Buy Larsen; target of Rs 1395: Firstcall Research

“Larsen & Toubro Limited (L&T) is a technology, engineering, construction and manufacturing company. L&T is a technology-driven USD 11.7 billion company that infuses engineering with imagination. It is considered as one of the largest and most respected companies in India's private sector. Larsen & Toubro Limited is the biggest legacy of two Danish Engineers, Henning Holck-Larsen & S.K. Toubro who built a world-class organization that is professionally managed and a leader in India's engineering and construction industry. Holck-Larsen and Toubro founded the partnership firm of L&T in 1938, which was converted into a limited company on February 7, 1946. Today, the company has grown to a large conglomerate spanning engineering and construction. ECC was conceived as Engineering Construction Corporation Limited in April 1944 and was incorporated as wholly owned subsidiary of Larsen & Toubro Limited. L&T's founders Holck - Larsen and Toubro laid the foundation for ECC.”

“Today, L&T is one of India's biggest and best known industrial organizations with a reputation for technological excellence, high quality of products and services, and strong customer orientation. It is also taking steps to grow its international presence. L&T has an international presence, with a global spread of offices. A thrust on international business has seen overseas earnings grow significantly. It continues to grow its overseas manufacturing footprint, with facilities in China and the Gulf region. The company's businesses are supported by a wide marketing and distribution network, and have established a reputation for strong customer support.”

“L&T Ltd. has reported net profit of Rs 7983.90 million for the quarter ended on September 30, 2011 as against Rs 6941.40 million in the same quarter last year, an increase of 15.02%. It has reported net sales of Rs 112452.40 million for the quarter ended on September 30, 2011 as against Rs 93307.60 million in the same quarter last year, a rise of 20.52%. Total income grew by 19.51% to Rs 116084.10 million from Rs. 97129.50 million in the same quarter last year. During the quarter, it reported earnings of Rs 13.09 a share. L&T Construction has bagged new orders valued over Rs. 1015 crore in the Building & Factories segment during the second quarter of FY12. In the commercial buildings segment, the Company secured new orders valued at Rs. 692 crore from reputed clients for the development of IT campuses, and for the construction of a commercial establishment. In the residential buildings segment, L&T won new orders valued at Rs. 323 crore for the construction of a residential tower & additional orders from on-going projects in the factories segment.”

“At the current market price of Rs 1234, the stock is trading at 17.09 x FY12E and 15.35 x FY13E respectively. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.72.71 and Rs.80.91 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 16% and 5% over 2010 to 2013E respectively. On the basis of EV/EBITDA, the stock trades at 9.64 x for FY12E and 8.62 x for FY13E. Price to Book Value of the stock is expected to be at 2.89 x and 2.44 x respectively for FY12E and FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs 1395 for medium to long term investment,” says Firstcall Research report.

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