Mumbai/ New Delhi: A 25% slide this year in shares of Larsen and Toubro Ltd (L&T) is attracting investors searching for cheap ways to invest in Asia’s third largest economy that plans to spend $1 trillion (about Rs41.2 trillion) this decade on roads, railways and airports.
Prudential ICICI Asset Management Co., India’s biggest money manager, boosted holdings by 29% as of 31 March, according to Bloomberg data. DSP Merrill Lynch Asset Management added almost 300,000 shares as the county’s largest construction company expands in shipbuilding and real estate.
Mumbai-based L&T also plans to spend $5 billion to start a power generation business offering 5,000MW of capacity in the next five years.
Founded in 1938 by two Danish engineers, L&T reported more than Rs7,000 crore in orders in the first three weeks of April on top of a record Rs50,000 crore for the year ended 31 March. That dispelled concerns the company may suffer if economic growth slows to an estimated 8% over the next 12 months, the lowest rate in four years.
“We are invested heavily in the infrastructure sector and we continue to believe in the growth story,” said Sankaran Naren, who manages mutual funds at Prudential ICICI in Mumbai. “As long as there is shortage of roads, power and port capacity we don’t see the infrastructure story getting constrained.”
He manages Rs9,830 crore in five mutual funds, according to the company’s website.
L&T’s profit will increase at least 30% and sales 25% annually through 2012, said Citigroup Inc. analyst Venkatesh Balasubramanian. The shares will gain 40% in the next 12 months, he said.
The stock has risen 15% on the Bombay Stock Exchange (BSE) since 7 April after falling to Rs2,584.15 amid concern that the global credit crunch could dampen infrastructure projects in the world’s fastest growing major economy outside China.
On Wednesday, L&T shares fell 2.44% to close at Rs2,986.50. The BSE’s bellwether Sensex was down 0.2% for the day.
Before Wednesday’s fall, the shares were trading at 39.80 times earnings, compared with 47.71 for a benchmark group of 20 Indian heavy construction companies including Punj Lloyd Ltd and B.L. Kashap and Sons Ltd.
“Although a number of mid-cap construction companies are facing problems booking orders, L&T has been doing so at a brisk pace,” Balasubramanian wrote in a 2 April noteto clients. “L&T’s underlying business looks robust and we believe the best is yet to come.” He upgraded his rating to “buy” from “sell” in January.