Better days ahead for L&T and HDFC?

While L&T has moved up 3.2% to Rs 1,037 levels on the Bombay Stock Exchange (BSE) in morning deals, HDFC has gained nearly 1% on the National Stock Exchange (NSE) to Rs 848 levels

Stocks of engineering major Larsen and Toubro L&T) and housing finance giant Housing Development Finance Corporation Ltd (HDFC) have reacted in  trade today post the companies announcing their December quarter results.

While L&T has moved up 3.2% to Rs 1,037 levels on the Bombay Stock Exchange (BSE) in morning deals, HDFC has gained nearly 1% on the National Stock Exchange (NSE) to Rs 848 levels.

So, what lies ahead for these two heavyweights? Are the results and the road ahead a compelling reason for you to take the plunge and buy these counters at the current levels, or should you exit given the fine print in the result statements?

Technical analysts suggest that both the stocks look good on the charts.

“Both of them are very good charts, in terms of a medium-to-long term perspective and are trading above the 200-DMA and have shown some good momentum in the last one-and-a-half month. We believe they could rise by more than 7-10% in the next three months timeframe,” said Kunal Bothra, technical analyst with LKP Securities. (Click here for the full transcript)

Larsen and Toubro

Net profit for the recently concluded quarter at Rs 1,241 crore for the quarter ended December was 22% higher year-on-year (y-o-y) basis and beat estimates. The rise comes on the back of an exceptional gain of Rs 104 crore. Excluding this, the net profit rose to Rs 1,137 crore, up 12% compared to the previous corresponding period.

“L&T’s revenue growth of 12% y-o-y was in-line with our and consensus expectations. Order inflows also rose 21% y-o-y and were higher than our and consensus estimates. On the negative side, interest expense continued to increase at a fast pace; however, the impact of this was offset by higher dividends,” said Aditya Bhartia, an analyst tracking the sector with Espírito Santo Securities.

“We make 3-4% upgrades to our FY14/15/16 EPS estimates - the benefit of higher margins gets offset by increased interest costs. We believe L&T will miss its FY14 revenue and order-flow guidance. We roll forward our valuation by 12 months, resulting in our FV (fair value) going up to Rs 1,035/share (from Rs915),” he adds.

 
Point out Venugopal Garre, Manish Agarwal, Saurabh Mishra of Barclays Capital in a note, “While our estimates are not comparable with the reported numbers given the demerger of Hydrocarbon business, the reported recurring PAT (ex-hydrocarbons) is higher than our estimates (which includes hydrocarbon business), suggesting a strong beat. With L&T continuing to perform well in a tough environment, the good quarter performance makes us retain our overweight rating on the stock.”

HDFC

So far, HDFC's overall profitability has remained unscathed, thanks to demand for homes in smaller cities as well as income from other businesses.
 
On a standalone basis, HDFC recorded 12% in its net profit to Rs 1,278 crore in the recently concluded quarter as compared to Rs 1,140 crore in the previous corresponding period. Total income increased to Rs 6,019.80 crore during the three-month period, from Rs 5,250.40 crore in the year ago period.

 
“The lender has said it is betting on increased loan demand in smaller cities to boost growth in a slowing economy, which is a positive sign. Asset quality has remained healthy over the past several quarters and the trend is likely to continue. HDFC trades at AP/ABV of 3.8x FY15E BV of Rs 146. We maintain a Buy rating,” said Rikesh Parikh, vice-president (Institution & Corporate Broking), Motilal Oswal Securities.
 
However, Vaibhav Agrawal, vice-president (research – banking) with Angel Broking maintains a neutral rating on the counter. “The stock has surged significantly from the lows witnessed in the month of September 2013 and currently, HDFC’s core business (after adjusting Rs 321/share towards the value of its subsidiaries) trades at 3.5x FY2015E ABV, which in our view, offers limited scope for upside here on,” he says.