Thursday, July 21, 2011

L & T Buy on dips

Larsen & Toubro Ltd is a name known to most people. It is one of India's leading engineering and construction company. Let's see what is its business and how it operates:

Revenue segregation: Its business operations are categorised in three segments, as given below:

a) Engineering & Construction (E & C) segment

b) Electrical & Electronics Segment

c) Material Handling & Industrial Products

L & T has performed robustly in all its parameters over the last 10 years. Its impressive fundamentals in the past form a strong base for its future.

L&T has clocked an impressive CAGR of 67 per cent in its EPS (earnings per share) which has been possible due to the strong investment back into the business which is evident from its high BVPS (book value per share) CAGR of almost 50 per cent. Also, it has improved its margins over the years from a stagnant average of 10 to 11 per cent from FY 03 to FY 06 to 15 per cent in the last 4 years. In fact in 2010 the company's operating margin has increased to 19 per cent.

It's sales have registered a CAGR of 19.6 per cent over the last 10 years, indicating a good order inflow over the years. Over the past 5 years the CAGR of order inflows has been 33 per cent. This has helped the company register an impressive 67.2 per cent CAGR over the last 10 years.

The company has been witnessing an increase in order inflows since the past few months. Order inflow for the quarter ended June 2010 was Rs 15626 crore, up 63 per cent on y-o-y basis. The company expects increased bidding activities in the next few months and expect this momentum to continue. As of June 2010 the company has a healthy order book of Rs 1,00,239 crore to be completed over the next 2 to 3 years. Recently, the company bagged 2 projects worth Rs. 1200 Cr. from ONGC to set up additional processing units at its plants. Hence, this is expected to ensure good revenue growth in the coming quarters.

L & T is one of the leading players in the Indian engineering industry. It is poised for good growth in future considering the government focus and spending on infrastructure & power, its strategic plans and capacity expansions. But it needs to work on a plan to manage its operating inefficiencies.

The scrip has been a slow performer for the past 1 year and is expected to do better going forward

Time Span Price Change %Change
Today 1,790.05 -8.35 -0.46
Week 1,800.55 -2.15 -0.11
Month 1,658.55 139.85 8.43
Three Months 1,703.90 94.50 5.54
Six Months 1,649.05 149.35 9.05
One Year 1,902.20 -103.80 -5.45

The company has a strong support around 1600 levels while 2000 range would be huge resistance, getting past it can go to 2500 mark swiftly. Buy for Portfolio and long term !

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Ingenious Investor
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Ravina Consulting
Pattamal Plaza
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