New year stock - L&T

Buy - LT

CMP (NSE) 15:56, 27 May

1,600.30 35.752.29%

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Sector

Infrastructure

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Reco. Price

1,885

Period

12-Months

Target Price

2,230

upside

%

Stop Loss

0

Last updated on

31 Dec, 2021

L&T is India’s largest engineering and construction company with no real peers when compared on the breadth and depth of offerings. The company’s business mix spans a large spectrum—from complex engineering, procurement and construction (EPC) contracts in the hydrocarbon, process, metals and cement sectors to development of infrastructure projects in sectors like ports, roads, metro rail and airports. L&T has been a strong player in the manufacturing of power equipment other industrial goods and machinery. L&T traditionally has strong presence in the Middle East, with multiple JVs and a manufacturing facility as well. The company has scaled up in capabilities and scale, winning large complex turnkey projects across sectors, in the face of intense international competition in overseas geographies.

Investment Rationale

Core 2QFY22 performance Rise in Telecom revenue: Ex-services revenue growth of 12% YoY was soft at Rs227bn, marred by global supply-chain led execution headwinds in Intl projects (Rs50bn, -27% YoY), while domestic revenues bounced back, at 27% YoY growth (Rs178bn, 78% of mix), with a clear cashflow-focussed approach towards execution. Despite weak DE/HE/HC OPMs, the favourable mix, release of contingency claims, cost optimisation & productivity measures helped to offset inflationary headwinds and deliver Ebitda margins of 9.2% (+110/30 bps YoY/QoQ). Deleveraging further aided a 57% YoY increase in PAT (incl corporate) at Rs12.3bn, with 34% YoY/5% QoQ reduction in gross debt at Rs238bn (net debt: Rs48bn). TTM RoCE is 22.6% (+150bps QoQ) and NWC is 22%.

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