Brokers’ call: HSBC downgrades L&T

HSBC has downgraded the rating of Larsen & Toubro to ‘Neutral’ and set a target price of Rs 1,761. The new target price implies the stock will trade at 16.1x September 2014 HSBC consolidated EPS.

The target price is derived using a sum-of-parts approach where parent L&T is valued at 15x standalone September 2014 EPS along with subsidiaries at Rs 423.

L&T’s stock is up 62% year to date and 20% in the past month and has outperformed BSE Sensex by 41% year to date. The stock is now trading at 18x one-year forward consensus EPS and mere 13% below its five-year mean.