 "L&T continues to lead hope rally")
In six months, India’s largest engineering and construction company, Larsen & Toubro (L&T), has come a long way. Till recently, the company was finding it tough to convince analysts it would meet its FY14 growth forecasts on revenue and order inflow. Although orders kept flowing in, sceptics continued doubting L&T’s estimates, as there was no sign of improvement in the country’s investment climate.
However, after the third-quarter results, the market’s perception has altered. With L&T hiving off the hydrocarbon business, analysts believe the standalone business will not only deliver 15 per cent revenue growth in FY14 but maintain stable margins. Consensus estimates on the company’s FY14 earnings per share (EPS) are up by 1.07 per cent, following the earnings upgrades.
The stock has returned 16 per cent since January and 71 per cent since September 2013. Despite this, strategists believe there is more steam left in it. There are at least five reasons analysts are citing. First, the company tends to rally prior to the general elections. The stock has been the most consistent performer over the years and returned absolute positive returns (23 per cent average) in the three months preceding at least five elections. In contrast, the BSE 100 has risen 12 per cent on an average during that period. If a strong and stable government comes to power, the company is best placed to benefit from it.
The company has held on to its leadership position in the domestic market despite challenges. The international business, too, is faring well, which has driven order inflow through FY14. The company has maintained its FY14 revenue estimate at 15 per cent and lowered that on order inflow marginally from 15-20 per cent to 15 per cent.
However, after the third-quarter results, the market’s perception has altered. With L&T hiving off the hydrocarbon business, analysts believe the standalone business will not only deliver 15 per cent revenue growth in FY14 but maintain stable margins. Consensus estimates on the company’s FY14 earnings per share (EPS) are up by 1.07 per cent, following the earnings upgrades.
The stock has returned 16 per cent since January and 71 per cent since September 2013. Despite this, strategists believe there is more steam left in it. There are at least five reasons analysts are citing. First, the company tends to rally prior to the general elections. The stock has been the most consistent performer over the years and returned absolute positive returns (23 per cent average) in the three months preceding at least five elections. In contrast, the BSE 100 has risen 12 per cent on an average during that period. If a strong and stable government comes to power, the company is best placed to benefit from it.
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Second, the company has emerged stronger from a weak economic environment. Given its significant market share gains across sub-sectors, Citi believes the company will outperform peers whenever accelerates. Third, businesses like shipbuilding, nuclear forgings, ports, roads and metro projects that are a drag on the earnings have been factored in already. Fourth, the domestic capex cycle is expected to revive in FY16. Finally, thanks to the strong order inflow over the past couple of years, standalone L&T is poised to deliver 15 per cent annual revenue growth over FY14-16.
The company has held on to its leadership position in the domestic market despite challenges. The international business, too, is faring well, which has driven order inflow through FY14. The company has maintained its FY14 revenue estimate at 15 per cent and lowered that on order inflow marginally from 15-20 per cent to 15 per cent.