Buy Larsen & Toubro - Motilal Oswal

Larsen & Toubro (LT IN; Mkt Cap USD22.2b, CMP 1,681, Buy)

In 3QFY11, L&T reported revenue of Rs113b (up 40% YoY), significantly above our estimate of Rs96b (up 20% YoY). Net profit (adjusted for capital gains and provision reversals) was Rs8b (up 32% YoY), above our estimate of Rs7.9b (up 30% YoY).

Order intake was Rs133b (down 25% YoY), and the 3QFY11 order book was Rs1,148b (up 26% YoY) with book-to-bill ratio of 2.7x TTM revenues. The management's initial guidance of FY11 order intake growth of 25% hinges on 4QFY11 intake growth of 57%, which seems unlikely.

In 3QFY11 E&C EBITDA margin decreased 155bp YoY to 11.5% mainly due to a rise in commodity prices, particularly of steel.

Motilal Oswal expects L&T to report revenue and PAT CAGR of 23% and 20% respectively over FY11-13. Our consolidated EPS is Rs90 (up 21% YoY) for FY12 and Rs107 (up 19% YoY) for FY13. We expect EBITDA margins of 12.3% in FY12 (down 50bp YoY) and 12.5% in FY13 (up 20bp YoY). We value L&T on an SOTP basis with a price target of Rs1,919 and have a Buy rating on the stock.

Source : Equity Bulls

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