Buy this large-cap Infra share for an increase of 24.5% in 1 year: Emkay Global


The brokerage’s perspective on Larsen & Toubro (LT)

Emkay Global pointed out in its research report that “The metro is currently recording a quarterly loss of Rs3.5-4 billion, largely due to low ridership and high debt on the books. At the end of FY21, it had an external debt of ~ Rs140 billion, with an average interest rate of 9-9.5%. According to media reports, LT plans to raise up to Rs136bn through bonds and commercial paper. In the process, financing costs are expected to drop by around 200-250bp. This should lead to an annual saving in interest charges of around 3 billion rupees. LT is considering various other options, including 1) selling interests in developed real estate (it owns 1.3 million square feet of developed real estate); 2) the sale of stakes in the metro; and 3) state government support in the form of grants or claims. Earlier, media also reported that a committee was being formed in the state to address the issue of the pandemic’s impact on ridership. There has been news of some companies interested in buying a stake in the metro. In our view, in the medium term, LT will be able to reduce the metro’s annual losses by around Rs 18 billion. “

According to the brokerage firm, “Overall, the Engineering and Infra space saw 20% year-on-year growth in orders in the first half of fiscal 22, but entries in the first two months of the third quarter of fiscal year Fiscal 22 was moderate (down 20-30% year-on-year) as last year saw significantly large orders for high-speed rail. Tenders improved from 5% to YOY growth in S1FY22, with YTD growth rising to 17%, aided by a few large tenders. Even after ignoring these large long term tenders, YTD growth stands at 11%. “

Buy Larsen & Toubro, Says Emkay Global Financial Services

Buy Larsen & Toubro, Says Emkay Global Financial Services

According to the brokerage’s research report, “According to media reports (The Economic Times, 22-Dec-21), LT plans to raise 136 billion rupees through bonds and commercial paper to refinance debt. linked to Hyderabad Metro (HM). The average cost of debt for the metro is currently 9-9.5%. This will result in annual savings of around 3 billion rupees, which will lead to less losses in the Hyderabad metro. Additionally, HM’s ridership recently hit 250,000 per day, up from around 190,000 in the second quarter of FY22. However, it remains below pre-Covid levels of 400,000. Besides the refinancing of the HM loan, LT examines various other options such as sale of developed real estate, sale of stakes in metro, Telangana government claims / grant to minimize losses. “

The brokerage asserted that “We reiterate Buy and increase the TP to Rs 2,320 (December 22E) from Rs 2,200 as we take into account the higher valuation of IT affiliates as per valuation by Emkay of LT Infotech and Mindtree. We also increase our FY23 / FY24 EPS estimates by 3% / 2%. Although overall allocation has been slow in recent months, the pace of tenders has remained high, which gives confidence in the influxes for the exercise. “



The stock was featured in the brokerage report of Emkay Global Financial Services Ltd. Investing in stocks presents a risk of financial loss. Investors should therefore exercise caution. Greynium Information Technologies, the author and the brokerage are not responsible for any losses caused as a result of decisions based on the article.


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