Engineering stalwart | Value Research International orders have helped L&T to de-risk itself from the bumbling Indian economy
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Engineering stalwart

International orders have helped L&T to de-risk itself from the bumbling Indian economy


L&T has been struggling for some time now. The country's premier engineering company has lost 22 per cent this year. L&T's main headache has been its slow moving orders. Things have started looking up though. In the meantime, incessant pounding at the stock exchange has brought L&T to valuations that it had last seen in 2004-05. Current valuations are in fact even lower than what they were during the 2008 financial crises when the markets world over crashed.

Why you should add L&T to your portfolio?
Anaemic order growth has been a weakness that engineering sector has had to deal with since the financial crisis hit. Yet, in an environment that has seen fresh orders dry out, L&T reported an order inflow of 25 per cent in FY13. The first quarter of the current financial year saw 28 per cent growth over the previous year.
While much of the above order growth has come from the infrastructure segment, L&T has found chasing international orders especially those in the Middle-East is a good way to de-risk the bumbling Indian economy. International orders accounted for 14 per cent of order growth of Q1.
L&T has guided a 20 per cent order growth this year. A large section of the market though is of the opinion that actual inflow growth could be closer to 14 per cent. Revenue growth too is expected to tail order growth at between 13-15 per cent (L&T has guided 15 per cent).
There are real risks though. Delays in order announcements especially in an election period can not be ruled out. Though the government has started fast-tracking a lot of proposals.
Maintaining margins is another concern. Focusing on the Middle-East is not without its price. The competitive bidding and wafer thin margins put margins at risk of getting erased on even a minor cost bump-up.
With valuations close to 10-year lows, the down side risk of investing in L&T is limited.

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