Brokerage house Motilal Oswal has maintained 'Buy' rating on Larsen and Toubro (L&T) citing the triggers still exist to accumulate the stock on declines. However, the broking firm remains circumspect about profitability in overseas orders due to likely poor fixed cost absorption and learning curve, associated with new geographies/ segments. Motilal Oswal has a price target of Rs 1734 apiece.
"Possible order intake of Rs 20,000 crore in financial year 2014 (FY14E) from overseas markets will entail a market share of 1.5-2% in Middle East ordering (based on recent aggregate ordering trends), and is commendable. This will position L&T among the larger players in urban transport and hydrocarbon segment. L&T is expanding presence in metro or rail projects. The bidding for large size road projects is up from past trend of project below USD 40 million. In the oil and gas segment, Middle East still offers the largest opportunity, but competition remains intense. The target market for L&T is mid-sized orders of USD 250-300 million in countries like Saudi Arabia, Oman, Abu Dhabi, SE Asia etc," says the Motilal Oswal note to clients.
"E&C EBITDA margin has corrected by 200 basis points from peak levels of 14.2 percent in mid-FY11, and we expect margin to decline further by 100 basis points till FY15E. L&T is exposed to several levers across business/geographic segments and has emerged as the E&C partner of choice in India, which provides a robust foundation to capitalize on the next leg of investment cycle. Hence, despite a very strong near term performance, we remain positive on L&T and believe triggers still exist to accumulate the stock on declines." says the Motilal Oswal note.
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