Brokers view on prospects of L&T shares in coming months

Larsen & Toubro shares fell 9% on Monday on news that L&T International, a 100% subsidiary of L&T, is expected to incur marked-to-market losses on commodity hedging transactions undertaken during the current financial year. Here is what some brokerages have to say about the stock’s prospects in the coming months. Milind Pradhan, Head of equities, Standard Chartered STCI Capital Markets We should remember that the losses declared are only notional marked-to-market losses and not actual, as such have been booked on investments. In volatile market, players overreact to even a slightly bad news on any stock. We believe that L&T is a company with sound fundamentals and are positive about the prospects of the stock. Satyam Agarwal, Senior analyst, Motilal Oswal Financial Services We maintain a neutral stance on the stock with a price target of Rs 3,031 based on revenues from core business and other subsidiaries. We have downgraded our earnings forecasts for the L&T subsidiary to factor in the possible loss from hedging operations. This has led to a downgrade of consolidated net profit estimates for L&T. We expect L&T to report standalone revenues of Rs 252.4b in FY08 (up 40.2%) and net profit of Rs 21.2b (up 54.8%). Bharat Parekh, Research analyst, Merrill Lynch Our price objective of Rs 3,950 for L&T is based on a sum of the parts valuation. We have valued the core business at a PE ratio of 27 times (earlier 33 times) one-year forward, which is at 15% discount to its current multiples, to factor in the anticipated de-rating. We have also cut our target multiple for L&T IT to 13 times (earlier 16 times) to factor in the slowdown in its growth, sector de-rating and updated stock prices for Ultratech Cemco shares. Akshay Soni & Pratima Swaminathan, Morgan Stanley We cut our F2008-09E EPS estimates by 16.8% and 14.6%, respectively, as we adjust for forex losses and higher-than-anticipated interest income in the parent company as well as commodity trading losses in a main subsidiary. Our price target moves down 22% to Rs 3,433/share. We retain our overweight rating on the stock and believe it will outperform the broad market over the next 12 months.