Larsen and Toubro: Opportunities galore

A strong order book and expected growth in the infrastructure space augur well for the company.

It has been good going for Larsen and Toubro (L&T). The company has bagged orders worth Rs 2,526 crore in the past two days. Indian Oil Corporation placed a Rs 1,400-crore order for supply of a 4.17-million-tonne a year fluidised catalytic cracker reactor regenerator. It also secured another Rs 1,126-crore order related to metallurgical, material handling and water sector projects.

In the current quarter, the company has announced orders of Rs 15,242 crore (Rs 91,104 crore in the first nine months of the current financial year), with the infrastructure sector leading with a 41.5 per cent contribution. Order inflows from hydrocarbon, process and power sectors stood at 19.9 per cent, 14.1 per cent and 18 per cent, respectively, with the defence sector accounting for the rest.

Going ahead, analysts suggest that orders from bulk tendering by NTPC for boilers in the coming months are expected to significantly boost the company’s order book. “We expect L&T to bag orders worth Rs 4,000-5,000 crore from NTPC,” states a report from Sharekhan.

However, the stock has underperformed the BSE Sensex during the last six months, primarily on account of the company’s poor quarterly performance. The company reported a fall of 6.2 per cent in operating income and a 50 per cent dip in net profit for the third quarter ended December 2009.

Over FY10-12E, Angel Securities expects the company to post a compounded annual growth rate of 23.5 per cent in revenues to Rs 55,496 crore with stable margins, which will primarily be driven by a robust order backlog and good order inflows.

“L&T’s growth momentum, along with better pricing power, superior margins and opportunities in the infrastructure sector, will justify superior valuations and lead to outperformance,” states an Angel Securities report.

At Rs 1,640 levels, the stock trades at around 23.3x FY12E consensus analysts’ earnings estimates and 4xFY12E P/BV on a standalone basis.