Comments
Motilal Oswal
L&T (Buy)
CMP: ₹1,133.3
Target: ₹1,400
Meeting FY18 order guidance (12-14 per cent growth; MOSL estimate: 12 per cent growth) is dependent on finalisation of large-ticket domestic projects in Infrastructure and Defense. Post a subdued 1HFY18, the dependency on 2HFY18 would be high.
Domestic E&C execution grew 15 per cent y-o-y in 1QFY18 — GST woes are likely to slow down growth during 2Q-3QFY18. We build in 10 per cent/15 per cent growth in FY18/19.
Working capital is likely to expand post a bottom in 4QFY17 to 18 per cent (20 per cent in 1QFY18) — pick-up in domestic execution and GST would be the key reasons, in our view.
We maintain Buy, with an SOTP-based price target of ₹1,400 (E&C business at 25x FY19E EPS, to which we add ₹450 for subsidiaries).
Key risks: a) sharp slowdown in government spending; and b) sharp fall in oil prices in West Asia.
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