Broker's Call

Motilal Oswal

L&T (Buy)

CMP: ₹1,742.80

Target: ₹1,970

L&T is looking at asset monetisation to improve return ratios and unlock shareholder value. It has sold its general insurance business (₹100 crore loss in FY16) and intends to exit

Kattupalli Port (₹250 crore loss in FY16) by 1HFY18. Besides, it is looking to divest its portfolio of operational road assets (₹600 crore loss in FY16). These ventures are incurring annual losses of ₹1,000 crore and their sale would add about 2 per cent to RoE. The company is also likely to divest Nabha Power in FY18/FY19.

We maintain ‘Buy’ with a revised SOTP-based price target of ₹1,970/share (E&C business at 24x FY19E EPS). The revision in our target price is driven by a) an increase in our FY17 order inflow estimate to ₹1.5 lakh crore (10 per cent growth versus 6 per cent growth earlier) to factor in the strong inflows in Q4FY17, primarily in hydrocarbons and Defence; and b) Valuation of core E&C at 24x FY19E EPS versus 22x earlier. Valuation of core E&C at 24x FY19E EPS versus 22x earlier on strong inflows in Q4FY17 and increased order inflow visibility for FY18.

Published on May 09, 2017


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