Metro deal major driver for L&T

Jul 16, 2010 |

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July 15: The Hyderabad Metro win could prove to be a major booster for engineering giant Larsen & Toubro over the medium term. Apart from the immediate addition to the order backlog, there are some other gains as well. The Rs 12,132 crore project adds almost 10 per cent to L&T’s existing order book of Rs 1 lakh crore.

Analysts see this business as being a major driver for L&T in the coming years, with other metros such as Ahmedabad and Bengaluru also planning similar projects. The win may also help getting a better value for a subsidiary that’s planning for an IPO. The margins from the project could also be generous. “Given L&T’s current capabilities, we believe it should keep all design, civil and certain electrification work in-house. We estimate that this would equate to about 30-40 per cent of the project cost,” says Daiwa, a brokerage house. For a project this size, the gains will be large.

UBS also sees a substantial opportunity for the company in the metro rail business. Bengaluru, Ahmedabad and Kochi are also evaluating metro projects — the total value of projects adds up to Rs 38,000 crore. Preliminary work is also on in several other cities, the brokerage says.

The win would also be a boost for Infrastructure Development Projects Limited (IDPL), L&T’s project development arm. All projects where L&T is a developer are held by IDPL. The metro project would boost valuation of IDPL, which already owns about 1,000 km of roads, ports and 32 million sq ft of real estate, says Macquarie. The brokerage expects IDPL to tap the capital markets for an IPO during FY12.

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