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Last Updated : Mar 12, 2013 11:09 AM IST | Source: Moneycontrol.com

Accumulate Larsen & Toubro; target Rs 1700: Emkay

Emkay Global Financial Services is bullish on Larsen & Toubro (L&T) and has recommended accumulate rating on the stock with a target price of Rs 1700 in its March 11, 2013 research report.

 
 
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Emkay Global Financial Services is bullish on Larsen & Toubro (L&T) and has recommended accumulate rating on the stock with a target price of Rs 1700 in its March 11, 2013 research report.


"L&T ineligible to be awarded a World Bank (WB) financed contract for a period of 6 months from 7 Mar'13 to 6 Sep'13. The penal action was sanctioned by the WB under the Bank's fraud and corruption policy after finding that a senior executive of L&T had indulged in fraud on a USD 110 mn contract for supply of medical equipments – disposed off by L&T in Nov'12.


Currently L&T has no order in its Rs1.6 tn order backlog which is funded from the World Bank - all past projects have been completed. Thus, there is no risk of review or cancellation by WB of any ongoing project. Correspondingly, there is no risk to earnings or cash flow in case of cancellation or delay or postponement of the project, if any.


In order to assess probable risk to FY14E order inflow estimate (Rs860 bn) from above ineligibility, we have extrapolated FY12 order inflow break-up to FY14E assumptions. Generally, infrastructure sector is eligible for WB funding in both international and domestic market. For L&T, in FY12, international (largely Middle East) infrastructure order inflows comprised 6% of total order inflows while domestic infrastructure orders (ex-NHAI) comprised about 11% of total inflows. Assuming, about 25% of international orders and 50% of domestic orders are WB funded, hypothetically about 7% of order inflows appear to be at risk in FY14E. However, we believe that final risk to inflows will be much lower than 7% citing L&T's exposure to multiple sectors and proven trackrecord to offset weak orders in one sector with orders in another sector.


We retain positive bias on L&T despite challenges in medium term in view of inexpensive valuations. At CMP, L&T is trading at Rs16.6X FY14E and 14.7X FY15E consolidated earnings of Rs90.4 and Rs101.9 per share respectively. We have Accumulate rating on the stock with a target price of Rs 1700," says Emkay Global Financial Services research report.


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To read the full report click on the attachment



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First Published on Mar 12, 2013 11:09 am
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