Stock Market Result Update on Larsen and Toubro for 1QFY2012

Stock Market Result Update on Larsen and Toubro for 1QFY2012 with a Buy recommendation and a Target Price of `1946 (12 months).

Larsen and Toubro (L&T) posted broadly in-line numbers for 1QFY2012. As of 1QFY2012, L&T stands tall on an order backlog of `1,36,172cr. Order inflow for 1QFY2012 stands at `16,190cr, up 3.6% yoy, in-line with our expectations of `16,000cr. The company has given revenue guidance of 25% for FY2012, which we believe is aggressive considering that the headwinds are still plaguing the sector. On the order inflow front, the company has given a guidance of 15–20%, which we believe is achievable considering L&T’s leadership position and diversification; however, we expect the company to meet the lower end of its guidance. We believe that in the current uncertain times, investors would take a flight to safety and L&T being the market leader and fundamentally the strongest infrastructure company would get a preference over its peers. We maintain L&T as our top pick in the sector and, hence, our Buy view on the stock.

In-line performance: L&T reported top-line growth of 20.3% yoy to `9,483cr (`7,885cr), marginally below our estimates. EBITDA came in at 11.9% (12.8%), marginally above our estimates of 11.6%. Adjusting for dividend from subsidiaries, the bottom line grew by 9.2% yoy to `690cr.

Outlook and valuation: L&T has a healthy order book, which provides good revenue visibility for the next few years. We believe even if the company misses its revenue guidance of 25% for the year, it will deliver >20% growth, which is better than most of its peers. On the order booking front, management also indicated delays rather than cancellation of orders, which it expects to achieve in the ensuing quarters. Thus, post the recent correction, we believe it is a good opportunity for long-term investors to enter the stock at current levels. We maintain our Buy view with a revised target price of `1,946 (`2,030).