Saturday, January 31, 2009

Larsen and Toubro CMP 690

L&T has announced excellent results and very easily it is one of the best performances in Q3 as far as India Inc is concerned. (Press Release Link)

· Sales growth of 35% to Rs 8700 Crore, PAT growth of 216% to Rs 1520 Crore (including one-time gain of Rs 916 Crore after sale of RMC business)

· For nine months ended 31 Dec 2008, Sales growth of 41% and PAT from normal operations grew by 30%.

Segment performance:-

In spite of Engineering activity being sluggish on account of industry slowdown, L&T's E&C division order flow was up 17% and revenues grew 54% YoY. Electronic and Electrical segment witnessed some deceleration as revenues there grew by 3%. MIP (Machine and Industrial Products) Segment revenues saw degrowth of 9%.

Overall order book for the nine months stands at Rs 39100 Crore growing by 30%.

Outlook:- World is grappling with recession and India is not separate from the world. But the impact so far has been limited up to falling revenues and profits for the industry. Even in such an environment, L&T has stood out and delivered so far. So it looks like a fine bet at current valuations and can earn handsome returns for the investors with a long-term view.

Fears about Satyam:- L&T had 4% stake in Satyam and now it is 12%. Going by news reports and various announcements, the investment in Satyam shares (8.11 Crore) by L&T comes to around Rs 630 Crore which is less than the one time gain of Rs 916 Crore they earned as other income. So what L&T has done is that they invested the one-time gain in Satyam, which makes a perfect business sense in my view. They have nothing to lose here as even if they write off this investment, only this one time gain is going to disappear. In current results also, if we ignore the RMC business gain of Rs 916 Crore, the Net Profit has till grown by 25%. So is there any worry on Satyam now? I don't think so!

Technical Evaluation:-

L&T has been range-bound for some time and has very strong support at 630-640 levels. The upside can be Rs 100-120 rupees more from here. 630 can be the SL for short-term investors.

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