Motilal Oswal is bullish on Larsen and Toubro has recommended buy rating on the stock with a target price of Rs 1610 in its research report dated March 19, 2019.
Motilal Oswal's research report on Larsen and Toubro
Larsen & Toubro (LT) has announced its intention to acquire a significant 66% stake in MindTree (MTCL). It has earmarked an amount of INR107b for this acquisition, valuing MTCL at INR162b (+5% v/s current market cap of INR155b) or INR980/share. However, the promoters of MTCL (13.3% stake) may look to resist the hostile takeover by engaging with other shareholders, and hence, it could be a long-drawn process, in our view. LT’s rationale for the acquisition: The primary rationale is to expand the services business (in line with its five-year value creation strategy presented in 2016). Moreover, this is better utilization of its strong cash balance, especially in light of the rejection of the INR90b share buyback by the SEBI.
MTCL acquisition may be marginally EPS accretive and neutral from the valuation perspective. However, it is too early to incorporate the same in our estimates as it may be a long-drawn process. For now, we maintain our Buy rating and target price of INR1,610.
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