Accumulate Larsen & Toubro; target of Rs 2050: Yes Securities

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Yes Securities' research report on Larsen & Toubro

L&T’s 4QFY17 consolidated revenue grew 12.0% YoY, however EBITDA declined 3.6% YoY, owing to 190bps slip in EBITDA margin. Although operating performance looks weak prima facie, analysis of segmental performance suggests that the disappointment is on account of services business (owing to rise in NPA in finance business and provisioning of receivables in Nabba Power).

Outlook

For FY18, the company expects order inflow growth of 12%-14%, revenue growth of 12% and EBITDA margin expansion of 25 bps. We expect L&T to witness revenue/ EBITDA/ adj. PAT CAGR of 13.3%/17.0%/17.7% over FY17-19E and continue its focus on RoE improvement. At CMP, the stock trades at FY18E/FY19E PE of 24.0x/20.1x. Upgrade to ACCUMULATE rating with revised TP of INR 2,050 (from INR 1,600 earlier).

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