Motilal Oswal is bullish on Larsen and Toubro has recommended buy rating on the stock with a target price of Rs 1540 in its research report dated October 10, 2018.
Motilal Oswal's research report on Larsen and Toubro
With LT’s announced 2Q19 orders at INR340b, we estimate 2Q19 orders at INR475b, +65% YoY and 1H19 orders at INR836b, +51% YoY. FY19E orders are expected up 12% YoY (earlier 10%) at INR1.7t; elections next year should impact 2H19/1Q20 ordering, in our view. Domestic engineering and construction (E&C) execution growth has picked up post GST implementation (+15% YoY in FY18) and we expect the momentum to continue in FY19. We build in domestic E&C execution growth of 14%/15% for FY19/20. As LT increasingly focuses on its 'Lakshya' strategic plan, NWC should stabilize at 20% of sales after bottoming out in 4QFY17 (18%).
Outlook
We maintain our Buy rating with SOTP-based price target of INR1,540 (E&C business at 22x FY20E EPS, to which we add INR520 for subsidiaries). LT trades attractively at 19x/15x standalone EPS for FY19/20 (ex-subsidiaries). Key risks to our rating include (a) a sharp slowdown in government spending, and (b) a sharp fall in oil prices in the Middle East.
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