The L&T stock has underperformed BSE Sensex by ~21.3% in the last three months,
owing to factors such as slowing order inflows and rising competition (especially in
the BTG equipment segment), leading to fears of slippage on order inflow guidance.
Also, L&T lost the public sector shipyard, Mazagon dock, for defense and naval
ships and failed to win the recent ONGC pipeline tenders. We believe though L&T
would find it difficult to meet its revised guidance for FY2012 (growth of 5% in
order inflow and 25% in revenue), it is better placed than its peers on a number of
counts (such as diversification and balance sheet strength).
We believe L&T is best placed to benefit from the gradual recovery in the capex
cycle, given its diverse exposure to sectors, strong balance sheet and cash flow
generation as compared to its peers, which grapple with issues such as strained
cash flow, high leverage and limited net worth and technological capabilities.
On the valuation front, due to the recent correction in prices, the stock is trading at
PE of 12.3x FY2013E earnings, adjusted for subsidiary value, which is lower than
its historical PE of 15-20x. Hence, we believe the recent correction provides a
good opportunity to Buy
owing to factors such as slowing order inflows and rising competition (especially in
the BTG equipment segment), leading to fears of slippage on order inflow guidance.
Also, L&T lost the public sector shipyard, Mazagon dock, for defense and naval
ships and failed to win the recent ONGC pipeline tenders. We believe though L&T
would find it difficult to meet its revised guidance for FY2012 (growth of 5% in
order inflow and 25% in revenue), it is better placed than its peers on a number of
counts (such as diversification and balance sheet strength).
We believe L&T is best placed to benefit from the gradual recovery in the capex
cycle, given its diverse exposure to sectors, strong balance sheet and cash flow
generation as compared to its peers, which grapple with issues such as strained
cash flow, high leverage and limited net worth and technological capabilities.
On the valuation front, due to the recent correction in prices, the stock is trading at
PE of 12.3x FY2013E earnings, adjusted for subsidiary value, which is lower than
its historical PE of 15-20x. Hence, we believe the recent correction provides a
good opportunity to Buy
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