L&T shares shrug off World Bank ban concerns

L&T was recently barred for 6 months by the World Bank for an executive was found indulging in fraud

Shares of engineering conglomerate Larsen & Toubro (L&T) ended higher on Monday, recouping early losses, driven by a six-month ban on the company by the World Bank. After finding that an L&T executive had indulged in fraud, the World Bank had barred L&T from doing any business with it, or the projects funded by it, for six months.

The announcement was made after market hours on Friday. Reacting to the development, L&T’s stock on Monday fell 2.73 per cent to an intra-day low of Rs 1,455.25 on the BSE. Similar movement was seen on the National Stock Exchange, where the firm’s shares after opening at Rs 1,460, fell 2.75 per cent to an early low of Rs 1,456.25 apiece.

The debarment would continue till September 6, making L&T ineligible for being awarded contracts for any World Bank-funded projects, from receiving any loan proceeds made by the Bank, or participating in any World Bank-financed project. The stock, however, recovered the lost ground before closing 0.65 percent higher at Rs 1,505.80.

“The sanctions imposed by the World Bank for six months ending September 6, 2013, from participating in World Bank funded/executed projects, are not expected to have material impact on the company’s present or future operations or its profitability or financials,” L&T had said on Friday.

According to HSBC Global Research, the impact of the ban on the stock would be short-lived. “L&T has a very healthy track record of strong corporate governance standards for more than 20 years (also acknowledged by World Bank in its release). A single slip-up (as evident currently) in our view is unlikely to dent investors’ confidence meaningfully over the long term,” said Ashutosh Narkar, analyst, HSBC Securities and Capital Markets.

Recently, Goldman Sachs upgraded the stock from ‘neutral’ to ‘buy’, citing cheap valuations after its recent underperformance against the Sensex and stable revenue growth prospects. HSBC has assigned a ‘neutral’ rating to L&T with a price target of Rs1,761.