Deutsche Bank on Larsen & Toubro Ltd..
Upgrade the stock to Buy with a 12M target price of INR 1,865/sh
Cashflows matter; these have turned around. We upgrade stock to Buy
Possibly a FCF-positive company (after nine long years); upgrading to Buy
L&T’s FY15 results were a miss at sales/margin. At the post-results analyst meet, the Q&A suggested many were not convinced of the FY16E guidance (especially on 15% top-line growth). Notwithstanding the skepticism, we see the results as the first sign of cyclical turnaround. Why? The company was able to get customer advances at 7-8% (vs. 0-3% earlier) for new orders and reported positive OCF − suggesting a bargaining power shift. Assuming weak top-line growth in FY16E, FCF becomes positive two years ahead of our forecast. After the one-year 12% underperformance to the BSE Sensex, we upgrade the stock to Buy with a 12M target price of INR 1,865/sh.
Upgrade the stock to Buy with a 12M target price of INR 1,865/sh
Cashflows matter; these have turned around. We upgrade stock to Buy
Possibly a FCF-positive company (after nine long years); upgrading to Buy
L&T’s FY15 results were a miss at sales/margin. At the post-results analyst meet, the Q&A suggested many were not convinced of the FY16E guidance (especially on 15% top-line growth). Notwithstanding the skepticism, we see the results as the first sign of cyclical turnaround. Why? The company was able to get customer advances at 7-8% (vs. 0-3% earlier) for new orders and reported positive OCF − suggesting a bargaining power shift. Assuming weak top-line growth in FY16E, FCF becomes positive two years ahead of our forecast. After the one-year 12% underperformance to the BSE Sensex, we upgrade the stock to Buy with a 12M target price of INR 1,865/sh.
