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
TOPICS

Related

This article is closed for comments.
Please Email the Editor