Larsen & Toubro - Favourably positioned for USD800mn Aramco project - Edelweiss

Larsen & Toubro (L&T) is the lowest bidder (L1) for the USD800mn (INR 44bn) Saudi Aramco Midyan Gas field (EPC) Project in Saudi Arabia, according to news reports. The company is yet to confirm the development. Assuming the company reports the order intake in Q4FY13, it is likely to meet its upper band intake guidance of 20% growth at INR846bn. The company is on a strong footing in terms of order intake, though margin profile could see some downside risk. Maintain 'BUY'.

Order inflow momentum to remain strong in the near term

As per news reports, L&T has been placed L1 in the USD800mn (INR44bn) Saudi Aramco Midyan Gas field Project in Saudi Arabia. This is an EPC project where some of the world's top 10 contractors like Chiyoda, GS Engineering, JGC Corporation, Petrofac, Samsung Engineering, Tecnicas Reunidas, Technip to name a few, have bid for the project. The scope of works include the EPC of upstream and processing facilities for the Midyan field, as well as pipelines to transport gas and condensate.

Outlook and valuations: Positive; maintain 'BUY'

We continue to maintain L&T as our top pick in the industrials space given the improving growth visibility and non-core stake sale triggers. However, aggressive bidding by L&T has been adding to margin concerns. We maintain 'BUY/Sector Outperformer' recommendation/rating on the stock with a target price of INR1,941. The stock currently trades at consol P/E of 14.4x and 12.4x FY14E and FY15E EPS, respectively.

Source : Equity Bulls

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