Accumulate Larsen and Toubro; target Rs 1091: P Lilladher
Brokerage house Prabhudas Lilladher is bullish on Larsen and Toubro (L&T) and has recommended 'Accumulate' rating on the stock with a price target of Rs 1091 in its research report dated July 22, 2013.
Prabhudas Lilladher's report on Larsen and Toubro (L&T)
"L&T has changed its presentation style, giving subcategories within the E&C segment. Broadly, the E&C division in Q1FY14 registered a revenue growth of 9.6 percent, E&E business at 3.9 percent, MIP and others segment reported a de-growth of 5.4 percent and 11 percent, respectively. Within E&C, Infrastructure (EBITDA margin at 11.8 percent, up 30bps YoY), Hydrocarbon (EBITDA margin at 6.7 percent, down 240bps YoY) and Heavy engineering (EBITDA margin at 13.4 percent, down 1730bps YoY) grew by 23 percent, 23 percent and 67 percent, respectively. On the other hand, MMH (EBITDA margin at 16 percent, up 300bps YoY), Power (EBITDA margin at 8.6 percent, up 120bps YoY), and Others (EBITDA margin at 0.7 percent, down 2190bps YoY) de-grew by 17 percent, 44 percent and 15 percent, respectively. E&A sales and margins were flat YoY, while MIP sales were up by 8 percent, with 230bps margins dip YoY."
Valuations and our take: "The key to the stock performance ahead would be the pickup in domestic execution. E&C margins in Q1FY14 were down by 60bps YoY, which again would be a worry, especially if the international revenues go up in FY14E. However, margin erosion should be arrested, considering share of International orders in the order book is 12 percent. On core P/E basis, L&T is trading at 12.1x FY14E and 10.3x FY15E. On a consolidated basis, it trades close to 13.4x FY15E (consensus estimates). However, the stock has corrected sharply post results and thus it gives an opportunity to enter as the long term story still remains intact. Maintain 'Accumulate' with a target price of Rs 1,091," says Prabhudas Lilladher research report.
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