Is there any steam left in L&T?

The stock, which has given positive returns preceding atleast 5 elections, is best placed to benefit from a stable govt

The benchmark indices have been riding on hope all through last week. But then that was almost a given as markets rally before every election. The BSE 100 has risen by 12% on an average in the three months preceding every election. So this time is no exception. However, this isn't the only pattern. There are some stocks that the markets stock up on before elections and Larsen & Toubro is one of them. The stock has been the most consistent performer over the years and has returned absolute positive returns (23% average) in the three months preceding at least five elections. If a strong and stable government comes to power, the company is best placed to benefit from it.

Despite the 50% run up in the stock since August 2013, analysts believe that the stock still has some steam left in it. The company has held on to its leadership position in the domestic market despite challenges. Its international business too is faring well, which has driven order inflows through FY14. The company has maintained its FY14 revenue guidance at 15% and lowered order inflow guidance marginally from 15-20% to 15%.
 
According to Citi, FY14 sales would grow by 13% (with upside risks), implying fourth quarter sales growth at 21%. The company’s nine-months EBITDA margins are up 44 basis points year-on-year. The brokerage says: “We build 36 basis points margin decline in Q4 implying FY14 margins would move up 19 basis points y-o-y. Overall, we expect 4Q PAT of Rs 1,820 crore (+14% y-o-y.)”

Also, going by the order backlog, analysts expect the company’s sales growth to sustain at 15% levels even if order inflows don’t sustain in FY15 and FY16.