The largest Indian infrastructure play, Larsen and Toubro (L&T) has been a huge laggard. The stock is very close to its 2007 levels despite the core EPC business of L&T trading at valuation that have not been seen in a very long time. So, what is ailing the stock?
According to Renu Baid, VP-Research of IIFL Institutional Equities, the market isn’t recognizing the true value because the core business is looked at as a proxy to India capex investments. “Till the time people have comfort that the investments in the infrastructure, the capex is back in limelight, it would be difficult to see that kind of re-rating coming back for the company,” she said.
Baid further added that near-term there are headwinds, but at the current price, the core business is trading at close to 8-8.5 times FY22 earnings which is cheaper than most of the other midcap EPC companies.
Renjith Sivaram of ICICI Securities said, “The reason for somebody to look at L&T would be as a play of domestic infra capex. If somebody wants to play on the services or the IT portion of the business, they might buy it directly by buying L&T Infotech or L&T Technologies. The market is not giving it a positive turn because they are worried about the working capital and the overall order intake outlook, both from the Middle East and from the domestic geography at least for the near term.”