L&T has paid all of its free cash flows (FCF) generation to shareholders and has not invested on a net basis in subsidiaries over FY16-21
Chirag Batavia • 21 June 2021
CLOSED
Larsen & Toubro (L&T): BUY
Dated: 21 st June 2021
CMP: Rs.1476
Fair Value: Rs.1850
Potential Upside: 25.3%
Market Cap: Rs.2,07,717 Cr
Time Frame: 12 months
- L&T has paid all of its free cash flows (FCF) generation to shareholders and has not invested on a net basis in subsidiaries over FY16-21. The company has set the stage to deliver a high dividend payout ratio.
- L&T reported a healthy and in-line operating result in Q4FY21. The company reported a 6/14% yoy growth in the core E&C business revenues/EBITDA (operating profit), respectively for Q4FY21.
- We factor (1) 15% hit-rate in L&T’s Rs9.6 lakh cr order prospects pipeline for FY22 and (2) 70 bps margin accretion by FY23 over depressed FY21 base.
- We note strong visibility for growth over FY22 and FY23 based on the current order backlog.We expect mid-to-high teens growth in revenues/EBITDA/PAT over FY20-23.
- We retain 17x earnings multiple for the core business. We arrive at the sum of the parts (SoTP) based fair value of Rs1,850.
Note: The above is a brief note on the company, based on the inputs of KIE research report dated 15 th May 2021, which is available on their website at: https://www.kotaksecurities.com/ksweb/ResearchCall/Fundamental. Disclaimer: http://bit.ly/2n5AxIE
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