Accumulate L&T - Target Price Rs. 1749 - Prabhudas Lilladher

Order inflow momentum gathers steam; thus, order book to lead revenue CAGR of 20.3% from FY12-15E: L&T had announced Rs110.6bn worth of orders in Q3FY13 on exchanges. However, the declared order inflows came in at Rs195.4bn (a growth of 14% YoY). In 9MFY13, order inflow stands at Rs601bn, up 22% YoY. The company has maintained that order inflow guidance of 15-20% YoY amounts to Rs811bn at lower band. L&T has seen some revival in Hydrocarbon, Power and International orders. However, Infrastructure projects remain the prime contributor. Within Infrastructure, Urban Infrastructure and Buildings show a promising growth path ahead. We have maintained 15% growth YoY, amounting to Rs811bn, keeping in view the excellent inflow growth in Q3FY13.

Most rewarding play in stabilizing economic scenario: With spells of monetary easing and elections round the corner, we expect the order inflow to grow towards FY14E, and with peer's limited bandwidth, L&T stands to benefit. Also, with increasing trend of ordering higher ticket size projects, the competition would narrow down and favor the company. In this scenario, we expect the order inflow mix to improve which will help the company to sustain EBIDTA margins around 11-11.2%. The company has also curtailed its capex investments and support to its subsidiaries. Thus, along with working capital cycle easing off, PAT CAGR would be close to 10.5% from FY12-15E. Also, if policy action continues in the same way, especially a resolution on the fuel security for utilities/environment clearances, BTG orders can give an additional boost.

Valuations: E&C margins were down by 60bps YoY in 9MFY13. Thus, there is some risk to our overall FY13E EBITDA margin estimate of 11.3% for which the company needs to do 13.8% in Q4FY13E (flat YoY). On core P/E basis, L&T is trading at 13.8x FY13E and 12.3x FY14E. On consolidated basis, it trades at 19.8x FY13E and 17.4x FY14E. L&T always stands to benefit from any improvement which happens in the Infrastructure sector, being the leader of the pack. Thus, we maintain our 'Accumulate'. rating and target price on the stock at Rs1,749.

Source : Equity Bulls

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