L&T may look good at Rs 2300-2400

CNBC-TV18’s Executive Editor, Udayan Mukherjee – Larsen and Toubro, L&T just proves what kind of a punishing mood the market is in because despite the clarification from the management it didn’t make an iota of a difference, the stock actually closed 9% down. On the back of that small commodity hitch which they might have taken, investors were quick to jump on the back of that and say there will be more on the forex front, therefore the stock needs to comedown quite significantly. You have seen a couple of brokerages already reacting by scaling down EPS estimates. You will see more of these things because I think brokerages are also now stung by the fall in the market looking at reasons to scale down some of their price targets without admitting that they were too aggressive to begin with.
 
So the gradual derating of stock prices is probably will make analysts a little bit more skittish and ever so eager to use any bad news to scale down some of their price targets. My own sense is that stocks like L&T, the only problem, maybe at the peak of the market, might have been slightly aggressive valuations. I don’t think what came through yesterday in terms of commodity hedging losses or small foreign exchange losses, changes the picture for L&T. Can things turn a bit sluggish over the next three-four quarters? It’s certainly can though the management is saying not. Therefore it’s better if you can buy that stock at slightly lower levels. I still think L&T has a very good chance of going on to report between Rs 110-120 EPS at the end of FY09, the stock has already comedown to Rs 2,700.
 
The valuations have corrected quite a bit to about 22-times. But the market is in a frame of mind where you give it bad news it wants to hammer down stock prices nowadays.
 
It’s entirely possible that maybe after a bit of a bounce the stock actually seeks lower levels. But if it does get to say Rs 2,300-2,400 kind of levels and you get L&T close to 20-times next year’s earnings and with some embedded value, which we don’t like to talk about nowadays because of the market fall it’s got some residual businesses, which will unlock a little bit of value going forward. You put it all together and say can I buy this at 20-times, it’s probably setting itself up for a buying opportunity more than anything else. It’s a classy act, extremely good management and in these kind of markets for this kind of stocks, I think bad news is the patient investor’s good friend. 
 
So you just want it L&T to give you that buying opportunity and thanks to all these bad news, you may just be on your way to getting on to that news. So no hurry because nowadays the market is in a different frame of mind. If because of this news some brokerages downgraded and it goes to slightly lower levels of Rs 2,300-2,400 maybe that’s a good time to look at it.