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Last Updated : Oct 21, 2013 12:23 PM IST | Source: CNBC-TV18

See L&T's margin dipping in FY14; Rs 970 tgt price: Kotak

The capital goods' major, Larsen and Toubro has delivered better-than-expected Q2 earnings, given the current economic situation, says Lokesh Garg, associate director, Kotak Instituitional Equities.

Larsen and Toubro’s Q2 net profit fell 14 percent to Rs 978 crore, but this is a better-than-expected result, believes Lokesh Garg, associate director, Kotak Instituitional Equities.

Speaking to CNBC-TV18, Garg explains that if one gives the company some benefit of doubt on the margin front, the results are even better.

“Given the environment, particularly Q2, wherein there was a substantial equity tightening panning out, Larsen has delivered a reasonable performance,” adds Garg who has a target price of Rs 970 for the stock.

However, Garg expects the margins and incomes to decline in FY14 leading to decline in net reported earnings too.

The capital goods company reported a 10 percent growth in its revenues to Rs 14509 crore.

Below is the edited transcript of Garg's interview to CNBC-TV18.

Q: Your report says that you think the results are better-than-expected. What is enthusing about the numbers going forward?

A: Results are better-than-expected on revenue line. We had expected about 8 percent growth and they delivered about 10 percent. They are slightly better than our expectations on margins as well. There are several one-offs within earnings before interest, taxes, depreciation and amortisation (EBITDA) level. However, on a net basis, if one gives some benefit of doubt on those one-offs then the results are even better.

Hence, to that extent, given the environment particularly Q2, wherein there was a substantial equity tightening panning out, Larsen has delivered a reasonable performance is what we would say.

Q: In terms of your target price and your earnings per share (EPS) estimates now, where do they stand at?

A: We look at dividend adjusted earnings for L&T which would Rs 45 for FY15 and that leads us to a target price of about Rs 970 on the stock at this point of time.

Q: This year you are expecting earnings to fall a little, right, from Rs 52 it comes down to Rs 48. What gives you the sense that it would pickup in FY15?

A: In FY14 we are building a bit of margin decline plus a bit of other income decline as well which is what is leading to net reported earnings decline a bit in FY14. As FY15 revenue growth and stable margins pan out, earnings would grow in FY15 back just as we had expected.

Q: Any other stock in the capital goods space that you would be positive on given the positive L&T performance?

A: L&T is among the most diversified stock and has performed well on order inflows and revenue execution also to some extent over the last two years. So, to that extent L&T does stand out a bit from other capital goods and to that extent, I would not necessarily like to extend positive sense to other stocks directly.

However, over a period of time we have been positive on couple of stocks in the capital goods space essentially Voltas on the back of cash flows, Crompton Greaves on the back of expected recovery in the overseas business and stable domestic seems good. We have also been positive on the back of other infrastructure type stocks like Adani Ports and Special Economic Zone Container Corporation of India.

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First Published on Oct 21, 2013 11:50 am
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