HDFC Securities is bullish on Larsen and Toubro has recommended buy rating on the stock with a target price of Rs 1794 in its research report dated May 13, 2019.
HDFC Securities' research report on Larsen and Toubro
Good pull back to end FY19: L&T posted a robust 10.5% YoY revenue growth in 4QFY19 (at Rs 449bn), largely driven by Infra, Hydrocarbon, Realty and the Services business. Margins improved 127bps QoQ to 12.5%, led by 690bps QoQ improvement in the Infra segment (which has lagged over 9MFY19, hit by fixed price contracts and cost overruns). Re-rating hinging on capex recovery: After achieving 16% order inflow growth during FY19, L&T has guided for 10-12% for FY20E. Tight fiscal & delay in private capex revival is key risk which L&T is trying to mitigate by expanding into newer geographies and bidding for projects funded by multilateral agencies. Overseas market ordering recovering, newer geographies to de-risk domestic headwinds: L&T saw good order inflows from international markets. Bid pipeline remains strong and competitive intensity is on level footing now with measured aggression.
We recommend a BUY on Larsen & Toubro (LT) with SoTP of Rs 1,794/sh. Reduction in subsidiaries losses, majorly provided transportation project overruns, order pick up in Domestic/International markets and strong cash flow make L&T an anchor play on infra investment and capex recovery. Higher services share in the mix will improve RoEs further. Working capital is at optimal levels. A tight lid on asset capex will only help further re-rating.
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