L&T: Kotak Securities Research Report

Kotak Securities are bullish on L&T and have recommended a ACCUMULATE with the following investment rationale:

L&T‘s management has been quite optimistic on the business environment and sees far lesser scope for execution slippages. In Q3 FY10, L&T had to deal with external issues not under its control which had resulted in execution delays. L&T indicated that environmental issues had affected quite a few projects (mainly steel and mining projects) but expects that the issues would
get sorted out.

In terms of business scenario, L&T indicated hectic activity in the BOP and Power T&D sector. While the progress on generation capacity building has picked up momentum, ordering of BOP and T&D spending has been lagging.

L&T‘s management expects significant opportunities in these segments.

In BOP, L&T has inhouse capabilities to design and erect Coal Handling Plant, Water Treatment plants and Chimney. It is working on building capability in cooling towers.

L&T is one of the five established players in transmission line tower business and has captive tower design and testing facilities. L&T‘s management expects large order flow in transmission tower by PGCIL in the next two years. It also indicated that PGCIL had earlier fragmented the market by allowing new players in transmission towers projects business. However there have been quality and delivery issues with the new entrants. It is expected that PGCIL may again prefer to established players with a track record of timely completion.

On the BTG side, L&T has indicated that it has sorted out the technical issues related that has led to it being disqualified from the NTPC/DVC tender for supply of 11x 660 MW Turbine Generators. Thus, it can bid for second bulk tender of 9 units of 800 MW. L&T indicated that L&T and BHEL have a clear headway among new entrants into the Supercritical boiler segment as their facilities are already ready while facilities of fresh entrants are at a nascent stage.