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Larsen & Toubro
RECO : BUY TP : Rs2,015
Investment Rationale
§ Strong presence in structural sectors (Utilities and Construction – exposure at 69%) to continue to augur well
during FY10-12E
§ With 35% exposure to industrial sectors, L&T to be key beneficiary of likely pick up in industrial capex
§ Strong presence across the spectrum in Industrial capex
§ We prefer exposure to Industrial capex over structural - Industrial capex expected to strengthen in FY11E
and broaden in FY12E
§ Order backlog at Rs1.15 tn in Q3FY11 (equivalent to 2.6X FY11E revenues) – lends revenue visibility for two
years
§ Strong traction in subsidiary businesses – L&T Finance, L&T Infra Finance, L&T IDPL and TAMCO
§ Future triggers- listing of subsidiaries like L&T Finance (DRHP filed), L&T Infotech, L&T IDPL over next 2-3 years
Valuations – Attractive risk-to-reward
§ Post recent correction (down 29% from Nov’10 high of Rs2171/Share), stock is trading at 18.8X FY12E
consolidated earnings of Rs88.1 à this represents a 4% premium to 15-year average 1-Yr forward PER of 18.0X
and 13% discount to FY04-08 average PER
§ Even based on relation between L&T market-cap and order book (observed since Apr’03), worst case downsides
limited at about 3% to Rs1500 per share
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Larsen & Toubro
RECO : BUY TP : Rs2,015
Investment Rationale
§ Strong presence in structural sectors (Utilities and Construction – exposure at 69%) to continue to augur well
during FY10-12E
§ With 35% exposure to industrial sectors, L&T to be key beneficiary of likely pick up in industrial capex
§ Strong presence across the spectrum in Industrial capex
§ We prefer exposure to Industrial capex over structural - Industrial capex expected to strengthen in FY11E
and broaden in FY12E
§ Order backlog at Rs1.15 tn in Q3FY11 (equivalent to 2.6X FY11E revenues) – lends revenue visibility for two
years
§ Strong traction in subsidiary businesses – L&T Finance, L&T Infra Finance, L&T IDPL and TAMCO
§ Future triggers- listing of subsidiaries like L&T Finance (DRHP filed), L&T Infotech, L&T IDPL over next 2-3 years
Valuations – Attractive risk-to-reward
§ Post recent correction (down 29% from Nov’10 high of Rs2171/Share), stock is trading at 18.8X FY12E
consolidated earnings of Rs88.1 à this represents a 4% premium to 15-year average 1-Yr forward PER of 18.0X
and 13% discount to FY04-08 average PER
§ Even based on relation between L&T market-cap and order book (observed since Apr’03), worst case downsides
limited at about 3% to Rs1500 per share
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