Buy Larsen and Toubro; target Rs 1795: Motilal Oswal
Motilal Oswal is bullish on Larsen and Toubro (L&T) and has recommended buy rating on the stock with a target price of Rs 1795 in its November 30, 2012 research report.
December 01, 2012 / 14:52 IST
Motilal Oswal is bullish on Larsen and Toubro (L&T) and has recommended buy rating on the stock with a target price of Rs 1795 in its November 30, 2012 research report.
"We expect FY13/FY14 to be an inflexion point in Larsen and Toubro's (L&T) attempt to diversify geographically and thus reduce the concentration risk of depending on the domestic economy. We estimate the overseas business would contribute ~28%/32% of profits in FY13/FY14 respectively, up significantly from ~21% in FY12.This shall be driven by: i) increased contribution of overseas service business from 10% of consolidated profits in FY12 to 14% in FY14 and ii) incremental growth from new geographies (Middle East, Australia, SE Asia)/new segments (hydrocarbons, largesized projects).L&T has continuously adapted and evolved across economic cycles, which led to a strong 'delivery', even in a turbulent environment. In this note, we analyze the possible inflexion point in overseas business.We expect FY13/FY14 to be an inflexion point in L&T's attempt to diversify geographically and thus reduce the concentration risk of depending on the domestic economy. We estimate the overseas business shall contribute ~28%/32% of profits in FY13/FY14 respectively, up from ~21% in FY12. This would be driven by: i) increased contribution of overseas service business from 10% of consolidated profits in FY12 to 14% in FY14 and ii) incremental growth from new geographies (Middle East, Australia, SE Asia)/new segments (hydrocarbons, large-sized projects).L&T has maintained its market share in the previous capex cycle, with domestic revenues at a 1.2-1.5% of the Gross Fixed Capital Formation (GFCF) improving to 2.3% in FY12. We believe that manufacturing businesses now provide opportunity for doubling of market share in the next cycle from Long Period Average (LPA) of 1.5% to 3% of GFCF. Several of these manufacturing businesses are difficult to replicate, and L&T is positioned as a dominant player.Management expects 35-40% growth in order intake in FY13 (on top of a 59% growth in FY12). Growth shall be driven by a combination of new geographies, new business segments and differentiated business strategy. While the intake from overseas markets in 1HFY13 has been only INR56b (~15% of the intake), 2HFY13 is expected to witness important order wins.L&T is exposed to several levers across business/geographic segments and has emerged as the E&C partner of choice in India, which provides a solid foundation to capitalize on the next leg of investment cycle. Thus, despite a very strong near term performance, we remain positive on L&T and believe triggers still exist to accumulate the stock on declines," says Motilal Oswal research eport.FIIs holding more than 30% in Indian cosDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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