Angel Broking maintains a buy on L&T post Q2 results

Angel Broking would continue to maintain a buy rating on Larsen and Toubro but may revise the target price a bit upwards, says Viral Shah, Senior Research Infrastructure Analyst.

Shah believes a strong execution has led to a better than expected performance for L&T. He expects the comapny to report margins around 9.5-10 percent for FY14. Although the order inflow number was a disappointing at Rs 26,000 crore for the quarter compared to their estimate of Rs 30,000 crore, Shah thinks it is healthy in the current scenario. The company has a decent order book of Rs 1.7 lakh crore, says Shah. Below is the verbatim transcript of his interview on CNBC-TV18 Q: What do you make of the Larsen and Turbo (L&T) numbers? A: Prima Facie the numbers seem to be promising. In terms of sales they have done Rs 14,509 crore against our expectation of Rs 14,000 crore. PAT has grown to Rs 978 crore against our expectations of Rs 878 crore. I believe EBITDA margin has come around Rs 9.7 percent which is in line with our estimate. We had expected around 9.5-9.6 percent. So overall execution has been a key and I believe a strong execution has led to a better than expected performance. Q: The infrastructure segment on a Y-o-Y basis seems to have done well. For this particular quarter the company seems to have done about Rs 7,198 crore worth of orders versus last year's just about Rs 5,505 crore odd. This is a huge jump of almost 20-25 percent. Do you think this will now be a concern area building up and that the management will not be able to hold their margins given the increase that we are seeing in the infrastructure segment revenues? A: I do not think so, because L&T's order book is well diversified. I believe the margins would be somewhere around 10 percent for the entire year for the L&T as a whole. In terms of margins I believe somewhere around 9.5-10 percent will be maintained for the entire year. Q: They for now maintain their guidance for FY14 at around that 15 percent revenue growth. So now with this performance for the second quarter,  which is usually not a solid quarters for companies like L&T, do you think will finally be achieve their ambitious guidance target? A: In terms of revenue growth for FY14, since for most orders the concession period of the orders have increased, we are building in around 9.5-10 percent revenue growth. We will be revising maybe our target and our numbers post the conference call with the management. Q: Most analysts estimated around the Rs 30,000 crore mark as order inflow but that has come slightly less - has that disappointed you a little bit? A: On the order inflow it has been a bit disappointing at Rs 26,000 crore from our estimate of Rs 30,0000 crore but the number they  have done is also healthy for the quarter in the current scenario. However, the company still has a very decent order book of Rs 1.7 lakh crore. Q: You have indicated that you will review your numbers we can expect further upgrade as far as the stock price is concerned? A: We already have a buy rating on the stock. In terms of recommendation we would continue to maintain the buy rating but in terms of target price we may revise it a bit upwards.