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Last Updated : May 27, 2013 04:32 PM IST | Source: Moneycontrol.com

Accumulate Larsen and Toubro; target of Rs 1645: PLilladher

Prabhudas Lilladher is bullish on Larsen and Toubro (L&T) and has recommended accumulate rating on the stock with a target of Rs 1645 in its May 23, 2013 research report.

 
 
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Prabhudas Lilladher`s research report on Larsen and Toubro


“Larsen and Toubro (L&T) reported a moderate 9.9 percent YoY growth in net sales at Rs203bn in Q4FY13, exhibiting a tepid execution and was largely below our expectations. Excluding export revenues, sales were up by 3.2 percent YoY. For FY13, sales grew by 14.5 percent (Domestic: 3.8 percent YoY), missing the lower end of the guidance of 15 percent. Reported EBITDA in Q4FY13 margins stood at 12.1 percent, 179bps down YoY on account of lower revenues and higher share of fixed price contracts. EBITDA for FY13 stood at 10.5 percent, down by 127bps YoY. Interest cost continued to rise on account of higher average debt and cost of borrowing. Thus, Adjusted PAT at Rs17.7bn de-grew by 6.1 percent YoY for Q4FY13 and for FY13, managed to grow by 2.9 percent YoY. NWC in Q4FY13 has been 16 percent (17 percent in Q3FY13) of sales as compared to 11.8 percent in Q4FY12.”


“E&C division in Q4FY13 registered a revenue growth of 10 percent with 12.2 percent EBITDA margins (230bps down YoY). For FY13, E&C sales growth stood at 16 percent with margins of 11.5 percent (120bps down YoY). E&E business for FY13 registered 3 percent sales growth, with EBITDA margin of 13.6 percent (90bps higher YoY). MIP business for FY13 registered 8 percent de-growth in sales and 310bps decline in EBITDA margins at 16.3 percent. Others segment continues to be robust, with 47 percent YoY growth in Sales and EBITDA margins of 27.3 percent, up 490bps YoY. E&C division in Q4FY13 registered a revenue growth of 10 percent with 12.2 percent EBITDA margins (230bps down YoY). For FY13, E&C sales growth stood at 16 percent with margins of 11.5 percent (120bps down YoY). E&E business for FY13 registered 3 percent sales growth, with EBITDA margin of 13.6 percent (90bps higher YoY). MIP business for FY13 registered 8 percent de-growth in sales and 310bps decline in EBITDA margins at 16.3 percent. Others segment continues to be robust, with 47 percent YoY growth in Sales and EBITDA margins of 27.3 percent, up 490bps YoY.”


“The key to the stock performance ahead would be the inflow of orders from international markets and pick up of execution. E&C margins were down by 120bps YoY in FY13. However, margin erosion should be arrested, considering the new order inflows were at decent margins. We have assumed a flat YoY EBITDA margin estimate of 10.7 percent. Working capital scenario, which is currently stable QoQ, will remain same, going forward. We have downgraded our FY14-15E estimates on the back of slower execution and lower margin booking. On core P/E basis, L&T is trading at 14.0x FY14E and 12.1x FY15E. On a consolidated basis, it trades close to 14.5x FY15E (consensus estimates). A stake sale in subsidiaries and on-track execution will lend some stability to this stock in and around the current levels. An improvement in margins is expected to rerate it further. However, the stock has run-up in the recent past and thus, we downgrade the stock from .BUY. to 'Accumulate. with a revised target price of Rs 1,645 from Rs 1,699,” says Prabhudas Lilladher research report.   


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First Published on May 27, 2013 04:32 pm
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