,320 (5,682) 0 (4,702) (8,063) 0 (389) (242) (8,694) 0 7,073 (1,621) 2012E 572 825 0 0 1,396 2,812 0 (1,379) 2,830 0 (330) 830 3,330 0 (3,652) (322) 2013E 1,242 938 0 0 2,181 (503) 0 (1,379) 300 0 (330) 830 799 0 (2,037) (1,238) 2014E 1,666 1,052 0 0 2,718 (1,571) 0 (1,379) (231) 0 (330) 830 269 0 (1,389) (1,121)
Shashank Abhisheik
91.72 91.72
92.72 92.72
93.07 93.07
96.30 96.30
101 101
59.2 23.6 2.2 0.0 2010A 7.6 7.5 5.8 2.3 6.0 (2.6) 0.7 0.7 5.4 5.3 0.8
98.6 34.1 2.5 (1.0) 2011A 9.4 9.3 9.4 2.2 6.6 (1.9) 0.6 0.6 6.6 6.6 0.8
99.6 34.3 2.5 2.6 2012E 27.0 26.7 27.0 2.1 11.1 5.5 0.6 0.6 8.9 8.9 0.8
106.3 35.2 2.4 1.6 2013E 12.5 12.3 12.5 2.1 7.1 51.7 0.6 0.6 7.5 7.5 0.8
112.3 35.5 2.4 1.4 2014E 9.3 9.2 9.3 2.1 5.7 (67.0) 0.6 0.6 6.9 6.8 0.8
Net debt-to-equity likely to remain high
30
BNP PARIBAS
6 MARCH 2012
CHANGE IN RECOMMENDATION
COMPANY REPORT
EQUITIES RESEARCH IVRC IN

BNPP Target Price (INR) EPS 2012 (INR) 53.00 3.01 4.58 Consensus 60.00 2.97 4.38 Neutral 8 % Diff (11.7) 1.3 4.6 Negative 8
IVRCL LTD
HOLD
FROM BUY INDUSTRY OUTLOOK
TARGET PRIOR TP CLOSE UP/DOWNSIDE
INR53.00 INR42.00 INR53.65 -1.2%
EPS 2013 (INR)
Positive
Market Recs 24
KEY STOCK DATA

Asset sales key driver

CHANGE
Downgrading to HOLD (from Buy) on stock rally We are downgrading IVRCL to HOLD, as the stock price has rallied 95% YTD vs the Sensex increase of 14%. Fundamentally, IVRCL continues to face challenges on order flow, execution and balance sheet. The companys efforts to deleverage its balance sheet by selling stake in assets either fully or partially should show results in FY13.
2013E 62,058 1,230 4.58 5.89 (22.4) 52.1 11.7 1.1 6.4 0.7 94.6 5.9
2014E 73,561 1,985 7.39 N/A 61.4 7.3 1.1 5.3 0.6 81.5 8.8
Mar-12 30 10 (10) (30) (50) (70)
CATALYST
Asset sales to repair balance sheet IVRCL has announced plans to sell its BOT assets under its subsidiary, IVRCL Assets & Holdings (IVRCLAH) and subsequently merge the two companies. News flow around these assets sales should act as a positive trigger for the stock. Management indicated at the 3QFY12 result call that IVRCL is close to selling some of its real estate in Noida. N

Mar-11 96 86 76 66 56 46 36 26 16 (INR)
VALUATION
Raise SoTP-based TP to reflect assets sales We lift our TP to INR53 (from INR42) to reflect the potential improvement in balance sheet from the proposed asset sales. We value standalone IVRCL at INR37 (INR30 previously) using 5.7x FY13E EV/EBITDA (implied 8x P/E). Risks are an increase in debt to fund working capital, weaker-thanexpected top line and margins, and delays in monetising moneti BOT assets.
IVRCL Ltd
Rel to MSCI India
(%)
Share price performance

Absolute (%) Relative to country (%) Next results Mkt cap (USD m)
1 Month 3 Month 12 Month (6.7) (6.1) 43.1 37.9 (27.4) (21.5) May 2012 289 10.8 95 Promoters (11%) 94.50/27.25 77.2 267
KEY CHART
SoTP valuation
Hindustan Dorr Oliver stake (55.0%) 7.1% IVR Assets stake (75%) 23.7%
3m avg daily turnover (USD m)

Free float (%) Major shareholder 12m high/low (INR) 3m historic vol. (%) ADR ticker
Standalone 69.2%
ADR closing price (USD)

Issued shares (m)
Sources: Bloomberg consensus; BNP Paribas estimates
Shashank Abhisheik
Vishal Sharma, CFA
31
6 MARCH 2012
IVRCL Ltd
Shashank Abhisheik
RISK EXPERTS
Macro
HOLD
FROM BUY FY13E EPS 7.6% 7.6% EBITDA margin 8.1% 8.6% 9.1% 9.6% 2.04 2.74 3.45 4.15 4.86
IVRCL LTD
IVRC IN
---------------------- Revenue growth* ---------------------12.6%

2.53 3.27 4.01 4.75 5.49 17.6% 3.03 3.80 4.58 5.35 6.12 22.6% 3.53 4.34 5.14 5.95 6.75 27.6% 4.03 4.87 5.70 6.54 7.38
A 5% change in our FY13 revenue growth estimate would have a 12% impact on our FY13 EPS estimate of INR4.58.
A 50bp change in our FY13E EBITDA margin would have a 17% impact on our FY13E EPS.
* Revenue includes other operating income Source: BNP Paribas estimates
IVRCL Ltd and IRCP12M INDEX (3M and 6M Realised-Vol)

May-05 250 May-06 May-07 May-08 May-09 May-10 May-11
Regression IVRCL Ltd to IRCP12M INDEX

India FIMMDA INR paper rates 12m -14.00% -9.00% -4.00%
1.00%
6.00%
11.00%
16.00%
200 150 100
52.00% 32.00% 12.00% -8.00% -28.00%
50
-48.00%
0
(%) IVRCL Ltd - 3M Realised - Vol IVRCL Ltd - 6M Realised - Vol India FIMMDA INR paper rates 12m - 3M Realised - Vol India FIMMDA INR paper rates 12m - 6M Realised - Vol
IVRCL Ltd
IVRCL Ltd = 161 + -2.5202 * IRCP12M Index R Square = 0.0211 Regression based on 261 observations of 5 years weekly data. Please refer to Appendix 1 for the explanation of R-square Sources: Bloomberg; BNP Paribas

Metals & Mining 0.62 0.72 0.69 1.00
Oil & Gas 0.51 0.59 0.56 0.66 1.00
IT Services 0.43 0.53 0.48 0.55 0.50 1.00
Telecom 0.36 0.41 0.41 0.42 0.36 0.29 1.00
Utilities 0.56 0.62 0.63 0.65 0.59 0.46 0.45 1.00
Property 0.58 0.70 0.68 0.74 0.59 0.43 0.42 0.65 1.00
The Risk Experts

Long/Short Chart
Mar-09
2.50
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
2.00
1.50
+2s +1s
1.00
Mean -1s -2s
0.50
(x)
IVRCL Ltd - NCC Ltd
32
BNP PARIBAS
6 MARCH 2012
IVRCL Ltd
Shashank Abhisheik
Downgrading to HOLD on stock rally

We are downgrading IVRCL to HOLD (from Buy) as the share price has rallied 95% YTD vs the Sensex increase of 14%. We believe the current price reflects our fair value estimate. Fundamentally, IVRCL continues to face challenges on order flow, execution and balance sheet. However, the companys efforts to deleverage its balance sheet by selling stake in its assets either fully or partially should show results in FY13. That said, we believe these positives are adequately built into current valuations. 3QFY12 EBITDA margins disappoint For 3QFY12, IVRCL reported revenue of INR12b, a 15% decline y-y and 4% above our estimate. But, EBITDA margin disappointed with a 200bp decline y-y to 7.9%. Management cited poor execution and lower revenue recognition as key reasons for the lower margin. Execution was disappointing because of delays in environmental and other approvals and specific disruptions in some parts of the country. During 3QFY12, there has been some reduction of scope of work in certain projects, which led to order book declining by about INR10b. EXHIBIT 1: 3QFY12 scorecard
Year-end 31 Mar 3QFY11 (INR m) Sales 14,187.9 3QFY12 (INR m) 12,025.4 Change (y-y %) (15.2) 3QFY12E (INR m) 11,567.7 vs BNPP (%) 4.0 2QFY12 (INR m) 10,461.2 Change (q-q %) 15.0
EBITDA EBITDA margin (%)
1,404.0 9.9
947.9 7.9
(32.5)
1,041.1 9.0
(8.9)
937.6 9.0
1.1
EBIT EBIT margin (%)
1,207.2 8.5
719.3 6.0
(40.4)
791.1 6.8
(9.1)
687.9 6.6
4.6
Net profit Net margin (%) Sources: IVRCL Ltd; BNP Paribas estimates
424.9 3.0
67.9 0.6
(84.0)
114.3 1.0
(40.6)
81.4 0.8
(16.6)
Mining and tunnels offer greater opportunity; ticket size in the building segment likely to increase According to management, mining and tunnelling offer attractive opportunities for future order flow. The company is targeting to become a mine-development operator; pre-qualification has been achieved for the project of Hindustan Dorr (HDOR IN, Not rated). Tunnelling, especially in urban areas such as Mumbai, is also an attractive opportunity; the company has worked on the Bengaluru Metro and achieved prequalification for tunnelling awards. Ticket size in government buildings has now increased to INR8b-10b; there are replacement opportunities in some cases. Overall, IVRCL continues to have a bid pipeline worth INR500b and it has a 20-22% strike rate, according to management. Equity requirement of INR3b in FY13, asset sales should help repair balance sheet Subsidiary IVRCLAH requires equity of INR3b for projects under execution. IVRCL intends to meet this requirement through asset sales. IVRCL plans to sell its Noida land parcel this year, which should meet this equity requirement. Separately, the company has announced plans to sell stakes in its other assets, either partially or completely. Estimate changes Management reduced its FY12 revenue guidance to INR52b-53b based on the shortfall in execution in 3QFY12. However, IVRCL maintained that it will still be able to generate 8-9% EBITDA margin. Conservatively, we are reducing our EBITDA margin estimate close to the middle of the guided range. While interest costs for 3QFY12 were broadly in line with our estimate, debt was higher than expected. Management highlighted that assets sale proceeds of roughly INR4b would be utilised to reduce debt, which we have taken into account into our estimates. Our interest cost estimates are moderately adjusted to account for the slightly higher working capital in 3QFY12. We cut our PAT estimates 16-28% over FY12-14, due to the poor 3QFY12 results and lower margin assumptions for FY13-14.
33
BNP PARIBAS
6 MARCH 2012
IVRCL Ltd
Shashank Abhisheik
EXHIBIT 2: Estimates changes

Year-end 31 Mar ------------------ 2012E -----------------Old (INR m) Revenue EBITDA EBITDA margin (%) Depreciation Interest Net profit Source: BNP Paribas estimates 56,516 4,971 8.8 920 2,512 1,124 New (INR m) 52,719 4,465 8.5 920 2,602 809 4 (28) Change (%) (7) (10) ------------------ 2013E -----------------Old (INR m) 63,260 5,848 9.2 1,032 2,543 1,585 New (INR m) 62,058 5,342 8.6 1,032 2,567 1,230 1 (22) Change (%) (2) (9) ------------------- 2014E ------------------Old (INR m) 72,490 6,699 9.2 1,141 2,105 2,373 New (INR m) 73,561 6,330 8.6 1,141 2,315 1,985 10 (16) Change (%) 1 (6)
Valuation We raise our SoTP-based TP to INR53 (from INR42), primarily due to improvement in the policy and monetary environment and higher contribution from IVRCLs listed subsidiaries. We now value the standalone company at INR37 (INR30 earlier previously), based on 5.7x FY13E EV/EBITDA (implying 8x P/E); our multiple is approximately one standard deviation below the historical mean. Risks to our recommendation and target price include any further increase in debt levels to fund working capital, weaker-than-expected top line and margins, delays in executing BOT projects or in monetising real estate to fund projects. EXHIBIT 3: Change in SoTP-based TP
------------------ Old -----------------Metric Methodology Contribution (INR) Standalone EV/EBITDA 4.8x NTM at FY13E,(5x P/E) 25% holding company discount 25% holding company discount EV/EBITDA 30 Market value Market value 5.7x NTM at FY13E (8.0x P/E) 25% holding company discount 25% holding company discount ------------------ New -----------------Metric Methodology Contribution (INR) 37 23.3 Change (%)
IVR Assets stake (75%)
Market value Market value
13
40.6
Hindustan Dorr Oliver stake (55%) Total Source: BNP Paribas estimates
27.1
3 42
53
26.2
EXHIBIT 4: Historical P/E chart

(x) 45 40 35 30 25 20 15 10 5 Mean - 1SD, 11.4 Mean + 2SD, 37.0 Mean + 1SD, 28.5 Mean, 19.9
EXHIBIT 5: Historical EV/EBITDA chart

(x) 20 18 16 14 12 10 8 6 4 2 Current, 4.6 0 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12
Mean + 2SD, 17.5 Mean + 1SD, 13.7 Mean, 9.9 Mean - 1SD, 6.1
Current, 10.9 0 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12
The stock has been de-rated from its highs in the past few years primarily due to the deterioration of IVRCLs balance sheet and investments outside its core business failing to generate profit. We believe this de-rating is likely to reverse if the company consistently delivers earnings growth over the next 2-3 quarters.
34
BNP PARIBAS
6 MARCH 2012
IVRCL Ltd
Shashank Abhisheik
IVRCL Ltd
2010A 54,771 (46,281) 8,490 152 (3,329) 5,313 (543) 0 4,770 (1,637) 0 155 0 3,288 (1,177) 2,111 0 0 0 2,111 0 2,111
2011A 56,184 (47,284) 8,900 341 (4,094) 5,146 (756) 0 4,390 (2,182) 0 120 0 2,328 (709) 1,619 0 0 0 1,619 0 1,619
2012E 52,719 (44,224) 8,495 119 (4,149) 4,465 (920) 0 3,546 (2,602) 0 162 0 1,105 (296) 809 0 0 0 809 0 809
2013E 62,058 (51,619) 10,439 100 (5,197) 5,342 (1,032) 0 4,309 (2,567) 0 100 0 1,842 (612) 1,230 0 0 0 1,230 0 1,230
2014E 73,561 (61,186) 12,375 100 (6,146) 6,330 (1,141) 0 5,188 (2,315) 0 100 0 2,973 (988) 1,985 0 0 0 1,985 0 1,985
Healthy revenue growth supported by ~3x order book
Increase in interest cost due to higher debt
7.71 7.91 0.80
6.00 6.06 0.60
3.01 3.03 0.60
4.58 4.61 0.60
7.39 7.45 0.60
12.5 26.0 27.4 (8.9) (6.6)
2.6 (3.1) (8.0) (22.2) (23.4)
(6.2) (13.2) (19.2) (49.8) (49.9)
17.7 19.6 21.5 52.1 52.1
18.5 18.5 20.4 61.4 61.4
14.5 9.7 8.7 3.9 35.8 10.4 3.0 17.9 102.9 152.6 11.3 0.3 9.8 (1.1) 11.5 5.9
14.5 9.2 7.8 2.9 30.4 10.0 2.1 20.0 125.9 195.5 10.2 (1.0) 8.6 (2.6) 8.4 4.9
14.4 8.5 6.7 1.5 26.8 19.9 1.4 23.3 129.3 210.3 7.7 (3.7) 6.7 (4.6) 4.0 4.0
15.2 8.6 6.9 2.0 33.2 13.1 1.7 22.3 113.1 183.2 8.3 (2.7) 7.1 (4.0) 5.9 4.2
15.3 8.6 7.1 2.7 33.2 8.1 2.3 22.1 105.6 177.3 10.0 (1.1) 8.4 (2.7) 8.8 4.7
Sources: IVRCL Ltd; BNP Paribas estimates
35
BNP PARIBAS
6 MARCH 2012
IVRCL Ltd IVRCL Ltd

Cash Flow (INR m) Year Ending Mar Recurring net profit Depreciation Associates & minorities Other non-cash items Recurring cash flow Change in working capital Capex - maintenance Capex - new investment Free cash flow to equity Net acquisitions & disposals Dividends paid Non recurring cash flows Net cash flow Equity finance Debt finance Movement in cash Per share (INR) Recurring cash flow per share FCF to equity per share Balance Sheet (INR m) Year Ending Mar Working capital assets Working capital liabilities Net working capital Tangible fixed assets Operating invested capital Goodwill Other intangible assets Investments Other assets Invested capital Cash & equivalents Short term debt Long term debt * Net debt Deferred tax Other liabilities Total equity Minority interests Invested capital 9.94 (3.88) 2010A 45,361 (24,369) 20,992 6,017 27,009 0 0 6,138 0 33,147 (1,644) 0 16,133 14,490 125 0 18,533 0 33,147 8.89 (4.79) 2011A 53,092 (27,130) 25,962 7,178 33,140 0 0 6,347 0 39,487 (1,432) 0 20,958 19,527 87 0 19,874 0 39,487 6.48 (1.78) 2012E 51,582 (24,636) 26,946 7,476 34,423 0 0 6,847 0 41,270 (770) 0 21,458 20,688 87 0 20,495 0 41,270 8.49 3.74 2013E 55,050 (27,981) 27,069 7,587 34,656 0 0 7,347 0 42,003 (2,530) 0 22,908 20,378 87 0 21,539 0 42,003 11.73 7.66 2014E 59,264 (32,253) 27,010 7,589 34,600 0 0 7,847 0 42,447 (2,385) 0 21,408 19,023 87 0 23,337 0 42,447 2010A 2,111 543 0 0 2,654 (2,480) 0 (1,209) (1,035) 0 (215) (69) (1,319) 0 296 (1,023) 2011A 1,619 756 0 0 2,375 (1,659) 0 (1,996) (1,281) 0 (246) (2,288) (3,815) 0 2,308 (1,506) 2012E 809 920 0 0 1,729 (985) 0 (1,218) (474) 0 (187) (500) (1,161) 0 (2,102) (3,264) 2013E 1,230 1,032 0 0 2,263 (122) 0 (1,143) 997 0 (187) (500) 310 0 (1,117) (807) 2014E 1,985 1,141 0 0 3,127 58 0 (1,143) 2,042 0 (187) (500) 1,355 0 (3,815) (2,460)
Shashank Abhisheik
Higher working capital impacting free cash flows
Higher debt to fund working capital
69.44 69.44
74.35 74.35
76.88 76.88
80.79 80.79
87.53 87.53
78.2 24.5 1.9 1.1 2010A 7.0 6.9 6.8 1.5 5.4 (13.8) 0.8 0.8 5.1 5.1 0.9
98.3 28.7 2.0 1.3 2011A 8.9 8.8 8.9 1.1 6.0 (11.2) 0.7 0.7 6.0 5.9 0.9
100.9 31.0 2.1 1.3 2012E 17.8 17.6 17.7 1.1 8.3 (30.2) 0.7 0.7 7.4 7.4 0.8
94.6 28.1 2.1 1.8 2013E 11.7 11.6 11.6 1.1 6.3 14.3 0.7 0.7 6.4 6.4 0.8
81.5 24.7 1.9 2.4 2014E 7.3 7.2 7.2 1.1 4.6 7.0 0.6 0.6 5.3 5.3 0.8
Sources: IVRCL Ltd; BNP Paribas estimates
36
BNP PARIBAS
6 MARCH 2012
CHANGE IN NUMBERS
COMPANY REPORT
EQUITIES RESEARCH PUNJ IN

BNPP Target Price (INR) EPS 2012 (INR) TARGET PRIOR TP CLOSE UP/DOWNSIDE INR47.00 INR47.00 INR54.00 -13.0% Market Recs EPS 2013 (INR) 47.00 1.43 4.88 Positive 4 Consensus 53.90 3.01 4.58 Neutral 4 % Diff (12.8) nm 6.6 Negative 16
PUNJ LLOYD
REDUCE
KEY STOCK DATA

Debt still an overhang

CHANGE
Operational performance, debt remain key concerns We retain our negative stance on Punj Lloyd primarily due to concerns about operational profitability and high leverage. Net profit growth is likely to be subdued until these issues are addressed. 9MFY12s strong y-y execution and order inflows were primarily due to a poor show in FY11.
2013E 129,336 1,621 4.88 5.96 (18.0) 241.0 11.1 0.6 5.8 0.6 152.0 5.2
2014E 154,166 3,104 9.36 8.00 16.9 91.5 5.8 0.0 4.9 0.5 132.3 9.4
Mar-12 25 15 5 (5)
CATALYST
Lowering estimates due to lower EBITDA margin, higher interest We are lowering our FY13 and FY14 EBITDA margin estimates by 50bp, in line with company guidance. We believe the high level of debt will remain in the near term and, consequently, the overall profitability of the company is likely to remain subdued.

Mar-11 85 75
VALUATION
Retain our INR47 price target and REDUCE rating We retain our INR47 TP based on 5.0x FY13E EV/EBITDA, or 9.6x implied P/E (8.0x earlier). The slight increase in the implied P/E multiple is mainly due to improved outlook for policy change in India and an improving macro environment. Risks to our rating include unanticipated progress on execution, savings in interest rates and favourable dispute resolution.
65 55
(15) 45 35 (INR) Punj Lloyd Rel to MSCI India (25) (35) (%)
1 Month 3 Month 12 Month (3.3) (2.7) 7.0 1.9 (16.5) (10.6) May 2012 363 5.2 63 Promoter Group (37%) 77.80/37.55 53.7 332
KEY CHART
Order book of INR283b (as of 31 Dec 2011)
Others 14.4% Process plants, Others 20.0%
3m avg daily turnover (USD m) Free float (%)
Pipelines 20.9% Tankages 7.1% Offshore 3.7%
Major shareholder 12m high/low (INR) 3m historic vol. (%) ADR ticker ADR closing price (USD)
Infrastructure 33.9%
Sources: Punj Lloyd; BNP Paribas
Issued shares (m) Sources: Bloomberg consensus; BNP Paribas estimates
Shashank Abhisheik
Vishal Sharma, CFA
37
6 MARCH 2012
Punj Lloyd
Shashank Abhisheik
RISK EXPERTS
Macro
REDUCE
UNCHANGED (INR/share) 18.7% 7.5% EBITDA margin 8.0% 8.5% 9.0% 9.5% 0.73 1.94 3.15 4.36 5.57
PUNJ LLOYD
PUNJ IN
----------------------- Revenue growth ----------------------23.7% 1.50 2.76 4.02 5.28 6.54

28.7% 2.26 3.57 4.88 6.20 7.51 33.7% 3.03 4.39 5.75 7.12 8.48 38.7% 3.79 5.21 6.62 8.03 9.45
A 5% change in our FY13 revenue growth estimate has a 17.8% impact on our FY13 EPS estimate of INR4.88.
A 50bp change in our FY13 EBITDA margin assumption has a 26.9% impact on FY13 EPS estimate.
Punj Lloyd and MXIN Index (3M and 6M Realised-Vol)

Jan-06 600 500 400 300 200 100 0
(%)
Regression Punj Lloyd to IRCP12M INDEX

Jan-10 Jan-11 Jan-12
-14.00% 39.00% 29.00% 19.00% 9.00% -1.00% -11.00% -21.00% -31.00% Punj Lloyd -9.00% -4.00% India FIMMDA INR paper rates 12m
Jan-07
Jan-08
Jan-09
1.00%
6.00%
11.00%
16.00%
Punj Lloyd - 3M Realised - Vol

Punj Lloyd - 6M Realised - Vol MSCI India - 6M Realised - Vol
Punj Lloyd = 150 + 3.9855 * IRCP12M Index R Square = 0.0073 Regression based on 261 observations of 5 years weekly data. Please refer to Appendix 1 for the explanation of R-square Sources: Bloomberg; BNP Paribas

Autos 1.00 Banks 0.66 1.00
Autos Banks Engineering & Construction Metals & Mining Oil & Gas IT Services Telecom Utilities Property Source: BNPP Paribas Sector Strategy
Metals & Mining 0.62 0.72 0.69 1.00
Oil & Gas 0.51 0.59 0.56 0.66 1.00
IT Services 0.43 0.53 0.48 0.55 0.50 1.00
Telecom 0.36 0.41 0.41 0.42 0.36 0.29 1.00
Utilities 0.56 0.62 0.63 0.65 0.59 0.46 0.45 1.00
Property 0.58 0.70 0.68 0.74 0.59 0.43 0.42 0.65 1.00
The Risk Experts

Our starting point for this page is a recognition of the macro factors that can have a significant impact on stock-price performance, sometimes independently of bottom-up factors. With our Risk Expert page, we identify the key macro risks that can impact stock performance.
This analysis enhances the fundamental work laid out in the rest of this report, giving investors yet another resource to use in their decision-making process.
Long/Short Chart
Mar-09
0.19457
+2s
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
0.14457
+1s
0.09457
Mean
0.04457
-1s
-2s
-0.00543
(x)
Punj Lloyd - Larsen & Toubro
38
BNP PARIBAS
6 MARCH 2012
Punj Lloyd
Shashank Abhisheik
Not quite there yet

After two consecutive years of losses (FY10-11), the company should report a profit in FY12. However, excluding the one-time adjustment from deconsolidation of Simon Carves, the company would have reported a loss in 9MFY12. Looking ahead to FY13, we believe 20% revenue growth is feasible based on its order book (which is around 3x FY12E revenue) and EBITDA margin of 8.5%. We believe the recent run-up was primarily due to improvement in the macro environment. Execution improved but profitability still a concern Execution was strong in each of the three quarters of 9MFY12. 9MFY12 revenue increased 26% y-y on a low base. Punj had reported a 24.9% decline in revenue in FY11. However, the improvement in execution did not result in improved profitability. EBITDA margin remains depressed; excluding other income, the company would have reported a loss in 9MFY12. High leverage remains a key concern We estimate a net debt-to-equity ratio of 1.5x at the end of FY12. Consequently, we are increasing our interest cost estimate by 22-25% for FY13-14. The increase in debt has primarily been for working capital. The companys ability to manage its working capital cycle is going to be crucial. Outlook improving but still a long way to go Activity in Southeast Asia and Middle East regions has been subdued; contribution to the order book from these regions is around 55% (vs 70% a few years ago) and 45% of the projects are from India. While the overall macro environment has improved, we believe the company must demonstrate sustainable execution and profit growth over 2-3 quarters before investor confidence can return. Estimate changes We are lowering our FY12-14 net profit estimates primarily due to higher interest costs. This is in spite of an increase in our revenue estimates for each of these years. We have given the company the benefit of a decline in interest rates; however, this is offset by the increase in debt levels. EXHIBIT 1: Estimates changes
Year-end 31 Mar -------------- 2012E -------------Old (INR m) Revenue EBITDA EBITDA margin (%) Interest PAT 99,847 9,117 9.1 4,702 1,242 New (INR m) 101,235 7,608 7.5 5,046 476 7.3 (61.7) Change (%) 1.4 (16.5) -------------- 2013E -------------Old (INR m) 109,316 9,918 9.1 4,275 1,973 New (INR m) 130,336 11,098 8.5 5,362 1,621 25.4 (17.9) Change (%) 19.2 11.9 -------------- 2014E -------------Old (INR m) 120,837 10,955 9.1 4,009 2,649 New (INR m) 155,166 13,214 8.5 4,907 3,104 22.4 17.2 Change (%) 28.4 20.6
Valuation We maintain our TP for Punj at INR47, based on an unchanged 5x FY13E EV/EBITDA (9.6x implied P/E). We reiterate REDUCE due to the overall poor macro environment. We would be more positive on the company if it demonstrates consistency in its profitability and if orders and execution visibility improve. We believe the issues relating to contractual disputes and subsequent auditor qualifications are materially priced in the stock. Now, Punj has to improve its fundamental performance by timely execution of its order book, in our view. Risks to our recommendation include unanticipated progress on execution, savings in interest rates and favourable resolution to its disputed claims.
39
BNP PARIBAS
6 MARCH 2012
Punj Lloyd
Shashank Abhisheik
EXHIBIT 2: Historical P/BV band chart

(x) 7.0 6.0 5.0 4.0 3.0 Mean, 2.2 2.0 1.0 0.0 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08
Mean + 2SD, 4.9
Mean + 1SD, 3.6
Mean - 1SD, 0.9 Current, 0.6 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
40
BNP PARIBAS
6 MARCH 2012
Punj Lloyd
Shashank Abhisheik
Punj Lloyd
2010A 104,478 (66,914) 37,564 910 (36,290) 2,183 (2,270) 0 (87) (3,063) 95 136 3,224 305 (1,372) (1,067) (17) 0 0 (1,084) (3,224) (4,308)
2011A 78,496 (46,668) 31,828 3,167 (28,783) 6,212 (2,692) 0 3,520 (3,568) 23 207 0 182 (663) (481) (30) 0 0 (511) 0 (511)
2012E 100,720 (62,076) 38,644 515 (31,551) 7,608 (3,192) 0 4,416 (5,046) (46) 2,119 0 1,443 (953) 490 (14) 0 0 476 0 476
2013E 129,336 (80,324) 49,012 1,000 (38,915) 11,098 (3,626) 0 7,471 (5,362) 96 200 0 2,405 (767) 1,638 (17) 0 0 1,621 0 1,621
2014E 154,166 (95,374) 58,792 1,000 (46,579) 13,214 (3,977) 0 9,237 (4,907) 96 200 0 4,626 (1,505) 3,121 (17) 0 0 3,104 0 3,104
(13.22) (3.39) 0.30
(1.53) (1.54) 0.30
1.43 1.43 0.30
4.88 4.88 0.30
9.36 9.36 0.00
(12.3) (79.3) (101.0) (198.7) (56.8)
(24.9) 184.5 (4,155.1) (88.4) (54.7)
28.3 22.5 25.5 (193.8) (193.1)
28.4 45.9 69.2 241.0 241.0
19.2 19.1 23.6 91.5 91.5
Our revenue growth estimates are based on a detailed bottom-up analysis of the current order book
33.8 2.1 (0.1) (4.1) 450.0 0.0 226.9 84.8 227.6 (0.2) (14.3) 0.3 (13.7) (15.6) 0.2 2010A 48,503 2,508 21,618 31,624 225
37.1 7.9 4.5 (0.7) 364.3 1.1 371.2 102.0 309.9 (14.5) (7.6) (14.5) (7.7) (1.7) (8.3) 2011A 21,990 4,530 27,000 28,360 (3,385)
35.2 7.6 4.4 0.5 66.0 20.9 1.3 317.4 89.4 271.2 2.2 (6.1) 3.1 (5.2) 1.6 1.7 2012E 26,415 10,085 26,256 18,307 14,893
35.1 8.6 5.8 1.3 31.9 6.2 1.4 300.2 86.0 257.1 6.6 (3.4) 6.5 (3.5) 5.2 3.6 2013E 28,718 17,468 27,114 14,729 32,456
35.6 8.6 6.0 2.0 32.5 0.0 1.9 294.0 84.8 266.1 7.8 (2.2) 7.7 (2.3) 9.4 4.0 2014E 31,693 22,392 28,662 14,246 5,547 The inconsistent profitability profile does not provide any comfort
Revenue By Division (INR m) Pipelines Tankages Infrastructure Process Plants Others Sources: Punj Lloyd; BNP Paribas estimates
41
BNP PARIBAS
6 MARCH 2012
Punj Lloyd Punj Lloyd

Cash Flow (INR m) Year Ending Mar Recurring net profit Depreciation Associates & minorities Other non-cash items Recurring cash flow Change in working capital Capex - maintenance Capex - new investment Free cash flow to equity Net acquisitions & disposals Dividends paid Non recurring cash flows Net cash flow Equity finance Debt finance Movement in cash Per share (INR) Recurring cash flow per share FCF to equity per share Balance Sheet (INR m) Year Ending Mar Working capital assets Working capital liabilities Net working capital Tangible fixed assets Operating invested capital Goodwill Other intangible assets Investments Other assets Invested capital Cash & equivalents Short term debt Long term debt * Net debt Deferred tax Other liabilities Total equity Minority interests Invested capital (6.75) (67.30) 2010A 82,171 (38,424) 43,747 23,382 67,129 0 0 3,818 0 70,947 (6,110) 0 44,554 38,444 1,804 0 30,283 415 70,947 14.37 27.61 2011A 81,519 (44,684) 36,835 24,650 61,485 0 0 3,837 0 65,323 (12,150) 0 45,425 33,275 1,516 0 29,788 744 65,323 11.04 (38.76) 2012E 100,899 (51,045) 49,854 24,990 74,844 0 0 3,837 0 78,681 (6,902) 0 53,176 46,274 1,516 0 30,147 744 78,681 15.81 (8.63) 2013E 120,340 (65,909) 54,431 24,896 79,327 0 0 3,837 0 83,164 (7,323) 0 56,576 49,253 1,516 0 31,651 744 83,164 21.34 7.70 2014E 133,072 (77,646) 55,426 24,452 79,877 0 0 3,837 0 83,714 (7,335) 0 54,151 46,816 1,516 0 34,639 744 83,714 2010A (4,308) 2,270 (78) (42) (2,158) (16,181) (3,161) 0 (21,500) (5) (106) 7,141 (14,470) 57 13,748 (665) 2011A (511) 2,692 7 2,591 4,779 8,018 (3,617) 0 9,180 524 (58) 196 9,842 0 (2,391) 7,452 2012E 476 3,192 0 0 3,669 (13,018) (3,532) 0 (12,882) 0 (117) 0 (12,999) 0 7,752 (5,247) 2013E 1,621 3,626 0 0 5,247 (4,577) (3,532) 0 (2,862) 0 (117) 0 (2,979) 0 3,400 421 2014E 3,104 3,977 0 0 7,081 (995) (3,532) 0 2,553 0 (117) 0 2,437 0 (2,425) 12
Shashank Abhisheik
94.80 94.80
89.58 89.58
90.70 90.70
95.39 95.39
104 104
125.2 33.3 2.3 (6.0) 2010A neg neg neg 0.6 (8.0) (0.8) 0.6 0.6 20.8 19.9 0.8
109.0 27.2 2.1 3.6 2011A neg neg neg 0.6 3.8 2.0 0.6 0.6 8.4 8.0 0.8
149.8 33.9 2.1 (1.6) 2012E 37.7 32.8 37.7 0.6 4.9 (1.4) 0.6 0.6 6.0 5.8 0.8
152.0 31.5 1.9 0.5 2013E 11.1 9.6 11.1 0.6 3.4 (6.3) 0.6 0.6 5.8 5.6 0.8
132.3 27.8 1.8 1.5 2014E 5.8 5.0 5.8 0.0 2.5 7.0 0.5 0.5 4.9 4.8 0.8 High net-debt to equity is a key concern
Sources: Punj Lloyd; BNP Paribas estimates
42
BNP PARIBAS
6 MARCH 2012
India Construction BNP Paribas India Research Team

MANISHI RAYCHAUDHURI
BNP Paribas Securities India Pvt Ltd +91 22 3370 4346 manishi.raychaudhuri@asia.bnpparibas.com
Vishal Sharma, CFA
GAUTAM MEHTA
BNP Paribas Securities India Pvt Ltd +91 22 3370 4357 gautam.mehta@asia.bnpparibas.com
VISHAL SHARMA, CFA

BNP Paribas Securities India Pvt Ltd +91 22 3370 4377 vishal.sharma@asia.bnpparibas.com
SHASHANK ABHISHEIK
BNP Paribas Securities India Pvt Ltd +91 22 3370 4336 shashank.abhisheik@asia.bnpparibas.com
AVNEESH SUKHIJA
BNP Paribas Securities India Pvt Ltd +91 22 3370 4352 avneesh.sukhija@asia.bnpparibas.com
ALOK DALAL
BNP Paribas Securities India Pvt Ltd +91 22 3370 4382 alok.dalal@asia.bnpparibas.com
GIRISH NAIR
BNP Paribas Securities India Pvt Ltd +91 22 3370 4380 girish.nair@asia.bnpparibas.com
AMIT SHAH
BNP Paribas Securities India Pvt Ltd +91 22 3370 4368 amit.shah@asia.bnpparibas.com
SRIRAM RAMESH
BNP Paribas Securities India Pvt Ltd +91 22 3370 4369 sriram.ramesh@asia.bnpparibas.com
ABHIRAM ELESWARAPU
BNP Paribas Securities India Pvt Ltd +91 22 3370 4311 abhiram.eleswarapu@asia.bnpparibas.com
KUNAL VORA, CFA

BNP Paribas Securities India Pvt Ltd +91 22 3370 4384 kunal.d.vora@asia.bnpparibas.com
ABHIJIT MAJUMDER
BNP Paribas Securities India Pvt Ltd +91 22 3370 4354 abhijit.majumder@asia.bnpparibas.com
VIJAY CHUGH
BNP Paribas Securities India Pvt Ltd +91 22 3370 4383 vijay.chugh@asia.bnpparibas.com
TAPAN JOSHI
BNP Paribas Securities India Pvt Ltd +91 22 3370 4351 tapan.joshi@asia.bnpparibas.com
ALOK RAWAT
BNP Paribas Securities India Pvt Ltd +91 22 3370 4359 alok.rawat@asia.bnpparibas.com
KARAN GUPTA
BNP Paribas Securities India Pvt Ltd +91 22 3370 4367 karan.gupta@asia.bnpparibas.com
43
BNP PARIBAS
6 MARCH 2012
India Construction
Vishal Sharma, CFA
History of change in investment rating and/or target price

Simplex Infra (SINF IN)
Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12
594.00 494.00 394.00 294.00 194.00 94.00 (INR) Date 26-Jan-11 Reco BUY TP 481.00
Simplex Infra
Target Price
Shashank Abhisheik started covering this stock from 27-Jan-2011 Price and TP are in local currency Valuation and risks: Risks to our SoTP-based TP include deterioration in the overall infra investment environment, increase in raw material prices, and delay in anticipated interest rate cuts. Source: Bloomberg, BNP Paribas
Larsen & Toubro (LT IN)

4,482.00 3,982.00 3,482.00 2,982.00 2,482.00 1,982.00 1,482.00 982.00 482.00 (INR) Date 9-Mar-08 9-Feb-09 22-Oct-09 3-Jun-10 28-Jul-10 13-Mar-11 Reco BUY REDUCE HOLD BUY HOLD BUY TP 4,434.00 536.00 1,541.00 1,933.00 1,933.00 1,850.00
Larsen & Toubro
Target Price
Vishal Sharma started covering this stock from 10-Mar-2008 Price and TP are in local currency Valuation and risks: Risks to our SOTP-based target price include: 1) lower order intake, 2) higher raw material costs, and 3) no reduction in interest rates. Source: Bloomberg, BNP Paribas
NCC Ltd (NJCC IN)

Date 8-Sep-08 229.00 179.00 129.00 79.00 29.00 (INR) 3-Jun-09 2-Nov-09 Reco BUY HOLD BUY TP 164.00 123.00 190.00
NCC Ltd
Target Price
Shashank Abhisheik started covering this stock from 09-Sep-2008 Price and TP are in local currency Valuation and risks: SoTP based valuation. Standalone INR24 at 6.2x NTM EV/EBITDA or 5X P/E, Power projects INR3 at book value, Real estate INR15 at 0.5x book, Highways INR17 DCF @ 13.5% COE. Upside risks: timely achievement of milestones in its power plant, stake sale in its BOT assets, higher than expected orders, revenue or margins in its core business. Downside risks: slower than expected execution or lower margins in its core construction business, delays in execution of its BOTs or power assets. Source: Bloomberg, BNP Paribas
44
BNP PARIBAS
6 MARCH 2012
India Construction
Vishal Sharma, CFA
IVRCL Ltd (IVRC IN)

524.00 424.00 324.00 224.00 124.00 24.00 (INR) Date 7-May-08 Reco BUY TP 510.00
IVRCL Ltd
Target Price
Shashank Abhisheik started covering this stock from 08-May-2008 Price and TP are in local currency Valuation and risks: Key downside risks to our SOTP-based TP are an increase in debt to fund working capital, weaker-than-expected top line and margins, and delays in monetising BOT assets Source: Bloomberg, BNP Paribas
Punj Lloyd (PUNJ IN)

383.00 333.00 283.00 233.00 183.00 133.00 83.00 33.00 (INR) Date 17-Nov-08 29-Jul-09 31-May-10 Reco REDUCE BUY REDUCE TP 146.00 287.00 99.00
Punj Lloyd
Target Price
Shashank Abhisheik started covering this stock from 18-Nov-2008 Price and TP are in local currency Valuation and risks: Risks to our recommendation and EV/EBITDA-based TP include unanticipated progress on execution, savings in interest rates and favourable resolution to its disputed claims. Source: Bloomberg, BNP Paribas
45
BNP PARIBAS
6 MARCH 2012
India Construction
Vishal Sharma, CFA
Disclaimers and Disclosures

ANALYST(S) CERTIFICATION
Vishal Sharma, CFA, BNP Paribas Securities India Pvt Ltd, +91 22 33704377, vishal.sharma@asia.bnpparibas.com. Shashank Abhisheik, BNP Paribas Securities India Pvt Ltd, +91 22 33704336, shashank.abhisheik@asia.bnpparibas.com. The analyst(s) or strategist(s) herein each referred to as analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal view of the analyst(s) with regard to any and all of the subject securities, companies, or issuers mentioned in this report; (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, relate to the specific recommendation or views expressed herein; and (iii) is not aware of any other actual or material conflicts of interest concerning any of the subject securities companies, or issuers referenced herein as of the time of this certification. Analysts mentioned in this disclaimer are employed by non-US affiliate of BNP Paribas Securities Corp., and is not registered/ qualified pursuant to NYSE and/ or FINRA regulations.
GENERAL DISCLAIMER
This report was produced by BNP Paribas Securities India Pvt Ltd, a member company of the BNP Paribas Group. "BNP Paribas is the marketing name for the global banking and markets business of BNP Paribas Group1. This report is for the use of intended recipients only and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without our prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set forth herein. BNP Paribas analysts prudently perform analysis and create quantitative models and estimates derived from their own review of publicly available data without any assistance from any represented company. BNP Paribas analyst estimates and models reflect the analysts current judgment only; they are neither all-inclusive nor can they be guaranteed. The analysts analysis and models are subject to change based on various other factors. Valuations are based on internal quantitative models and qualitative interpretation. No representation or warranty, express or implied, is made that such information or analysis is accurate, complete or verified and it should not be relied upon as such. Analysts' compensation is not linked to investment banking or capital markets transactions performed by BNP Paribas or the profitability or revenues of particular trading desks. BNP Paribas analysts may participate in company events such as site visits and are prohibited from accepting payment by the company of associated expenses unless pre-approved by authorized members of Research management. This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Customers are advised to use the information contained herein as just one of many inputs and considerations prior to engaging in any trading activity. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or other investments. This report is not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report. Information and opinions contained in this report are published for reference of the recipients and are not to be relied upon as authoritative or without the recipients own independent verification, or taken in substitution for the exercise of judgment by the recipient. Additionally, the products mentioned in this report may not be available for sale in certain jurisdictions. BNP Paribas is not aware of any other actual or material conflicts of interest concerning any of the subject securities and companies referenced herein as of the time of publication of the research report. This report is prepared for professional investors and is being distributed in Hong Kong by BNP Paribas Securities (Asia) Limited to persons whose business involves the acquisition, disposal or holding of securities, whether as principal or agent. BNP Paribas Securities (Asia) Limited, a subsidiary of BNP Paribas, is regulated by the Securities and Futures Commission for the conduct of dealing in securities, advising on securities and providing automated trading services. This report is being distributed in Japan by BNP Paribas Securities (Japan) Limited which is registered as a Financial Instruments Business Operator to and regulated by Financial Services Agency, The Japanese Government. This report is being distributed in the United Kingdom by BNP Paribas London Branch to persons who are not private customers as defined under U.K. securities regulations. BNP Paribas London Branch, a branch of BNP Paribas, is regulated by the Financial Services Authority for the conduct of its designated investment business in the U.K. This report may be distributed in the United States by BNP PARIBAS SECURITIES ASIA or by BNP Paribas Securities Corp. This report may be distributed in the United States only to major institutional investors (as such term is defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) and is not intended for the use of any person or entity that is not a major institutional investor. Where this report has been distributed in the United States it will have been reviewed by a FINRA S16 qualified registered supervisory analyst or a S24 qualified and authorized person, in accordance with FINRA requirements concerning third party affiliated research. All U.S. institutional investors receiving this report should effect transactions in securities discussed in the report through BNP Paribas Securities Corp. BNP Paribas Securities Corp. is a member of the New York Stock Exchange, the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation. Reproduction, distribution or publication of this report in any other places or to persons to whom such distribution or publication is not permitted under the applicable laws or regulations of such places is strictly prohibited. This report is distributed in Singapore by BNP Paribas Securities (Singapore) Limited ("BNPPSSL") and may be distributed in Singapore only to an accredited investor or an expert investor, each as defined under the Financial Advisers Regulations ("FAR") and the Securities and Futures Act (Chapter 289) of Singapore, as amended from time to time. In relation to the distribution to such categories of investors, BNPPSSL and its representatives are exempted under Regulation 35 of the FAR from the requirements in Section 36 of the Financial Advisers Act of Singapore, regarding the disclosure of certain interests in, or certain interests in the acquisition or disposal of, securities referred to in this report. This report is issued and distributed by BNP Paribas Capital (Malaysia) Sdn Bhd. The views and opinions in this research report are our own as of the date hereof and are subject to change. BNP Paribas Capital (Malaysia) Sdn Bhd has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of BNP Paribas Capital (Malaysia) Sdn Bhd. This publication is being provided to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of BNP Paribas Capital (Malaysia) Sdn Bhd. This report is being distributed in Australia by BNP Paribas Sydney Branch, registered in Australia as ABN 23 000 000 117 at 60 Castlereagh Street Sydney NSW 2000. BNP Paribas Sydney Branch is licensed under the Banking Act 1959 and the holder of Australian Financial Services Licence no. 238043 and therefore subject to regulation by the Australian Securities & Investments Commission in relation to delivery of financial services. By accepting this document you agree to be bound by the foregoing limitations, and acknowledge that information and opinions in this document relate to financial products or financial services which are delivered solely to wholesale clients (in terms of the Corporations Act 2001, sections 761G and 761GA; Corporations Regulations 2001, division 2, reg. 7.1.18 & 7.1.19) and/or professional investors (as defined in section 9 of the Corporations Act 2001). To our readers in Taiwan: Information on securities that trade in Taiwan is distributed by BNP Paribas Securities (Taiwan) Co., Ltd. Such information is for your reference only. The reader should independently evaluate the investment risks and is solely responsible for their investment decision. Information on securities that do not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation or a solicitation to trade in such securities. BNP Paribas Securities (Taiwan) Co., Ltd. may not execute transactions for clients in these securities. This publication may not be distributed to the public media or quoted or used by the public media without the express written consent of BNP Paribas. The distribution of this report in other jurisdictions or to residents of other jurisdictions may also be restricted by law, and persons into whose possession this report comes should inform themselves about, and observe, any such restrictions. By accepting this report you agree to be bound by the foregoing instructions. This report is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. All research reports are disseminated and available to all clients simultaneously through our internal client websites. For all research available on a particular stock, please contact the relevant BNP Paribas research team or the author(s) of this report.
46
BNP PARIBAS
6 MARCH 2012
India Construction
1
Vishal Sharma, CFA
No portion of this report was prepared by BNP Paribas Securities Corp. personnel, and references to BNP Paribas in this General Disclaimer section and in the immediately following Important Disclosures section refer to (BNP Paribas Securities India Pvt Ltd) only.
IMPORTANT DISCLOSURES
The disclosure column in the following table lists the important disclosures applicable to each company that has been rated and/or recommended in this report:
Company Simplex Infra Larsen & Toubro NCC Ltd IVRCL Ltd Punj Lloyd Disclosure (as applicable)
BNP Paribas represents that: 1. Within the past year, it has managed or co-managed a public offering for this company, for which it received fees. 2. It had an investment banking relationship with this company in the last 12 months. 3. It received compensation for investment banking services from this company in the last 12 months. 4. It beneficially owns 1% or more or the market capitalization of this company. 5. It makes a market in securities issued by this company. 6. The analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her household) has a financial interest position in securities issued by this company or derivatives thereof. 7. The analyst (or a member of his/her household) is an officer, director, or advisory board member of this company. Additional Disclosures Within the next three months, BNP Paribas may receive or seek compensation in connection with an investment banking relationship with one or more of the companies referenced herein. Target price history, stock price charts, valuation and risk details, and equity rating histories applicable to each company rated in this report is available in our most recently published reports available on our website: http://eqresearch.bnpparibas.com, or you can contact the analyst named on the front of this note or your BNP Paribas representative. All share prices are as at market close on 5 March 2012 unless otherwise stated.
RECOMMENDATION STRUCTURE
Stock Ratings Stock ratings are based on absolute upside or downside, which we define as (target price* - current price) / current price. BUY (B). The upside is 10% or more. HOLD (H). The upside or downside is less than 10%. REDUCE (R). The downside is 10% or more. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation.
* In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value.
Industry Recommendations Improving ( ): The analyst expects the fundamental conditions of the sector to be positive over the next 12 months. Neutral ( ): The analyst expects the fundamental conditions of the sector to be maintained over the next 12 months. Deteriorating ( ): The analyst expects the fundamental conditions of the sector to be negative over the next 12 months. Country (Strategy) Recommendations Overweight (O). Over the next 12 months, the analyst expects the market to score positively on two or more of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Neutral (N). Over the next 12 months, the analyst expects the market to score positively on one of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Underweight (U). Over the next 12 months, the analyst does not expect the market to score positively on any of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.
RATING DISTRIBUTION (as at 5 March 2012)

Total BNP Paribas coverage universe Buy Hold Reduce 520 311 152 57 Investment Banking Relationship Buy Hold Reduce (%) 3.90 1.30 3.50
Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report. 2012 BNP Paribas Group
47
BNP PARIBAS
6 MARCH 2012
HONG KONG
BNP Paribas Securities (Asia) Ltd 63/F, Two International Finance Centre 8 Finance Street, Central Hong Kong SAR China Tel (852) 2825 1888 Fax (852) 2845 9411
BEIJING
BNP Paribas Equities (Asia) Ltd Beijing Representative Office Room 2016, 20/F China World Tower 1 Jianguomenwai Avenue Beijing 100004, China Tel (86 10) 6561 1118 Fax (86 10) 6561 2228
BNP Paribas Equities (Asia) Ltd Shanghai Representative Office Room 2630, 26/F Shanghai World Financial Center 100 Century Avenue Shanghai 200120, China Tel (86 21) 6096 9000 Fax (86 21) 6096 9018
SHANGHAI
BANGKOK
(In cooperation with BNP Paribas) ACL Securities Co Ltd 990 Abdulrahim Place, 12/F Rama IV Road, Bangrak Bangkok 10500 Thailand Tel (66 2) 611 3500 Fax (66 2) 611 3551
JAKARTA
PT BNP Paribas Securities Indonesia Grand Indonesia, Menara BCA, 35/F JI. M.H. Thamrin No. 1 Jakarta 10310 Indonesia Tel (62 21) 2358 6586 Fax (62 21) 2358 7587
BNP Paribas Capital (Malaysia) Sdn Bhd Vista Tower, Level 48C The Intermark, 182 Jalan Tun Razak 50400 Kuala Lumpur Malaysia Tel (60 3) 2179 6222 Fax (60 3) 2179 6226
KUALA LUMPUR
BNP Paribas Securities India Pvt Ltd BNP Paribas House 1 North Avenue, Maker Maxity Bandra Kurla Complex Bandra East Mumbai 400 051 Tel (91 22) 3370 4000 Fax (91 22) 3370 4386
MUMBAI
SEOUL
BNP Paribas Securities Korea Co Ltd 22/F, Taepyeongno Building 310 Taepyeongno 2-ga Jung-gu, Seoul 100-767 Korea Tel (82 2) 2125 0500 Fax (82 2) 2125 0593
SINGAPORE
BNP Paribas Securities (Singapore) Pte Ltd (Co. Reg. No. 199801966C) 10 Collyer Quay 34/F Ocean Financial Centre Singapore 049315 Tel (65) 6210 1288 Fax (65) 6210 1980
TAIPEI
BNP Paribas Securities (Taiwan) Co Ltd 72/ F, Taipei 101 No. 7 Xin Yi Road, Sec. 5 Taipei, Taiwan Tel (886 2) 8729 7000 Fax (886 2) 8101 2168
TOKYO
BNP Paribas Securities (Japan) Ltd GranTokyo North Tower 1-9-1 Marunouchi, Chiyoda-Ku Tokyo 100-6740 Japan Tel (81 3) 6377 2000 Fax (81 3) 5218 5970
ISTANBUL
TEB Investment (A JV between TEB Bank and BNP Paribas) TEB Kampus D7 Saray Mahallesi Sokullu Sok No 7 Umraniye 34768 Istanbul Turkey Tel: (90 216) 636 44 44 Fax: (90 216) 631 44 00
NEW YORK
BNP Paribas The Equitable Tower 787 Seventh Avenue New York NY 10019, USA Tel (1 212) 841 3800 Fax (1 212) 841 3810
BASEL
BNP Paribas Aeschengraben 26 CH 4002 Basel Switzerland Tel (41 61) 276 5555 Fax (41 61) 276 5514
FRANKFURT
BNP Paribas Mainzer Landstrasse 16 60325 Frankfurt Germany Tel (49 69) 7193 6637 Fax (49 69) 7193 2520
GENEVA
BNP Paribas 2 Place de Hollande 1211 Geneva 11 Switzerland Tel (41 22) 787 7377 Fax (41 22) 787 8020
LONDON
BNP Paribas 10 Harewood Avenue London NW1 6AA UK Tel (44 20) 7595 2000 Fax (44 20) 7595 2555
LYON
BNP Paribas Equities France Socit de Bourse 3 rue de L Arbre Sec 69001 Lyon France Tel (33 4) 7210 4001 Fax (33 4) 7210 4029
MADRID
BNP Paribas SA, sucursal en Espana Hermanos Becquer 3 PO Box 50784 28006 Madrid Spain Tel (34 91) 745 9000 Fax (34 91) 745 8888
MILAN
BNP Paribas Equities Italia SIM SpA Piazza San Fedele, 2 20121 Milan Italy Tel (39 02) 72 47 1 Fax (39 02) 72 47 6562
PARIS
BNP Paribas Equities France Socit de Bourse 20 boulevard des Italiens 75009 Paris France Tel (33 1) 4014 9673 Fax (33 1) 4014 0066
ZURICH
BNP Paribas Talstrasse 41 8022 Zurich Switzerland Tel (41 1) 229 6891 Fax (41 1) 267 6813
MANAMA
BNP Paribas Bahrain PO Box 5253 Manama Bahrain Tel (973) 53 3978 Fax (973) 53 1237
https://eqresearch.bnpparibas.com

India Construction - Mar12 - BNP Paribas

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

India Construction - Mar12 - BNP Paribas

Uploaded by

Copyright:

Available Formats

SECTOR REPORT

INDIA INDIA CONSTRUCTION

One swallow doesnt t make spring

TOP STOCK PICK

Larsen & Toubro LT IN

Vishal Sharma, CFA

Vishal Sharma, CFA

Baby steps in the right direction anecdotal evidence ____________________________________________ 5

Historical financials A snapshot ______________________________________________________________ 7

To find out more about BNP Paribas Equities Research:

Vishal Sharma, CFA

Signs of improvement coupled with liquidity led to rally

Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12

EXHIBIT 3: Stock performance

Average -21% underperformance

Average +24% outperformance

4 (3) (14) (20)

Vishal Sharma, CFA

EXHIBIT 4: Price performance 4 Sep-15 Dec 2011

EXHIBIT 5: Price performance 16 Dec 2011-27 Feb 2012

(50) 6-Sep 20-Sep 4-Oct 18-Oct 1-Nov 15-Nov 29-Nov 13-Dec

Sources: Bloomberg; BNP Paribas

Vishal Sharma, CFA

Baby steps in the right direction anecdotal evidence

Vishal Sharma, CFA

3QFY12 performance execution picked up but profitability was a key concern

Sources: Companies data; BNP Paribas estimates

Vishal Sharma, CFA

(%) (INR m) (INR m)

51,795 5,161 9.96

57,657? 5,034 8.73 2,336 811

52,197 5,098 9.77

51,620? 4,300 8.33 2,700 572

56,516 4,971 8.80

52,719 4,465 8.47 2,602 809

99,847 101,235 9,117 9.13 7,608 7.52 5,046 476

58,549 5,833 9.96

66,355 6,297 9.49 2,462 1,382

55,009 5,327 9.68

59,345 5,343 9.00 2,624 1,242

63,260 5,848 9.24

62,058 5,342 8.61 2,567 1,230

65,364 6,510 9.96

72,666 6,896 9.49 2,444 1,641 BUY 272

57,712 5,582 9.67

69,324 6,243 9.00 2,776 1,666 HOLD 59

72,490 6,699 9.25

73,561 6,330 8.60 2,315 1,985 HOLD 49

1,875 1,522 BUY

2,247 1,603 BUY

2,105 2,373 BUY

52,950 53,614 BUY 1,425 BUY 1,500

REDUCE REDUCE 16.7 47 47 -

Source: BNP Paribas estimates

Historical financials A snapshot

EXHIBIT 9: Order book comparison

Larsen & Toubro

Vishal Sharma, CFA

EXHIBIT 11: EBITDA margin comparison

10 8 6 4 2 0 Larsen & Toubro Punj Lloyd IVRCL Simplex Infra NCC

EXHIBIT 13: Interest cost

Sources: Companies; BNP Paribas estimates

Vishal Sharma, CFA