vengabeats
Nilesh Nagdev
Broking house, Morgan Stanley is bullish on Larsen and Toubro. It has recommended overweight rating on the stock with a target price of Rs 3,024.
The Morgan Stanley report on L&T: Bigger and better than the rest, and still growing well
Best of both worlds - growth as well as size
"Within the construction universe in India, L&T remains the largest and the most diversified play. With F2006 sales of Rs 148 billion, it compares well even with the large regional construction companies (especially those in Korea.) Despite its size, L&T continues to clock impressive growth (ex-cement sales grew at a CAGR of 28% over F2002-06), and its Rs 283 billion order book supports our belief that this trend will continue."
Margin compression to be comparatively limited
"The infrastructure construction segment has shown significant margin compression, led mainly by roads and other low-tech areas. With nearly 60% of its business coming from non-infrastructure corporate capital spending, we believe L&T is better protected from margin pressure than most of its peers. Its ventures into less competitive areas such as defense and aerospace should also help margin stability."
BOT/BOOT projects and JVs add significant value
"While the core engineering and construction business is doing well by itself, L&T's infrastructure development forays, along with its investments in subsidiaries and joint ventures, are creating solid value, in our opinion. We estimate that the company's BOOT/BOT projects would be worth Rs 185 per share."
Our Rs 3,024 price target implies 20% return
"We assume coverage of L&T shares with an Overweight rating and Rs 3,024 price target, implying a 20% return. While the company looks fairly valued on most earnings-based metrics, we believe that the metrics do not take into account higher growth at the margin. Since we expect a stable environment for the construction universe (led mainly by infrastructure spending), we use a DCF model to value L&T."
Source:-moneycontro l
The Morgan Stanley report on L&T: Bigger and better than the rest, and still growing well
Best of both worlds - growth as well as size
"Within the construction universe in India, L&T remains the largest and the most diversified play. With F2006 sales of Rs 148 billion, it compares well even with the large regional construction companies (especially those in Korea.) Despite its size, L&T continues to clock impressive growth (ex-cement sales grew at a CAGR of 28% over F2002-06), and its Rs 283 billion order book supports our belief that this trend will continue."
Margin compression to be comparatively limited
"The infrastructure construction segment has shown significant margin compression, led mainly by roads and other low-tech areas. With nearly 60% of its business coming from non-infrastructure corporate capital spending, we believe L&T is better protected from margin pressure than most of its peers. Its ventures into less competitive areas such as defense and aerospace should also help margin stability."
BOT/BOOT projects and JVs add significant value
"While the core engineering and construction business is doing well by itself, L&T's infrastructure development forays, along with its investments in subsidiaries and joint ventures, are creating solid value, in our opinion. We estimate that the company's BOOT/BOT projects would be worth Rs 185 per share."
Our Rs 3,024 price target implies 20% return
"We assume coverage of L&T shares with an Overweight rating and Rs 3,024 price target, implying a 20% return. While the company looks fairly valued on most earnings-based metrics, we believe that the metrics do not take into account higher growth at the margin. Since we expect a stable environment for the construction universe (led mainly by infrastructure spending), we use a DCF model to value L&T."
Source:-moneycontro l