ICICI Securities
L&T (Buy)
Target: ₹1,760
CMP: ₹1,492.25
We hosted Larsen & Toubro (L&T) at ICICI Securities Virtual ESG Conference’21 on June 25. The representatives elaborated on the various initiatives taken in terms of water conservation, steps to reduce electricity consumption, carbon neutrality, etc. An insight into the company’s defence business was also provided.
L&T’s current ex-services order book at ₹3.3 lakh crore (3.5x TTM ex-services sales) provides growth visibility. Given the restart of ordering activity on large multilateral projects such as high-speed rail, we believe demand will improve and aid ordering from similar projects in segments like metro, water etc.
We adjust the balance sheet to factor-in the acquisition of 60.6 per cent stake in Mindtree. We have consolidated the financials of Mindtree in our FY22E/FY23 estimates. We value the 60.6 per cent stake as per the current market cap of Mindtree.
Given the business moat in terms of execution capabilities, we assign a target P/E multiple of 22x to the standalone business. Hydrocarbon business has been valued separately at 18x FY23 earnings, and ‘other businesses’ as per industry norms.
Factoring-in the change in market cap of subsidiaries, we raise the target price for L&T to ₹1,760 (earlier ₹1,670).