MOSL: Morning India (27/August/21): 1. Larsen & Toubro (Rightly placed to benefit from macro improvement); 2. EcoScope (States’ fiscal deficit at only 16.5% of BEs for 1QFY22)
MOrning India (27/August/21): 1. Larsen & Toubro (Rightly placed to benefit from macro improvement); 2. EcoScope (States’ fiscal deficit at only 16.5% of BEs for 1QFY22)
Today’s top research idea
Larsen & Toubro: Rightly placed to benefit from macro improvement
- L&T's core E&C business remains best placed to benefit from any capex upcycle, supported by its leaner asset-light business model and diversified segments.
- On account of the pandemic, order inflows have been weaker, especially if adjusted for a one-time big ticket size order (HSR project) and weak state finances. However, things should start to improve as we move past the pandemic.
- While the other capital goods stocks are factoring in strong order inflows over the next 3-5 years and trading at elevated multiples, L&T's stock has been an underperformer (adjusted for subsidiary valuations). We do not see any strong fundamental reasons to justify such a stark difference in stock price performance.
- Over the next two years, we see multiple catalysts emerging for L&T, including (a) asset monetization for Hyderabad Metro and Nabha Power, (b) FCF generation of USD1.5-2.0b p.a. in the core business, (c) an improvement in order inflows prior to the elections, and (d) improved execution, aided by a better working capital cycle.
Piping hot news
New rules on drones to usher in growth opportunities, spur innovation: Nasscom
The new rules for operating drones in the country will usher in new growth opportunities and enable startups and SMEs to create innovative use cases and applications in various sectors like e-commerce, mining and emergency response, IT industry body Nasscom said. The new rules on drones make it mandatory that these devices are registered and agencies will be able identify those which are rogue through tracking mechanisms. The Drone Rules, 2021 were issued on Wednesday and they supersede the Unmanned Aircraft System (UAS) Rules, 2021, which had come into force on March 12
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