Buy Larsen & Toubro, target price Rs 1625: Motilal Oswal

Buy Larsen & Toubro, target price Rs 1625:  Motilal Oswal

Motilal Oswal Financial Services has buy call on Larsen & Toubro with a target price of Rs 1625. The current market price of Larsen & Toubro Ltd. is Rs 1491.5.

Larsen & Toubro Ltd., incorporated in the year 1946, is a Large Cap company (having a market cap of Rs 203926.16 Crore) operating in Construction sector.

For the quarter ended 31-12-2020, the company reported a Consolidated Total Income of Rs 36661.08 Crore, up 16.04 % from last quarter Total Income of Rs 31593.77 Crore and down -.14 % from last year same quarter Total Income of Rs 36711.69 Crore. Company reported net profit after tax of Rs 2849.08 Crore in latest quarter.

Investment Rationale
The brokerage expects L&T to witness core E&C revenue/EBITDA/adjusted PAT CAGR of 16%/14%/17% over FY21-23E. It estimates largely account for commodity price inflation risk. The consolidated revenue/EBITDA/adjusted PAT CAGR estimate stands at 16%/20%/29% over FY21-23E, helped by L&T Finance Holdings and lower losses in Hyderabad Metro. Maintain Buy with TP of INR1,625 per share on account of: a) core business target P/E multiple of 20x v/s longterm average of 22x, and b) contribution from four listed subsidiaries, after applying a 20% holding company discount. Adjusted for valuation of subsidiaries, L&T trades at FY22E/FY23E P/E of 19.7x/17.6x, providing ample valuation comfort. Should the stock move to its long-term average multiple of 22x, our target price would stand at INR1,725 per share, assuming no change in the valuation of its subsidiaries.

Promoter/FII Holdings
Promoters held 0 per cent stake in the company as of Dec 31, 2020, while FIIs held 18.8 per cent, DIIs 17.2 and public and others 64 per cent.

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