L&T touches year low

Bid route for Satyam sale not favourable for L&T: Analysts.

Kolkata, Feb. 20 L&T on Friday hit its year-low at Rs 610 and closed slightly higher at Rs 622.50, yielding a loss of 2.83 per cent against the previous closing on Company Law Board order of bid route for Satyam sale. The Company Law Board order on adopting bidding route for deciding Satyam’s new owner could be detrimental to its prospects, dealers said.
According to analysts, investors appear to be showing their disapproval to the proposed acquisition of Satyam Computer.
According to Mr Arun Kejriwal of KRIS, L&T’s move to buy 12 per cent stake in Satyam cannot be justified by its current fundamentals.
“If it goes ahead and buys the controlling stake, it would be akin to a roll-on in high stake game, where you have not seen your own cards,” he said.
The Government would not bail it out and the terms to acquire the additional stake to control Satyam have not been spelt out.
Mr Sourav Mukherjea, head of equity at Noble, said even if L&T buys additional stake in Satyam for peanuts, the lack of immunity against law suits in the US would be an enormous botheration.
A market strategist observed that a large section of shareholders of L&T have objection to the company’s move to acquire Satyam without taking them into confidence.
L&T does not have a promoter and public institutions such as LIC, UTI or insurance companies holding more than 30 per cent of the company.
The stock has been on a downtrend since its peak at Rs 1,455 in the second week of December 2007. However, the stock managed to find support around Rs 680 in October. After that, the stock has witnessed near-term rallies, but faced resistance at higher levels.

Support level

Recently, the stock broke below its multiple support levels. The recent decline was accompanied by higher than average volumes.
According to Sharekhan: “In the last downturn L&T’s earnings had come under pressure due to slower top line growth, decline in OPM (which could be due to delay in the execution of projects) and higher interest outgo due to rising working capital requirement”.
To meet its guidance of 30 per cent order inflow growth, the company will need to add projects worth Rs 1,53,500 crore in 4QFY09, which now appears difficult, according to analysts.
More worrying factors were PBIT margins in E&E and MIP businesses, which have crashed in Q3FY09. CLSA Asia-Pacific Markets slashed its earnings per share estimate for 2009-10 by 5.1 per cent to Rs 640 on account of lower sales and pressure on margins.