ICICI Direct is bullish on Larsen and Toubro has recommended buy rating on the stock with a target price of Rs 1655 in its research report dated January 28, 2019.
ICICI Direct's research report on Larsen and Toubro
Larsen & Toubro (L&T) reported a robust Q3FY19 performance, well above our expectations on the revenue, PAT and order inflow front. Standalone revenues for the quarter grew 26.1% YoY to Rs 22343 crore (vs. our estimate of Rs 20116.4 crore). On a consolidated basis, revenues grew 24% to Rs 35709 crore. On a standalone basis, the infrastructure segment delivered a strong performance with revenue growth of 22.6% to Rs 17291.8 crore on a YoY basis For Q3FY19, L&T registered strong order inflows worth Rs 42233 crore (vs. Rs 48138 crore in Q3FY18), predominantly led by strong tendering activities in international orders, which grew 30.7% to Rs 11500 crore while domestic orders declined 21.1% to Rs 30733 crore YoY. Order wins in H1FY19 were quite lumpy while the trend in 9MFY19 has been smoothened out vs. 33:67 ratio in FY18 for order flows Standalone EBITDA margins came in at 9.6%, which improved by 20 bps (vs. our estimate of 9.9%) on a YoY basis. On a consolidated basis, EBITDA margins came in at 11.2%. Consequently, for Q3FY19, standalone PAT came in at Rs 1634.8 crore registering strong growth of 40.3% YoY above our estimate of Rs 1377.5 crore. The consolidated PAT came in at Rs 2042.0 crore, up 37.0% YoY.
L&T has consistently been delivering in terms of bagging orders, strong execution of backlog and at the same time improving the quality of its balance sheet thereby generating reasonable cash flows. PAT CAGR of 20.3% over FY18-21 coupled with improvement in return ratios should rerate the stock as the expected performance is among the best in the capital goods space. We introduce our FY21E numbers but value L&T over FY20E being cautious considering upcoming elections. We maintain our target price of Rs 1655 with a BUY rating on the stock.
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