Larsen and Toubro - cautious for near term; Medium- term positive; Edelweiss

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Larsen and Toubro (LT IN, INR 1,979, Hold)

We recently organised a meeting of some institutional investors with the CFO of Larsen & Toubro (L&T). Following are key takeaways of the meet:

n  Project delays; no major cancellations

There are project delays/deferments in some sectors, but no major cancellations/scrapping of projects. L&T expects some good tendering activity in the next few months across major infrastructure verticals like power T&D, roads etc.

n  Power JVs to be profitable in 2.0-2.5 years

While the company is positive on the overall power generation equipment market, it expects to report reasonable profitability once it reaches 55-60% utilisation level at its manufacturing plant for BTG, in the next 2.0-2.5 years. It intends to start new plants for electro-static precipitators, critical piping, fan/de-aerators etc, which should contribute to overall profitability of its power equipment segment, going ahead. L&T currently has ~8,000 Mw of boiler orders and ~9,000 Mw of turbine orders in hand, which it could take up to ~10,000 Mw at current capacity levels. Also, L&T believes, players in the BTG market have been behaving rationally; it has still not seen any major price war, which augurs well for the company.

n  Slow progress in hydrocarbon space

While L&T is optimistic on the overall potential in the hydrocarbon space in India and export market, there have been concerns related to deferments. The management believes the decision making is quiet slow in terms of overall projects in the space. Also, the company is facing stiff competition from foreign players, especially Koreans.

n  Near-term challenging; outlook positive for medium term

The management has near-term concerns related to environmental and other clearance issues for its roads and power segments, which could lead to delays/deferments, denting the near-term outlook. It, however, is optimistic on the medium term and expects all these issues to resolve by then. We maintain ‘HOLD/Sector Performer’ on the stock, with SoTP of INR 1,940 and do not see any major upside from current levels.