Hold Larsen and Toubro; target of Rs 1445: KRChoksey

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Hold Larsen and Toubro; target of Rs 1445: KRChoksey

KRChoksey has recommended hold rating on Larsen and Toubro (L&T) with a target of Rs 1445, in its January 25, 2012 research report.

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KRChoksey has recommended hold rating on Larsen and Toubro (L&T) with a target of Rs 1445, in its January 25, 2012 research report.

"Larsen and Toubro (L&T) register robust net sales growth of 22.7% on a YoY basis as net sales increased to Rs 13,998.6 crore, above our expectation. Operating profit margins declined by 125bps to 9.6% as company booked mark to market loss of ~Rs 400 cr on foreign currency loans and cash flow related hedges . However, S&A expenses (excluding MTM losses) were also on lower side by 120cr to150cr.Adjusting for both OPM stood at a ~11.6%. The company registered other income of Rs 448 cr much higher than our expectation as it received dividend from subsidiary & associate company. As a result Net profit increased by 18% to Rs 991.6 cr. During the quarter L&T registered strong order inflow of Rs 17,129 cr, 28% YoY growth. Order backlog at the end of the Q3FY12 stands at Rs.145,768 cr, 2.9x TTM sales."

"Net increased by 22.7% YoY, led by order execution in E&C segment. Revenues from E&C segment went up by 24.9% to Rs 12,331 cr from Rs 9,869 cr in Q3FY11. For 9M FY12, L&T has registered net sales growth of 21% largely in line with our sales growth estimates for FY12. OPM in Q3FY12 declined by 125 bps on account of mark to market loss of ~Rs 400 cr on foreign currency loans and cashflow related hedges. Approx 200cr is on account of foreign currency loans and remaining are losses on account of cashflow related hedges. S&A expense (excluding MTM losses) were on lower side by ~Rs 120 cr to 150cr on account of multiple variables including lower provisioning. Adjusting for both OPM stood at ~11.6%. However, the management maintained its lower OPM guidance considering intense competition in the industry and higher commodity prices. L&T registered strong growth of 28% in order inflows. Order inflow increase to Rs 17,129 cr in Q3FY12 vs Rs 13,366 cr in Q3FY11. Infrastructure orders primarily supported growth in orders. Infrastructure orders constituted ~54% of order intake. For 9M order inflow stands flat at Rs 49,415 cr vs Rs 49,454 cr in 9MFY11. Order book stands at Rs 145,768 cr against Rs 114,882 cr at the end of Q3 FY11 and Rs 142,185 crore at the end of Q2 FY12. Approximately two-third of the company's order book has pass through clause."

"L&T has delivered the results ahead of consensus estimates and it is all set to achieve topline growth of ~20% in FY12. The company is best placed among its peers to benefit from revival of industrial capex. However, considering recent run up in stock price we change our recommendation on the stock to "HOLD" from "BUY" with price target of Rs 1,445 ( based on SOTP based valuation and by assigning multiple of 15 times to its FY13E stand alone EPS of 75.9)," says KRChoksey research report. 

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To read the full report click on the attachment