Jefferies stays positive on Larsen & Toubro on strong order book

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Published: December 9, 2016 6:09:59 AM

Awards in 5 key Middle East (ME) markets declined by 10% y-o-y in 7MFY17, and overall ME was down 24% y-o-y. However, ex of 2 sizeable refinery orders $1 0 billion in Kuwait in July 2015, awards were up 18.5% y-o-y in 7MFY17 in the 5 key markets.

Larsen & TourboUAE orders have risen 138% y-o-y, with Dubai being the major contributor.(PTI)

Awards in 5 key Middle East (ME) markets declined by 10% y-o-y in 7MFY17, and overall ME was down 24% y-o-y. However, ex of 2 sizeable refinery orders $1 0 billion in Kuwait in July 2015, awards were up 18.5% y-o-y in 7MFY17 in the 5 key markets.

Along our expected lines strong growth in Qatar awards has been offset by weakness in Saudi Arabia. We maintain FY17E awards in the key markets would see a 0-10% y-o-y growth at best.

The 5 key markets – Saudi Arabia, UAE, Qatar, Kuwait and Oman – accounted for 71% of the $54 billion 7MFY17 awards. Egypt and Iran awarding $12 billion (22% of 7MFY17 awards) projects reduced the share of the key markets which typically is 80%+ of overall awards. World Cup 2022 drives ordering in Qatar with $4 billion awards between road development and one stadium.

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UAE orders have risen 138% y-o-y, with Dubai being the major contributor. We believe World Expo 2020 is contributing to the rise in Dubai’s infrastructure spend.

L&T including JV bagged $2.6 billion awards in 7MFY17. These orders should see execution in FY18E-19E and contribute to revenue pick-up. We remain positive on L&T as strong order book will drive execution recovery and shrinking B/S through monetisation and reducing working capital will gradually enhance ROE.

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