We maintain ‘buy’ on Larsen & Toubro (L&T),but lower our growth assumptions for the company going ahead,building in potential uncertainties in near-to-medium term. We lower our sum-of-the-parts based target price to Rs 1,846 (Rs 1,941 earlier) as we roll forward to FY15e basis,valuing the parent at 18.1x (10 % discount to long term average P/E).
We revise our revenue and segment-wise order intake growth assumptions,building in further uncertainty and,thereby,cut earnings by 7% and 5% for FY14e and FY15e,respectively,and see the guidance to be aggressive.
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We believe the stock offers reasonable recovery and scalability prospects over the long run as the company gears up to optimise its operations,including new capacities like power equipment,forgings and ship-building.
L&T reported a weak set of numbers during Q4FY13 with a sharp 180 bps y-o-y decline in Ebitda margins,led by lower margins in export revenues. Also,sustained delays in certain projects and cash-flow issues on customer side impacted overall billing. This,in turn,hit sales growth that came in at 10% versus expected 18%.
Order intake grew above expectations at R28,000 crore (up 32% y-o-y),led by power and infrastructure. The company retained its bullish tone guiding for fresh orders and revenue for FY14e at 20% (implying R1,05,500 crore) and 15-17%,respectively with flat margin outlook.