Larsen & Toubro (Q1 FY21) - BUY (Target Rs1203, Upside 31%) - YES Securities

L&T delivered consolidated EBITDA beat (+51%/+41% vs Our/Cons. Bloomberg est.) led by, 1) Good IT services performance, 2) Resilient infra margins & 3) Relatively better hydrocarbon execution. It lost sales of Rs12.5bn in owing to Covid-19 led disruptions. With partial lifting of lockdown and graded resumption of business operations, the execution is expected to improve incrementally over the 4-5 months. Consol. order book stood at Rs3.05trn, +4% yoy. Order inflow de-grew 39% yoy to Rs236bn (excl. E&A). Order pipeline is decent at Rs6.35trn (vs Rs8.5trn yoy), majorly from Water, Heavy Engineering, Power T&D & Transportation infra. Though net working capital has increased marginally by Rs4bn (26.8% of sales), it delivered noteworthy operating cash flow of Rs9bn through focus on better cash collection. Mgmt. is not witnessing any material order cancellations, execution deferrals, delay in collections or working capital deterioration, other than physical disruptions in work.

While challenges for FY21 remain in terms of new orders, execution and margins, we believe L&T is in a more favorable position than peers in a constrained liquidity environment. We like L&T as, i) Over 80% of the NIP (opportunity: Rs102trn over FY20-25) is addressable by L&T which makes it a best play on the government's planned uptick in Infra spending, ii) Market share gain in difficult times by leveraging its strong balance sheet, iii) Strong geographical diversification. Our FY21/FY22 earnings estimates remain largely unchanged as 8%/4% increase in EBITDA estimates offset by increase in finance & depreciation expenses. Retain BUY rating with SOTP based TP of Rs1,203 given its inexpensive valuations (Trades at 1yr forward EV/EBITDA of 13x vs long term avg. of 14x), healthy order book (book/bill ~2.2x) & proven diversified execution capability.

Shares of LARSEN & TOUBRO LTD. was last trading in BSE at Rs.916.35 as compared to the previous close of Rs. 920.95. The total number of shares traded during the day was 454308 in over 21935 trades.

The stock hit an intraday high of Rs. 937.8 and intraday low of 910.25. The net turnover during the day was Rs. 419489883.

Source : Equity Bulls

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