L&T to sustain orderbook growth: Anand Rathi

Analysts seems to have a mixed reaction for heavy engineering and capital goods sector’s performance in the March quarter.

Larsen & Toubro and Thermax are expected to continue with positive trend in terms of order flow, but Voltas will take little time to perform well, according to Anand Rathi Institutional Equities. In an interview to CNBC-TV18 Amol Rao, analyst with Anand Rathi says, he expects L&T to clock in orders in the range of Rs 77,000-Rs 82,000 crore on the back of contribution from construction and engineering segment. Read This: Indian L&T in race for Rs 2000cr howitzer tender Below is the verbatim transcript of his interview to CNBC-TV18 Q: Larsen and Turbo (L&T) reports later this week, Q3 were a good number in terms of order booking. What are your expectations this time? A: We expect the trend in L&T to sustain. Especially since capital good companies usually report a very healthy order booking towards the end of the year, when a lot of their clients are eager to disburse business and meet their sanctions. Going forward, we expect the trend to sustain in FY13. We should see a good order booking guidance for FY14 in my opinion. Q: How about Voltas that reports today? Q3 was an awful quarter for Voltas, are you expecting an improvement this time? A: Actually we don’t cover the counter officially but just looking at things on the ground, Voltas is experiencing some amount of problems as a lot of its business comes from the air conditioning. So, that space is experiencing problems at home and abroad in the institutional space. We are not to buoyant on that space as of now. Q: Do you have any thing penciled in terms of what you think their order inflow guidance for FY14 will be? What is your own price target on the stock right now? A: In L&T we are seeing slight improvement on the ground, especially in the engineering and construction space where L&T is the foremost player in India. We are exceptionally positive about the company’s foray abroad. We feel that the company could declare something in the range of Rs 77,000 to Rs 82,000 crore of order booking on the back of this business in FY14. As far as our target price is concerned, we feel in the range of Rs 1685 to Rs 1690 is where the company conservatively should be valued at current levels. This leaves an upside of 5 to 6 percent from the current market price. Q: The tricky one is Bharat Heavy Electricals Ltd (BHEL), what do you think this quarter will look like for it? A: This quarter shouldn’t be too bad because order execution on the scale at which BHEL does shouldn’t slow down tremendously at least now. However, we feel that due to the problems in order inflows over the last 12 to 18 months were absolutely was forthcoming. In fact, all the orders won were pertaining to FY10 or FY11. I think that would reflect in the numbers going forward. So, the order booking and order execution is where the key lies for BHEL. Going forward, we feel that BHEL would continue to dominate order wins in this space. We feel that 10,000-11,000 mega watts which are short listed as per the management should see BHEL wining a significant portion of that. While BHEL seems under valued at current level it is very important to see what the developments are on the ground. We have a buy recommendation on the company, but that is purely on the basis of valuations that are available right now. Q: Two other companies which reported this week are Nagarjuna Construction Company and Thermax. If you have any of these under your coverage – what would your expectations be here? A: We do cover Thermax and we are exceptionally positive on it. It has an extremely short sighted business for a majority part of its revenues. Now the company manages to secure and execute a lot of its business within 15 to 24 months. That is in the capital good space, it is a fairly good amount of time to churn around your money. Apart from that the company has demonstrated in this tough time an exceptionally strong ability to maintain cost and keep its cash flows in tact. We are very positive on the company. We have a target price around Rs 661, which leaves an upside around 10 percent from current levels. We are enthused about the fact that this is a home grown company which is maintaining its share in the market place despite all the competition that is emerging from international players like the Chinese and the Korea.