We maintain buy on Larsen & Toubro (L&T) with an SOTP of R1,023. In our view, rising losses will trigger stake sale in a few assets. This we believe will reduce overall burden on L&T’s cash flow given that the company already has equity commitments worth R8,100 crore over the next five years in all the Infrastructure Development Projects projects.
The L&T IDPL analyst meet gave us the sense that new road projects hit IDPL’s profitability. Three new road projects in Gujarat that got commercialised in FY13, incurred losses of ~R300 crore. The management said this was due to poor traffic growth (which is expected to stabilise in FY14), revenue leakages due to law and order problem and illegal bypasses built before the toll plaza. Of the total R2,1600-crore road project cost, the company infused R2,000 crore equity so far and has further committed R4,000 crore over the next 5 years.
The company is in active talks with various players and is looking to exit Dhamra Port at equity value of ~R900 crore. L&T has invested ~R430 crore equity in the project. The company expects 16 million tonnes (mt) (11 mt in FY13) of cargo handling in FY14e and expects losses to reduce from R325 crore in FY13 to R1.25 billion in FY14e.