Oct 23, 2012, 11.59 AM | Source: CNBC-TV18
Dhirendra Tiwari, Head of Research, Antique Institutional Equities is positive on Larsen and Toubro (L&T) and sets a target of Rs 1906 on the stock.
Dhirendra Tiwari (more)
Head of Research, | Capital Expertise: Equity - Fundamental
Tiwari told CNBC-TV18, “If you see L&T has done pretty well. There were three major concerns on L&T; one was the order flow which was very obvious given the slowdown in the economy. The second was the revenue growth which was primarily because of the risk to execution and thirdly the margins because there were concerns about the quality of the order book. So I think they have done pretty well on all these three accounts.”
He further added, “They have demonstrated a very strong order inflow growth in the first half which is up 26 percent and if you look at the guidance of 15 percent that they have provided in the beginning of the year which is essentially Rs 82,000 crore of order inflows for the year, they are well on track. If economy were to turnaround, they can do better than that. The second issue, execution also has been very strong, they have done little over 20 percent in sales for the first half of the year and again they will be probably going to meet their guidance of 15-20 percent, margins have also been pretty healthy. So I think it is very strong set of numbers and if they can demonstrate this kind of growth in an environment, which is bad for the economy then I am sure if economy turns around, they will do much better than this. So I am very positive and pleased with the performance of the company. FY14 we have raised estimates by 4 percent. So consolidated EPS is little less than Rs 100 per share consolidated.”
“I am comfortable buying this company because what has happened is that if you see the valuations of L&T, it has been led by order inflow growth; it has led by the interest rate environment in the economy and the outlook for overall investment in the capex cycle. I would assume that we are probably at the bottom of all this and then can only be pick up going forward in next one-two years. We value L&T on 18 times standalone earnings and that results into about Rs 1,500 per share and giving close to Rs 405-406 for the subsidiaries. So subsidiaries have also done well. If you look at L&T Infotech, they have posted about 35 percent growth in profit for the first half. Same is true for L&T Finance holding. So even subsidiaries are chipping in. So I would assume that in the environment when the capex cycle may probably pick up, interest rate may probably go down, there is a significant case for rerating of L&T.”
“I would assume that 18 times which is still lower than the peaks that they have seen in 2008-2009, is a reasonable assumption for the valuations. So at 18 times stand alone earnings at about Rs 405 per subsidiaries, we come to target price of close to Rs 1,906 which is the reasonable expectation from the stock. So we would assume that stock has about 15-16 percent upside from the current levels going forward.”