Goldman Sachs upgrades Larsen & Toubro to ‘buy’

Goldman Sachs upgrades Larsen & Toubro to ‘buy’Global financial giant, Goldman Sachs has upgraded the shares of Indian engineering and construction conglomerate, Larsen & Toubro to "buy" from "neutral".

The investment bank said that upgrade is mainly due to the under-performance by company shares against the broader index and the stability in the flow of revenues during the medium term. It also noted that the government is likely to approve infrastructure projects worth $30 billion in the fiscal year 2013/14.

Goldman Sachs also noted that the expected lower cost of financing will also benefit the construction company. Analysts at Goldman Sachs have set a target price of Rs. 1,710 on the shares, which is more than 20 per cent higher than the current market value.

"The current stock price appears to be implying standalone E&C revenue CAGR of about 6.4 per cent over next 15 years vs. our forecast of 14 per cent CAGR over FY13E-FY15E, which appears unjustified for one of the largest infrastructure companies in India. If we strip out other businesses from the current price, then the standalone business appears to be trading at a 1-yr forward P/E of 12.1X (ex- subs dividends), which is at a significant discount to its
3-year historical valuation of 20X." the report said.

The report said that the brokerage expects the company to generate a standalone ROIC of 22 per cent during the financial year 2014.

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