Dolat Capital recommends 'Sell' on L&T
At current price L&T is trading at ~50% premium to Sensex valuation despite relatively slower earnings growth.
By ET Bureau |
MUMBAI: Dolat Capital has recommended ‘Sell’ call on Larsen & Toubro after attending its Annual General Meeting. The brokerage has set a target price of Rs 1626, around 13% downside from current levels.
“We estimate 22% sales CAGR (based on 36 month average execution cycle) and 18% profit CAGR over FY10-12E. We believe current valuations of 26.5xFY11E and 21.4xFY12E earnings (excluding subsidiaries) do not justify L&T’s 18% profit CAGR trajectory over FY10-12.
Moreover at current price L&T is trading at ~50% premium to Sensex valuation despite relatively slower earnings growth (Sensex earnings likely to grow by 21% CAGR agaist L&T’s 18% over FY10-12). Though we are upbeat on the growth prospects of the company (based on strong order book and improving business outlook), rich valuations makes our view negative on the stock.
In FY10 L&T’s subsidiaries and associate companies contributed ~16% to its consolidated sales and profits. L&T is planning to list its financial services subsidiary L&T finance in H2FY11 and L&T Infotech in FY12.
We don’t foresee value unlocking exercise in subsidiaries to trigger major upside in L&T stock due to their relative small size.
At CMP Rs 1859 the stock trades at 26.5xFY11E and 21.4xFY12E earnings (excluding subsidiaries). We value L&T stock at Rs 1626 (Core business-Rs1344, Subsidiaries- Rs 282) with sell recommendation,” the report said.
“We estimate 22% sales CAGR (based on 36 month average execution cycle) and 18% profit CAGR over FY10-12E. We believe current valuations of 26.5xFY11E and 21.4xFY12E earnings (excluding subsidiaries) do not justify L&T’s 18% profit CAGR trajectory over FY10-12.
Moreover at current price L&T is trading at ~50% premium to Sensex valuation despite relatively slower earnings growth (Sensex earnings likely to grow by 21% CAGR agaist L&T’s 18% over FY10-12). Though we are upbeat on the growth prospects of the company (based on strong order book and improving business outlook), rich valuations makes our view negative on the stock.
In FY10 L&T’s subsidiaries and associate companies contributed ~16% to its consolidated sales and profits. L&T is planning to list its financial services subsidiary L&T finance in H2FY11 and L&T Infotech in FY12.
We don’t foresee value unlocking exercise in subsidiaries to trigger major upside in L&T stock due to their relative small size.
At CMP Rs 1859 the stock trades at 26.5xFY11E and 21.4xFY12E earnings (excluding subsidiaries). We value L&T stock at Rs 1626 (Core business-Rs1344, Subsidiaries- Rs 282) with sell recommendation,” the report said.
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