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Larsen and Toubro (L&T) has announced order win worth Rs 10,847 crore for Q1FY2013 with the real estate and construction sector leading with a 45% contribution.

Although the orders announced in Q1FY2013 have shown a decline on a yearly basis due to a higher base of orders in the previous year, yet during this quarter the company witnessed some major breakthrough deals in the defence, shipbuilding, airport and road sectors.

Please also note that the orders bagged during the quarter were historically much higher than the orders announced and varied widely.

We also feel that the diversity of its business continues to cushion its overall financials in a tough business environment. The company is also seeking to sell a stake in its infrastructure unit to help fund its expansion plans for roads, ports and bridges.

We remain positive on L&T as it is the best proxy for India’s infrastructure growth story. However, the key downside risks for the company remain the high interest rates and the slowdown in infrastructure spending.

The company is trying to mitigate this risk by diversifying its business and geographies. Moreover, the current valuation at 13.7x FY2014 estimate largely factors in these concerns as the same is still much lower than its six-year average one-year forward multiple of 23x.

We have revised the price target marginally upwards to Rs 1,529 (on the rollover of target multiple of 14x on FY2014 earnings estimate). We maintain our Buy recommendation on the stock.



Source: Sharekhan