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Last Updated : Apr 03, 2013 07:13 PM IST | Source:

Buy L&T; target Rs 1699: Prabhudas Lilladher

Prabhudas Lilladher is bullish on Larsen and Toubro (L&T) and has recommended buy rating on the stock with a target price of Rs 1,699 in its April 03, 2013 research report.

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Prabhudas Lilladher is bullish on Larsen and Toubro (L&T) and has recommended buy rating on the stock with a target price of Rs 1,699 in its April 03, 2013 research report.

"L&T's order inflow stood at Rs601bn at the end of 9MFY13 and in Q4FY13E, the order intake reported in public domain stood at Rs154bn as against Rs211.8bn in Q4FY12 (actual). With this, the tally for FY13E order inflow stands at Rs755bn (reported) as against Rs706bn (actual) in FY12. However, as in Q3FY13, where the unreported order stood at Rs83bn, we hope a somewhat similar number (though on lower side to be cautious) would come up this quarter too. The order inflow number then would be above our estimates of Rs811bn for FY13E which is a 15 percent growth YoY.

A sneak peek into the pattern of the 'reported' inflows reveals a host of Buildings & Factories (Rs186bn, as against Rs135bn in FY12) and Infrastructure (Transportation, Water and Urban Infra, Rs165bn as against Rs195bn in FY12) orders. Together, Buildings and Infrastructure are expected to contribute to almost half of LT's order inflows (Rs351bn); hence, moving away from high technology sectors like Hydrocarbon & Power. However, this change was inevitable as flexibility and predisposition to compromise should not be taken as a sign of weakness or sell out! (Data points showing changes in inflows are given on page 5).

This year has not been a complete washout year and the performance on a high base remains satisfactory. What needs to be seen now is how the gradual increase in the planned expenditure of the Government pans out. There are concerns pertaining to the repercussions on margins and next year's order inflow growth. Also, the slow moving orders are up by 2-3 percent YoY to 13-14 percent which will also play out on the valuations, going forward.

We are slightly optimistic as compared to street on sales growth and margins as we expect the orders taken in FY13E to be less 'toxic' in nature. We are on 21 percent YoY sales growth and 11.3 percent EBITDA margins for FY14E. The UI and B&F orders, which mainly enjoy a negative working capital and comparative shorter execution cycle, can turn tables for the company provided the execution is 'on track'. Similarly, we are expecting Rs892bn (up 10 percent YoY) worth order inflow in FY14E, which also right now seems to be a herculean task. (Though the opportunities are expected to come up in UI, Buildings and Water related projects, the downside risk to these estimates looms large). Thus, de-growth on a YoY basis cannot be ruled out.

Overall, Infrastructure-conducive policies announced recently and the elections being round the corner, we expect considerable order inflow over the next 6-8 months. Leaving aside macro factors, stake sale in prime subsidiaries, which makes the consolidated entity more asset-light, will be the key trigger which shall play out. On a strong footing, L&T remains the leader of the pack and thus, on a comfortable footing. Overall, the valuations are still not that expensive with a core P/E at 10.6x FY15E and 3M underperformance to the Nifty by 8.6 percent. Unless there is a sheer sign of major debacle in the offing, this delta should square off. Hence, we maintain buy on the stock with a target price of Rs 1,699," says Prabhudas Lilladher research report.

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First Published on Apr 3, 2013 07:13 pm
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