Anand Rathi
L&T (Buy)
CMP: ₹1,499
Target: ₹1,820
Benefit from leadership: L&T is the undisputed market leader in India’s capital goods and construction space. The likely recovery of India’s capex cycle, especially infra and hydrocarbon would benefit L&T substantially with double digit revenue growth and faster order book expansion.
Diversified order book: While L&T has large exposure to public capex, nearly half the order book comes from Indian corporate and overseas orders which substantially reduces the risk of slower than expected public capex.
Hydrocarbon — key growth area: Despite infra being the largest segment for L&T, hydrocarbon related order book — both domestic and orders from the West Asia — are growing fast which provides revenue and order book visibility.
Margin expansion likely: The changing order book composition, especially the increase in share of the higher margin domestic orders are likely to improve margin for the company.
Meeting guidance: We expect the company to meet the management targets on sales growth and margin.
We initiate coverage on L&T with Buy rating and target price of ₹1,820 based on SOTP valuations.
Risks: Lack of pick-up in capex cycle, subdued global oil & gas capex, lower than expected order inflows and drag on profitability.
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