Nomura upgrades L&T to 'neutral'

Nomura has upgraded Larsen & Toubro rating to ‘Neutral’ from ‘Reduce’ with a target price of Rs 1,454 after stock underperformed against Sensex so far this year. Post the recent correction, L&T is trading at 14.7 times adjusted FY14F EPS, which is close to its pre-FY05 oneyear forward P/E multiple levels and factors in visible risks to margins and order/revenue growth in the near term. In the first part of the series of notes on de-constructing the diverse business segments of L&T, Nomura explore the buildings & factories (B&F) segment, which has been the key driver of L&T’s recent order growth. “Our bottoms-up analysis suggests that order growth from the B&F segment is peaking out and incremental growth is contingent upon L&T’s aggression with which it targets the mid-income housing segment, where margin/ROE are much lower,” Nomura said in a note.