Construction major Larsen & Toubro and Canadian pension fund manager Canada Pension Plan Investment Board (CPP) have sold their 100% stake in L&T IDPL, infra asset ownership entity, for `6,000 crore EV. `2,720 crore is the gross equity receipts with L&T’s 51% share implying `1,390 crore receipt.
Buoyant equity markets is helping L&T with its monetisation drive as management is always focussed on selling assets at a reasonable valuation. Over the next 12-36 months, we believe Nabha Power and Hyderabad Metro are the incremental ones being targeted.
Transaction could take 1-2 quarters to be completed. L&T is in a sweet spot as both domestic and middle east prospects are looking bright. FY22-25 estimates, we anticipate the core E&C Ebitda to rise at 22% CAGR vs 16% in FY15-19 when it traded at 12x EV/Ebitda. Our SOTP based PT of `2,455 is based on 12x core EV/ Ebitda Sept. 24E. Downside risks: (i) Management not following prudent capital allocation (ii) Govt reducing focus on capex spend.