Buy L&T; target of Rs 1870: Motilal Oswal

Motilal Oswal is bullish on Larsen and Toubro (L&T) and has recommended buy rating on the stock with a target of Rs 1870 in its January 25, 2013 research report.
 
“Larsen and Toubro's (LT) operating performance for 3QFY13 was significantly below expectations, the key positives are continued strong order inflows (INR195b; up 14% YoY) and positive cash flow from operations. Adjusted EBITDA margin declined 84bp YoY in 3QFY13, impacted by lower sales and poor fixed cost absorption. Adjusted net profit declined 7.8% YoY to INR10.4b (below our estimate of INR11.4b).”
 
“Order intake at INR195b (up 14% YoY), in line with the quarterly run-rate of INR200b during the last four quarters, supported by robust 22% contribution from overseas business (v/s 23.7% in 2QFY13), surprising positively as the announced order intake (through press releases) was just INR98b. Management mentioned about improving order pipeline while strategy on overseas business seems to be playing out. E&C revenue in the domestic market declined 6.2% in 3QFY13 against 13.3% growth in 1HFY13 due to (1) sluggish order inflow during FY12 , impacting execution with a lag of ~4 quarters, (2) passing of peak execution of large hydrocarbon orders in the domestic E&C business, (3) increasing share of slow moving orders (largely domestic) from 10% in mid-FY12 to ~14% now. The management maintained its guidance of 15-20% growth in revenue/order intake and +/-50bp change in E&C EBITDA margin in FY13.”
 
“We maintain Buy with a revised SOTP-based target price of INR1,870 (18% upside). We value L&T standalone at 14x FY15E earnings and subsidiaries at INR377/share,” says Motilal Oswal research report.

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