Visit http://indiaer.blogspot.com/ for complete details �� ��
Larsen & Toubro
Taking it up a Notch
Upgrading numbers as expected: We highlighted in
our May 2010 report, The Beginning of the Upgrade
Cycle, that despite our estimates being 12-13% ahead
of consensus, we were being conservative on both
margins and revenues, and we expected to upgrade
earnings over the next 24 months. We believe that the
risk remains to the upside, with L&T moving from a
build-up phase (order book growth) in F2010-11e to an
execution phase (revenue growth) in F2012-13e.
Moving 15-16% ahead of consensus for F2012-13e:
With revenue momentum in F2Q11 being stronger than
our expectations, and our view on a strong pick-up in
execution from F3Q11e onwards, we are upgrading our
revenue numbers for F2012-13e by 3-7%. That shift,
coupled with the spillover effect of the upside surprise in
margins in F1H11, leads to a 7-8% upgrade in our
F2012-13e earnings.
Strong F3Q11e will be the next trigger: Historically,
the weak base for the September quarter (due to the
monsoon) has resulted in L&T’s sales growth QoQ in the
December quarter ranging between 10-12%. We believe
that the above-normal monsoon this year, coupled with
the drought in F2010, will help L&T register 32% YoY
growth in revenues in F3Q11.
Investment conclusion: While L&T, in revenue terms,
is larger than the next six largest construction
companies put together, owing to the fragmented
market (L&T’s market share is still only 2.5% in Indian
capex) and its high-quality execution, it has consistently
gained market share over the last two decades. It is also
the vendor of choice for the private sector, making it the
best way to play the structural growth story in Indian
infrastructure. Our revised price target of Rs2,433 (up
21%) implies a 21% return from current levels.
Is this report available on this website?
ReplyDelete