Buy Larsen and Toubro; target of Rs 1720: Anand Rathi

Anand Rathi's research report on Larsen and Toubro

L&T's Q1 FY20 sales grew 10% y/y. Its EBITDA margin expanded 100bps to 11.2%. Adj. PAT grew 21% y/y to `13.6bn. Despite sluggish capex investment, order inflows grew 11% y/y to `387bn. Working capital deteriorated 200bps largely helping vendor liquidity. We believe that the forthcoming capex in select private sectors and in the Railways will lead to healthy inflows for the company.

Outlook

Adjusting for its discontinued operations, we reduce our FY20e and FY21e earnings respectively 4% and6%. Considering the strong prospects, we maintain a Buy, with a revised TP of `1,720 (a sum-of-parts valuation, based on FY21).