Neutral LT IN CMP RS 900 TARGET RS 1,000 (+11%) Jul 10. Jul 13. Oct 12. Jan 12. Apr 11. Company Data. Share Holding Pattern, %

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1 Larsen & Toubro Earnings disappoint second quarter in a row cut to PhillipCapital (India) Pvt. Ltd. CAPITAL GOODS: Quarterly Update 23 July 2013 L&T reported Q1 results which missed ours and consensus estimates on lower than expected execution, weak margins and fall in other income. In our view, domestic sales and therefore margins would continue to remain sluggish over FY14. We cut our rating to and revise down our target price to Rs1, 000 (earlier Rs1, 200). Q114 results highlights Sales at Rs 126bn (+5% YoY) were below our estimates of Rs 129bn. While exports grew 68% YoY to Rs34bn, domestic sales witnessed a de growth of 8% and fell to Rs 92bn. By segment, infrastructure and hydrocarbon sales grew 22% and 24% respectively while power ( 44% YoY) and metallurgical ( 18% YoY) saw weak sales. EBITDA margins at 8.5% (9.1% in Q113) were down 60bps YoY primarily on higher staff cost (+23% YoY). EBITDA was at Rs10.7bn ( 1% YoY) versus our expectation of Rs 11.5bn. Forex loss for the quarter stood at Rs 2.2bn against Rs 2.7bn in Q113. Drop in margins also attributed to higher proportion of hydrocarbon segment which has lower margins (6%), primarily in exports. PAT at Rs 7.6bn ( 16% YoY) was hurt by lower other income ( 22% YoY) on account of lower dividends from subsidiaries ( 25% YoY) and lower interest income ( 36% YoY). Orders at Rs 252bn (+28% YoY and 10% QoQ) were better than our estimate of Rs220bn. Undisclosed orders constitute ~29% of order booked this quarter (~23% in Q113 and ~34% in Q413). Infrastructure constituted 70% of orders in Q114 (65% in Q113) and power constituted 2% of orders as against 21% in Q113. Guidance on orders and revenue growth for FY14 is maintained at 20% and 15% respectively; we are factoring in a 12% order flow growth for FY14 and a 10% revenue growth. The order book stood at Rs 1,654bn (book to bill of 2.7x). E&C segment sales grew 5% YoY to Rs 115b. While infrastructure (+22% YoY), hydrocarbon (+24% YoY) and heavy engineering (+58% YoY) saw a robust growth, power and metallurgical & material handling were down 44% and 18% respectively; EBIT margins declined by 60bps to 8.9% YoY (11.7% in Q413). E&E segment revenue were up by 4% YoY to Rs 8bn; margins were up 350bps to 8.8% but declined sequentially by 420bps. MIP segment sales were up 6% to Rs 5.4bn. Margins were down 70bps YoY to 11.7%. Gross debt at Rs109bn (up by Rs 21bn from Q413); debt to equity is at a comfortable 0.4x.. NWC as % of sales at 17% higher than in Q413 of 15.4%. Management has guided to a band of 15 20% for NWC at the corporate level. Estimates and target price: We revise down our revenue and margin estimates for FY14 and FY15 to factor in the miss in Q114 on the revenue and margin front as also higher interest expense. We derive our target price of Rs1, 000 by applying a 12x multiple on our FY15 EPS of Rs60 to which we add the value of the subsidiaries. We cut our rating to. LT IN CMP RS 900 TARGET RS 1,000 (+11%) Company Data O/S SHARES (MN) : 925 MARKET CAP (RSBN) : 895 MARKET CAP (USDBN) : WK HI/LO (RS) : 1146 / 872 LIQUIDITY 3M (USDMN) : 41.5 FACE VALUE (RS) : 2 Share Holding Pattern, % FII / NRI : 21.0 FI / MF : 36.3 NON PROMOTER CORP. HOLDINGS : 7.3 PUBLIC & OTHERS : 35.4 Price Performance, % 1mth 3mth 1yr ABS REL TO BSE Price Vs. Sensex (Rebased values) Jul 10 Apr 11 L&T Jan 12 Oct 12 Jul 13 BSE Sensex Source: Bloomberg, Phillip Capital Research Other Key Ratios Rs mn FY13 FY14E FY15E Net Sales 608, , ,864 EBIDTA 64,068 66,488 75,429 Net Profit 46,563 47,769 54,480 EPS, Rs PER, x EV/EBIDTA, x P/BV, x ROE, % Total debt/equity (%) Source: Phillip Capital India Research Ankur Sharma ( ) asharma@phillipcapital.in Jishar Thooombath ( ) jthoombath@phillipcapital.in

2 Quarterly results Rs Mn Q114 Q113 % Change FY13 Net Sales 125, ,554 5% 608,734 Raw Material 80,102 77,945 3% 411,015 % Of Sales 64% 65% 1% 68% Purchase Of Traded Goods 4,770 5,017 5% 20,632 % Of Sales 4% 4% 0% 3% Employee Cost 11,688 9,472 23% 44,363 % Of Sales 9% 8% 1% 7% Other Expenses 5,657 5,708 1% 20,775 % Of Sales 5% 5% 0% 3% EBITDA 10,715 10,847 1% 64,072 EBITDA Margins (%) 8.5% 9.1% 0.5% 11% Depreciation 2,103 1,919 10% 8,185 Ebit 8,612 8,928 4% 55,887 EBIT Margins (%) 6.9% 7.5% 0.6% 9% Interest 2,453 2,284 7% 9,824 Other Income 4,726 6,081 22% 18,509 PBT 10,885 12,725 14% 64,572 Tax 3,325 3,705 10% 18,005 PAT 7,560 9,020 16% 46,567 PAT Margin (%) 6.0% 7.5% 2% 8% EPS, Rs % Segment Results Y/E Mar, Rs mn Q114 Q113 % Change FY13 Sales E&C 114, ,661 5% 559,485 E&E 7,944 7,603 4% 36,440 MIP 5,394 5,067 6% 23,952 Other 3,191 3,630 12% 15,259 EBIT E&C 10,245 10,284 0% 57,652 E&E % 3,580 MIP % 4,034 Other (112) % 2,612 EBIT margins (%) E&C 9% 9% 0.5% 10% E&E 9% 5% 3.5% 10% MIP 12% 13% 1.7% 17% Other 4% 20% 23% 17% Change in estimates Y/E Mar, Rs mn NEW estimates Old estimates % change e 2015e 2014e 2015e 2014e 2015e Sales 608, , , , , % 3.8% EBITDA 64,068 66,488 75,429 72,169 82, % 8.4% Margins (%) 10.5% 9.9% 9.9% 10.5% 10.4% 5.4% 4.6% PAT 46,563 47,769 54,480 53,174 59, % 8.6% EPS % 8.6% Estimates 2 of 7

3 L&T Revenues and EBITDA margin 250 Revenues EBITDA Margin 16% Bn % 14% % 12% % 50 10% 9% 0 8% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Q114 L&T Order book by region Domestic Exports 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Q114 L&T Order flow by region 100% Domestic Exports 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Q114 3 of 7

4 FINANCIALS Income Statement Y/E Mar, Rs mn FY12 FY13 FY14E FY15E Net sales 531, , , ,864 Growth, % Total income 531, , , ,864 Raw material expenses 112, , , ,403 Employee expenses 36,635 44,363 49,090 55,748 Other Operating expenses 319, , , ,285 EBITDA (Core) 62,828 64,068 66,488 75,429 Growth, % Margin, % Depreciation 6,995 8,185 8,667 8,956 EBIT 55,834 55,883 57,821 66,473 Growth, % Margin, % Interest paid 6,661 9,824 8,401 9,301 Other Non Operating Income 7,693 13,182 12,484 13,415 Pre tax profit 62,556 64,568 66,240 75,666 Tax provided 18,538 18,005 18,471 21,187 Profit after tax 44,017 46,563 47,769 54,480 Net Profit 44,017 46,563 47,769 54,480 Growth, % Net Profit (adjusted) 44,017 46,563 47,769 54,480 Unadj. shares (m) Balance Sheet Y/E Mar, Rs mn FY12 FY13 FY14E FY15E Cash & bank 86,925 70,754 90, ,971 Debtors 187, , , ,273 Inventory 17,766 20,642 22,692 25,767 Loans & advances 90,616 91, , ,380 Other current assets 119, , , ,340 Total current assets 501, , , ,730 Investments 90, , , ,227 Gross fixed assets 105, , , ,563 Less: Depreciation 29,426 36,706 45,373 54,328 Add: Capital WIP 7,698 5,869 4,812 4,812 Net fixed assets 83,637 89,020 90,865 95,046 Total assets 676, , , ,003 Current liabilities 299, , , ,273 Provisions 23,871 23,697 26,051 29,581 Total current liabilities 323, , , ,854 Non current liabilities 100,288 90, , ,764 Total liabilities 424, , , ,618 Paid up capital 1,225 1,231 1,846 1,846 Reserves & surplus 251, , , ,539 Shareholders equity 252, , , ,385 Total equity & liabilities 676, , , ,003 Estimates Cash Flow Y/E Mar, Rs mn FY12 FY13 FY14E FY15E Pre tax profit 62,556 64,568 66,240 75,666 Depreciation 6,995 8,185 8,667 8,956 Chg in working capital 40,818 26,081 9,886 9,829 Total tax paid 19,843 16,913 18,471 21,187 Cash flow from operating activities 8,890 29,759 46,550 53,607 Capital expenditure 16,271 13,568 10,512 13,137 Chg in investments 16,839 14,380 15,000 15,000 Cash flow from investing activities 33,110 27,948 25,512 28,137 Free cash flow 24,220 1,811 21,038 25,469 Equity raised/(repaid) 37,672 39,197 36,218 40,740 Debt raised/(repaid) 27,347 10,616 10,000 10,000 Dividend (incl. tax) 11,796 12,384 12,047 13,740 Other financing activities 32,221 34,179 35,722 40,740 Cash flow from financing activities 21,001 17,982 1,551 3,740 Net chg in cash 3,219 16,171 19,487 21,730 Valuation Ratios FY12 FY13 FY14E FY15E Per Share data EPS (INR) Growth, % Book NAV/share (INR) FDEPS (INR) CEPS (INR) CFPS (INR) DPS (INR) Return ratios Return on assets (%) Return on equity (%) Return on capital employed (%) Turnover ratios Asset turnover (x) Sales/Total assets (x) Sales/Net FA (x) Working capital/sales (x) Working capital days Liquidity ratios Current ratio (x) Quick ratio (x) Interest cover (x) Dividend cover (x) Total debt/equity (%) Net debt/equity (%) (1.0) Valuation PER (x) Price/Book (x) Yield (%) EV/Net sales (x) EV/EBITDA (x) EV/EBIT (x) of 7

5 Recommendation Chart Sell (TP 1400) (TP 1350) (TP 1330) (TP 1400) (TP 1300) (TP 1510) Buy (TP 1850) (TP 1430) Buy (TP 1850) 500 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Source: PhillipCapital India Research 5 of 7

6 Management Vineet Bhatnagar (Managing Director) (91 22) Sajid Khalid (Head Institutional Equities) (91 22) Jignesh Shah (Head Equity Derivatives) (91 22) Research Automobiles Deepak Jain (9122) Banking, NBFCs Manish Agarwalla (9122) Sachit Motwani, FRM (9122) Consumer, Media, Telecom Naveen Kulkarni, CFA, FRM (9122) Ennette Fernandes (9122) Vivekanand Subbaraman (9122) Cement Vaibhav Agarwal (9122) Economics Anjali Verma (9122) Engineering, Capital Goods Ankur Sharma (9122) Jishar Thoombath (9122) Metals Dhawal Doshi (9122) Dharmesh Shah (9122) Infrastructure & IT Services Vibhor Singhal (9122) Varun Vijayan (9122) Raheel Arathodi (9122) Oil&Gas, Agri Inputs Gauri Anand (9122) Saurabh Rathi (9122) Retail, Real Estate Abhishek Ranganathan, CFA (9122) Neha Garg (9122) Mid caps Kapil Bagaria (9122) Raheel Arathodi (9122) Technicals & Quant Neppolian Pillai (9122) Shikha Khurana (9122) Sr. Manager Equities Support Rosie Ferns (9122) Sales & Distribution Kinshuk Tiwari (9122) Ashvin Patil (9122) Shubhangi Agrawal (9122) Dipesh Sohani (9122) Rajesh Ashar (Sales Trader) (9122) Mayur Shah (Execution) (9122) SINGAPORE Phillip Securities Pte Ltd 250 North Bridge Road, #06 00 Raffles City Tower, Singapore Tel : (65) Fax: (65) JAPAN Phillip Securities Japan, Ltd 4 2 Nihonbashi Kabutocho, Chuo ku Tokyo Tel: (81) Fax: (81) THAILAND Phillip Securities (Thailand) Public Co. Ltd. 15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok Thailand Tel (66) Fax: (66) UNITED STATES Phillip Futures Inc. 141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building Chicago, IL USA Tel (1) Fax: (1) Contact Information (Regional Member Companies) MALAYSIA Phillip Capital Management Sdn Bhd B 3 6 Block B Level 3, Megan Avenue II, No. 12, Jalan Yap Kwan Seng, Kuala Lumpur Tel (60) Fax (60) INDONESIA PT Phillip Securities Indonesia ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 10220, Indonesia Tel (62) Fax: (62) FRANCE King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance Paris France Tel (33) Fax : (33) AUSTRALIA PhillipCapital Australia Level 37, 530 Collins Street Melbourne, Victoria 3000, Australia Tel: (61) Fax: (61) INDIA PhillipCapital (India) Private Limited No. 1, C Block, 2 nd Floor, Modern Center, Jacob Circle, K. K. Marg, Mahalaxmi Mumbai Tel: (9122) Fax: (9122) HONG KONG Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) Fax: (852) CHINA Phillip Financial Advisory (Shanghai) Co. Ltd. No 550 Yan An East Road, Ocean Tower Unit 2318 Shanghai Tel (86) Fax: (86) UNITED KINGDOM King & Shaxson Ltd. 6th Floor, Candlewick House, 120 Cannon Street London, EC4N 6AS Tel (44) Fax: (44) SRI LANKA Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka Tel: (94) Fax: (94) of 7

7 Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may or may not match or may be contrary at times with the views, estimates, rating, target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd. This report is issued by PhillipCapital (India) Pvt. Ltd. which is regulated by SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only and neither the information contained herein nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment or derivatives. The information and opinions contained in the Report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication to future performance. This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax and financial advisors and reach their own regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. In no circumstances it be used or considered as an offer to sell or a solicitation of any offer to buy or sell the Securities mentioned in it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which we believe are reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request. Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst s personal views about all of the subject issuers and/or securities, that the analyst have no known conflict of interest and no part of the research analyst s compensation was, is or will be, directly or indirectly, related to the specific views or recommendations contained in this research report. The Research Analyst certifies that he /she or his / her family members does not own the stock(s) covered in this research report. Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it or its affiliates may hold either long or short positions in such securities. PhillipCapital (India) Pvt. Ltd does not hold more than 1% of the shares of the company(ies) covered in this report. Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic or political factors. Past performance is not necessarily indicative of future performance or results. Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material and are subject to change without notice.furthermore, PCIPL is under no obligation to update or keep the information current. Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorized use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety. Caution: Risk of loss in trading in can be substantial. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital (India) Pvt. Ltd. 2nd Floor, C Block, Modern Centre, Mahalaxmi, Mumbai of 7