Emkay Global Financial's report on Larsen and Toubro
As per media reports (The Economic Times, 22-Dec-21), LT plans to raise Rs136bn through bonds and commercial paper for refinancing Hyderabad Metro (HM)-related debt. The average cost of debt for the metro is currently 9-9.5%. This will entail annual savings of ~Rs3bn, leading to lower losses at Hyderabad Metro. Further, HM's ridership has touched 250k per day recently - up from ~190k in Q2FY22. However, it still remains below pre-Covid levels of 400k. Apart from the refinancing of the HM loan, LT is looking at various other options such as the sale of developed real estate, stake sale in the metro, claims/grant from the Telangana government to minimize the losses.
Outlook
We reiterate Buy and raise the TP to Rs2,320 (Dec'22E) from Rs2,200, as we factor in the higher valuation of IT subsidiaries, in line with Emkay's valuation of LT Infotech and Mindtree. We also increase our FY23/FY24 EPS estimates by 3%/2%. While general awarding has been slow in the last few months, the pace of tenders has remained high, giving confidence in inflows for the fiscal year.
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