Motilal Oswal's research report on Larsen and Toubro
Larsen & Toubro’s (L&T) adj. PAT grew 56% YoY and was 5% ahead of our estimate. Core E&C EBITDA grew 18% YoY and was 17% above our estimate, led by margin expansion in the Infrastructure segment. Management has maintained its revenue guidance of ~15%, order inflow guidance of 10-15%, and a stable core E&C margin on a YoY basis. International prospects are looking robust across segments, including hydrocarbon, power T&D, water, etc., thanks to higher oil prices. Domestic E&C order inflows were disappointing with 1HFY22 order inflows remaining at 55% of 1HFY20 levels. Our FY22 overall order inflow estimate stands at 6%, implying a 2HY22 ask rate of -9% on core E&C orders. After adjusting for the High Speed Rail (HSR) order last year, the implied ask rate for 2HFY22 stands at 33%.
Outlook
We largely maintain our earnings estimate, but increase our TP to INR2,175 (prior: INR2,080), on account of mark to market (MTM) of the CMPs of the listed subsidiaries. After adjusting for the subsidiaries’ valuation (~INR1,070/sh), the core E&C business trades at an FY22/FY23E PE multiple of 15.0x/12.9x v/s the historical one-year fwd avg. PE multiple of 22x. L&T remains the best play on the capex cycle in India. Maintain Buy.
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