Morgan Stanley overweight on L&T, but cuts price target
Morgan Stanley continues to believe that Larsen & Toubro Ltd is a key stock to own in the India construction space as its record of gaining market share amid slowdowns over the last 15 years should stand it in good stead over the next few years.
By ET Bureau |
MUMBAI: Morgan Stanley continues to believe that Larsen & Toubro Ltd is a key stock to own in the India construction space as its record of gaining market share amid slowdowns over the last 15 years should stand it in good stead over the next few years.
The brokerage also believes that L&T���s loss on the Satyam Computer bidding process and its guidance of strong order inflows in F2010 (year-on-year growth of 25-35%) has removed the two largest overhangs on the company.
However, the brokerage has lowered the EPS projection. ���We are lowering our F2009E and F2010E EPS by 14% and 27%, respectively, to adjust for the capex slowdown, which while easing, continues to be worse than we earlier expected. The cut is mainly on the back of our assumption that L&T���s order execution period goes up 24% to 27 months over F2009-11E, leading to L&T���s revenue growth slowing to 20%. We also account for the higher impact of the slowdown on L&T���s subsidiaries vs. our previous expectations,��� said a report of Morgan Stanley.
The brokerage has also cut the target price on L&T to Rs 1093 per share from Rs 1514 per share earlier.
���We believe that consensus has turned too bearish on the capex cycle and does not give L&T credit for its long history of market share gains in such environments. Despite conservative assumptions, we are around 10-20% ahead of consensus on F2009-11E EPS and believe that the strong F2010 order inflows L&T recently guided to will result in F2011 earnings surprising on the upside,��� the brokerage added.
MS believe that award of the negotiated order from NTPC (expected in late C2009) and order by ONGC, as well as L&T���s win percentage in those orders, will be the next big drivers. As well, the brokerage continues to believe that the growth in order bookings and revenues and the y-o-y change in margins over the next three to four quarters will be the drivers of stock performance.
On NSE at 12:44 pm, the L&T stock was up 6.91 per cent at Rs 940.10. In trade so far, it has touched a high of Rs 945.80.
The brokerage also believes that L&T���s loss on the Satyam Computer bidding process and its guidance of strong order inflows in F2010 (year-on-year growth of 25-35%) has removed the two largest overhangs on the company.
However, the brokerage has lowered the EPS projection. ���We are lowering our F2009E and F2010E EPS by 14% and 27%, respectively, to adjust for the capex slowdown, which while easing, continues to be worse than we earlier expected. The cut is mainly on the back of our assumption that L&T���s order execution period goes up 24% to 27 months over F2009-11E, leading to L&T���s revenue growth slowing to 20%. We also account for the higher impact of the slowdown on L&T���s subsidiaries vs. our previous expectations,��� said a report of Morgan Stanley.
The brokerage has also cut the target price on L&T to Rs 1093 per share from Rs 1514 per share earlier.
���We believe that consensus has turned too bearish on the capex cycle and does not give L&T credit for its long history of market share gains in such environments. Despite conservative assumptions, we are around 10-20% ahead of consensus on F2009-11E EPS and believe that the strong F2010 order inflows L&T recently guided to will result in F2011 earnings surprising on the upside,��� the brokerage added.
MS believe that award of the negotiated order from NTPC (expected in late C2009) and order by ONGC, as well as L&T���s win percentage in those orders, will be the next big drivers. As well, the brokerage continues to believe that the growth in order bookings and revenues and the y-o-y change in margins over the next three to four quarters will be the drivers of stock performance.
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On NSE at 12:44 pm, the L&T stock was up 6.91 per cent at Rs 940.10. In trade so far, it has touched a high of Rs 945.80.
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