L&T: Infra revival to boost prospects

Shortlisting in a major defence order and opportunities in rail capex programme see the stock spurt 5% on Friday

The Larsen and Toubro consortium has been shortlisted for the multi-year Rs 50,000-crore battlefield management system (BMS) programme, which could translate into orders of about Rs 10,000 crore by FY17. The BMS project, which will enable real time information to various defence units to enable effective decision-making, is one of the largest defence solutions to be made locally.

The company, in partnership with Tata Power's Strategic Engineering Division, will be presenting a prototype to the defence ministry and could bag the order if its prototype (80 per cent of the cost of which will be funded by the government) is considered superior to the other consortium in the fray, of Bharat Electronics and Rolta. The Rs 50,000-crore order is spread over five years, after the initial development period of two years when both the consortia will give their prototypes. Analysts say the order could go to either or be split between the two.

Beside defence, two other segments where the company could see traction are nuclear and aerospace. Given the government's focus on infrastructure investment and the Make in India programme, the company is expected to bag more orders. The stock spurted 4.6 per cent in trading on Friday, both due to the shortlisting in the BMS order and the opportunity from the capex programme, announced in the Railway Budget on Thursday.

Analysts say the company will stand to gain, given its presence in most sectors where investments in expansion of railway network and decongestion have been announced. This could be in the civil and system contracts (1,900 km) on the dedicated freight corridors, faster execution of railway electrification and signalling systems, high-speed train network and increased off take of electrical equipment.

While the stock has gained 12 per cent over a couple of weeks, analysts feel there is still some steam left as the company is best positioned to benefit from the revival in infrastructure and capital expenditure cycle. The L&T management has indicated orders worth Rs 1.5 lakh crore orders are expected to be placed in the next one-two quarters. International orders comprise roughly 20-22 per cent of this order pipeline.