Larsen & Toubro (SELL): It's not there yet
Pain of high infra segment exposure and lack of short cycle orders in India is now visible; surprisingly, Middle East continues to hold up. Continued order chasing and rising international exposure/book-to-bill/ employee costs don't provide any predictability of progress in this 'just a large franchise' which suffers from poor project selection/ capital allocation. We cut our FY16/17/18 standalone estimates for revenue growth to 4%/7%/11% and EBITDA margin to 9.6%/9.6%/10.5% building moderation in international growth but an eventual domestic pick up; cut core eps est by >20%. Our new TP is Rs1,175 (standalone Rs655, 14x FY18 core EPS); stable embedded value/standalone balance sheet provide support as E&C's valuation (still not worst case) deservingly re-sets for its low growth/margin/RoEs. Higher margins in India and painful steps to tidy up the business are the key upside risks. (Nitin Bhasin, +91 22 3043 3241)
(Click here for detailed note)
L&T Infotech (NOT RATED): Nothing special about it
L&T Infotech (LTI) is an average, mid-sized IT services company without any major differentiating competitive advantages or portfolio mix. Its exposure to fast-growing services (IMS, digital, engineering services) is low and its lower revenue and EBIT per employee suggests that the work LTI does is relatively low-end as compared to peers. The company has been plagued by management churn over the last five years and has a sub-optimal organization structure (parallel chains of command for delivery and sales). The new CEO, Sanjay Jalona (Infosys veteran, our primary checks are highly positive) has a tough job ahead. This report contains key questions which investors should ask the management before deciding whether or not to subscribe in the IPO. (Sagar Rastogi, +91 22 3043 3291)
(Click here for detailed note)
-- Pain of high infra segment exposure and lack of short cycle orders in India is now visible; surprisingly, Middle East continues to hold up. Continued order chasing and rising international exposure/book-to-bill/ employee costs don't provide any predictability of progress in this 'just a large franchise' which suffers from poor project selection/ capital allocation. We cut our FY16/17/18 standalone estimates for revenue growth to 4%/7%/11% and EBITDA margin to 9.6%/9.6%/10.5% building moderation in international growth but an eventual domestic pick up; cut core eps est by >20%. Our new TP is Rs1,175 (standalone Rs655, 14x FY18 core EPS); stable embedded value/standalone balance sheet provide support as E&C's valuation (still not worst case) deservingly re-sets for its low growth/margin/RoEs. Higher margins in India and painful steps to tidy up the business are the key upside risks. (Nitin Bhasin, +91 22 3043 3241)
(Click here for detailed note)
L&T Infotech (NOT RATED): Nothing special about it
L&T Infotech (LTI) is an average, mid-sized IT services company without any major differentiating competitive advantages or portfolio mix. Its exposure to fast-growing services (IMS, digital, engineering services) is low and its lower revenue and EBIT per employee suggests that the work LTI does is relatively low-end as compared to peers. The company has been plagued by management churn over the last five years and has a sub-optimal organization structure (parallel chains of command for delivery and sales). The new CEO, Sanjay Jalona (Infosys veteran, our primary checks are highly positive) has a tough job ahead. This report contains key questions which investors should ask the management before deciding whether or not to subscribe in the IPO. (Sagar Rastogi, +91 22 3043 3291)
(Click here for detailed note)
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