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Buy Larsen and Toubro; target of Rs 1400: Motilal Oswal

October 13
00:42 2017

Motilal Oswal’s research report on Larsen and Toubro

Meeting FY18 order guidance (12- 14% growth; MOSLe: 12% growth) is dependent on finalization of large -ticket dome stic projects in Infrastructure and Defense. Post a subdued 1HFY18, the dependency on 2H FY 18 would be high. ? Domestic E&C execution grew 15% YoY in 1 QFY 18 – GST woes are likely to slow down growth during 2Q-3QFY 18. We build in 10%/15% growth in FY18/19. ? Working capital is likely to expand post a bottom in 4 QFY 17 to 18% (20% in 1 QFY 18) – pick -up in domestic execution and GST would be the key reasons, in our view.

Outlook

We maintain Buy, with a n SOTP -based price target of INR1, 40 0 (E&C business at 2 5x FY1 9E EPS, to which we add INR450 for subsidiaries). Key risks to our rating include (a) sharp slowdown in government spending, and (b) sharp fall in oil prices in the Middle East.

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