Morgan Stanley recommends 'buy' on L&T

Larsen & Toubro
Research: Morgan Stanley
Rating: Overweight
CMP: Rs 2,590

Morgan Stanley believes that fears of the impact of a slowdown in the capex cycle in India on Larsen & Toubro (L&T) are exaggerated. It expects L&T to gain market share during the slowdown, so the risk-to-growth estimates will remain low. Morgan Stanley believes L&T is the lowest risk play in the sector and strongly recommends buying into any weakness.

However, despite the upgrade, Morgan Stanley estimates a CAGR of 25% for L&T���s standalone earnings over FY08-10E against 57% over FY06-08E. L&T will be cushioned from the slowdown due to its propensity to gain market share in slowdowns, its entry into newer verticals and its exposure to the Middle East. On a bottom-up basis, healthy capex trends in verticals (E&P and metals) further increase the company���s ability to weather the slowdown.