Moneycontrol Bureau
Credit Suisse has maintained its outperform rating on Larsen & Toubro on likely execution pick up, strong cash flows on peaking inventory, subsidiaries support and working capital with reasonable valuations. It has raised target price to Rs 1,925 (from Rs 1,825) per share and changed FY17-19 earnings per share by -1 percent to +2 percent.
The brokerage house expects execution pick-up based on the low base of FY16, size of backlog, pick-up in specific large projects (DFCC, power), while drag of real estate, roads, etc., is in FY16 base.
It feels lower inflation and interest rates will also help by improving client financials, project viability, and end-demand and help reduce working capital.
Its sizeable asset sell-down has led to net positive impact on recurring PAT of Rs 150 crore with potential for another Rs 800 crore, Credit Suisse says, adding peaking of support to subsidiaries and working capital will lead to strong cash flows, which can lead to rise in dividends.
Middle East ordering in general has not fallen off the cliff despite weak oil, says the brokerage house which expects Middle East orders to remain flat at around Rs 30,000 crore over FY17-19 (including Rs 6,400 crore Saudi Aramco order already received).
Overall, it expects FY17 EPC inflows at Rs 1,27,400 crore. Its total order book stood at Rs 2,57,400 crore in Q1FY17, increased from Rs 2,37,500 crore at the end of Q1FY16.
Hyderabad Metro project is a key risk, it feels.
The brokerage house, in its previous L&T report dated September 15, had said the metro project might need capital support as loss could be as high as Rs 1,000 crore per annum (might need loan to equity replacement of Rs 10,000 crore to stem losses).
At 11:22 hours IST, the scrip of Larsen and Toubro was quoting at Rs 1,495.10, down Rs 1.70, or 0.11 percent on the BSE.Posted by Sunil Shankar Matkar
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