We hereby present you our investment idea for Equity Investment i.e “Pick of the Week”. A thorough analysis of company, industry and economy goes behind our stock ideas for you. With the “Pick of the Week”, you may earn superior returns in stock market over a time horizon of 6 – 9 months.

INVESTING RATIONALE

• Strong Execution: Larsen and Toubro reported another strong set of numbers in Q4FY19. Consolidated revenue increased by 10.46 % YoY to Rs 44,933 crore in Q4FY19 from Rs 40,678 crore in Q4FY18, primarily led by infra, hydrocarbon, realty and services businesses. Profit at Rs 3,4184 crore was up 8% YoY. Consolidated EBITDA margins however declined 80 bp yoy to 12.5% and were dragged down by 130bp yoy decline in Infra segment margins to 8.5%. Infrastructure margin was impacted due to increase in commodity prices, job mix and one time provision of Rs 300 crore.

• Robust Order Book: FY19 order inflow grew 15.6% yoy and order book stood at Rs 2,93,427 crore as of March 31, 2019. Order Inflow during Q4FY19 was Rs 56,538 crore, up 14% YoY led by the strong growth of 72% YoY in International orders. The order book of infrastructure segment stood at Rs 2,21,850 crore. Robust bid pipeline for FY20 provides visibility for continued traction in order inflows.

• Healthy financial with improving RoE: For FY19 consolidated net cash flow from operations was at Rs 9130 crore. Net working capital improved by 200 bps to 18% YoY while RoE improved 120 bps to 15.2%, YoY. Borrowings (ex-services) were up by Rs 1800 crore during FY19. Company is continuously moving away from the noncore and lower margin business to increase revenue contribution of high margin Services (IT and Finance) business.

Outlook: L&T maintained its revenue growth and order inflow guidance at 12-15% and 10-12% for FY20. The momentum set on infrastructure building, coupled with incremental tax revenues, the emphasis on investments in areas such as airports, railroads, water supply and distribution, expressway programs, power availability, Oil & Gas production and mass rapid transit system is expected to continue. Further revival of stressed businesses and recovery of NPAs are expected to ease the concerns on liquidity and perk-up the business sentiment. Improved credit growth is also expected to aid an uptick in private capex in areas of transportation infrastructure, green energy, commercial real estate, digital technology & services.

• We have a Buy with a target price of Rs. 1,498