ICICI Direct recommended hold rating on Larsen and Toubro with a target price of Rs 1090 in its research report dated June 07, 2020.
ICICI Direct's research report on Larsen and Toubro
L&T’s adjusted standalone revenues (ex-E&A business) for the quarter de-grew 7.5% YoY to Rs 27252.8 crore, below our estimate of Rs 29882 crore. On a standalone basis, infrastructure segment posted a subdued performance with revenue decline of 5.9% to Rs 24306.4 crore on a YoY basis. Heavy engineering segment revenue de-grew 22% to Rs 701.6 crore on a YoY basis. While power segment revenues continued to decline 39.5% to Rs 565.3 crore, defence engineering segment revenue de-grew 16.3% to Rs 928 crore. On a consolidated basis, revenues from continuing operations (excluding E&A business) grew 2.2% to Rs 44245.3 crore YoY. Consolidated PAT for Q4FY20 was at Rs 3562.5 crore, down 6% YoY. Note: Electrical & automation business is classified as 'discontinued operations', consolidating only at PAT level.
Outlook
L&T reported decent order inflows, which provides strong revenue visibility for two to three years. However, execution challenges amid Covid-19 could have some impact in the near term. Also, preservation of working capital levels would be closely monitored to maintain comfort on balance sheet front. L&T is expected to deliver standalone revenue CAGR of 1.2% and EBITDA CAGR of 9.4% in FY20-22E. We value L&T on SoTP (with base business at 16.5x FY22E EPS) with a revised target price of Rs 1090 and change our rating from BUY to HOLD.
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