Buy L&T for target Rs 4,428
MUMBAI: Sharekhan has recommended ‘buy’ on Larsen & Toubro for target price of Rs 4,428. L&T being the largest engineering and construction company in
The contribution of international revenues has grown from 4 per cent to 17.5 per cent in the last five years and is expected to reach 25 per cent by FY2010. Gulf nations offer immense business opportunity ($1.25 trillion) over the next six years, which augurs well for companies like L&T.
Sharekhan believes there lies immense opportunity in the new verticals in which the company is entering, namely, ship building, defense, railways, thermal and nuclear power. Given the company's excellent track record, the brokerage is confident of its success in these initiatives and is also encouraged by higher returns on investments in these segments.
The brokerage believes there is a scope for further improvement in the margins on the back of rising operational efficiencies, larger ticket-size and more complex nature of orders, better raw material sourcing and integration, and higher contribution of its new businesses that carry higher margins.
Sharekhan believes some of the subsidiaries of L&T, particularly L&T Infotech, L&T Finance and LT FZE have reached critical size and importance, making L&T a true conglomerate and a diversified play. Sound execution track record, bulging order book, and strong performance of subsidiaries reinforce Sharekhan’s faith in L&T. The brokerage values the core business of L&T at 28x FY2010E earnings, or Rs 3,403 per share, and the subsidiaries at Rs 1,025 per share. At the current market price of Rs 3,536, the stock is trading at 21.9x its FY2010E consolidated earnings.
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