Larsen & Toubro Ltd. - Buy @ 2600 and on declines

India’s largest Engineering and Construction giant Larsen and Toubro announced very good results on thursday and company also declared 1:1 bonus issue. L&T which underperformed BSE Sensex and Nifty in the recent days will once again outperform the markets in the coming days. L&T performance in this quarter is more significant when other stocks like SIEMENS, BHEL and ABB announced below par results in this difficult quarter. These results surprised stock analysts as they are expected uninspiring performance from L&T due to losses in derivatives.
Significant points:

1. L&T is the best managed company in India – Business Today survey.
2. Rs 600 billion order book by March 2009.
3. Larsen and Toubro will benefit from huge infrastructure investments in India and Gulf regions.
4. Future growth comes from L&T Infotech and shipping along with engineering.
5. Strong order book, good execution skills and good track record and inherent value in subsidiaries make this stock a “Must Buy”.

Larsen and Toubro results analysis: 1. 55% rise in annual profit and 38% rise in Q4 net profit.
2. 41% increase in sales.
3. Operating profit rose by 54%- this is more significant.
4. Rs. 17 dividend.
5. 1:1 bonus issue.

L&T stock price analysis:

CMP: 2882
P/E: 40
EPS: 71
Face value: 2
1 Year high-low: 4,690-1,772. L&T share target price:

It is trading at a forward P/E of 23 for FY2009 and forward P/E of 17 for FY2010. Above are estimated earnings which are routinely beaten by Larsen & Toubro.
2 year target: 120% returns.
4 year target: 300% returns. These are conservative estimates.

When will the value in L&T be unlocked? L&T will be demerged into Power, IT, Ship building and Railway units along with engineering division. Investors will get very good returns after the demerger. So go and invest for long term. You need to invest for 3-4 years to get full benefits from L&T. L&T will enter into lucrative high margin business in the coming quarters especially in the Gulf region.

Verdict:Buy & forget this stock for 2-3 years and see how it becomes a multibagger.