Company Background:

Larsen & Toubro Limited, commonly known as L&T, is one of the largest Indian multi-national firm headquartered in Mumbai, Maharashtra, India. We all have seen a hoarding of L&T at some construction site not only across Mumbai but across the country. L&T has business interests in engineering, construction, manufacturing goods, information technology, and financial services, and has offices worldwide. It is the largest EPC Company. The company is also involved in various developmental projects in roads, ports, railways and power. It has additional interest in services and IT as well. 

Investment Rationale:

1. Very strong order book of Rs. 2717 bn (2.3x FY18 revenues) provides great revenue visibility. The following is the order book composition:








2. Over the last 5 years, the debt has reduced and working capital cycle has improved. It has a strong balance sheet, also prudent asset allocation strategy focusing on working capital.

 

3. It is exiting its non-core businesses & strengthening the core business. The company has healthy margins of 15-17%.

 

4. It is one of the biggest beneficiaries of the revival in private capex. Steel, cement and oil & gas are expected to revive faster than power.

 

5. Huge Govt. boost to Infrastructure ensures healthy order inflows for L&T.

FY14

FY15

FY16

FY17

FY18

Rev (in Rs. Cr)

85128

92005

101122

109312

119683

Growth (%)

8.1%

9.9%

8.1%

9.5%

PAT (Rs Cr)

4923

4765

4281

6041

7370

Growth (%)

-3.2%

-10.2%

41.1%

22.0%


It is available at 22x FY19E P/E. Reasonable valuations at current price. It is a BUY at any price unless valuations go out of the roof. Being a diversified and huge conglomerate makes it too big to fail.


Recommendation: 

Give stability to your portfolio – Buy Larsen and Toubro – An infrastructure powerhouse!

Comments (6)
rohit.masand.90 - 03 Feb 19, 05:57 PM

Yes! Since my recommendation in Oct’18, this stock had moved up 16% in 3 months to reach 1450, before cooling off due to order book concerns due to upcoming elections. -Rohit

rohit.masand.90 - 03 Feb 19, 06:00 PM

I have giving a target of Rs. 1650 (25% upside) in 9 to 12 months. Hope this helps.
-Rohit

abhinav - 03 Feb 19, 08:46 PM

Heard their Q3FY19 results were good. Are order book concerns still there? How was the management commentary?

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