Buy Larsen & Toubro - 3QFY2012 Result Update - Angel Broking

Larsen and Toubro (L&T) posted good set of numbers for 3QFY2012, which were above our and street expectations mainly on account of robust top-line growth and higher other income. As of 3QFY2012, L&T's order backlog stands at yoy growth of 26.9% to Rs.1,45,768cr (Rs.1,14,882cr). Order inflow for the quarter grew by stunning 28.2% to Rs.17,129cr (Rs.13,366cr) covering some of the lost ground in 1HFY2012. We prefer L&T over its peers being the market leader and fundamentally the strongest infrastructure company. We maintain L&T as our top pick in the sector and, hence, continue to recommend Buy on the stock.

Decent performance: L&T reported robust top-line growth of 22.7% yoy to Rs.13,999cr (Rs.11,413cr), above our estimates of 6.6% growth, mainly on account of pick-up in the E&C segment. On the EBITDA front, performance was below our expectations mainly on account of higher-than-anticipated MTM losses. L&T reported higher than anticipated other income, owing to higher income on its investments and dividend income from subsidiaries. Therefore, the reported bottom line came in at Rs.991.6cr (14.4% above our estimates).

Outlook and valuation: During the last quarter, management had significantly cut its order inflow guidance for FY2012, mainly to factor in the general slowdown faced by the sector, but this time they have refrained from the same and maintained their revised guidance (yoy 5% growth on order inflow and 25% on revenue front for FY2012), which we believe factors in aggressive run rate for 4QFY2012 (yoy growth of 13.3% on order inflow and 32.0% on revenue front for 4QFY2012). We expect management to miss the guidance and pencil in 5% yoy de-growth in order inflow and 22.5% yoy growth in revenues for FY2012. 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 peers. We maintain L&T as our top pick in the sector and maintain Buy on the stock with a Target Price of Rs.1,466.

Source : Equity Bulls

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