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kiranphalak
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Quote kiranphalak Replybullet Topic: L&T - Constructing India
    Posted: 06/Sep/2006 at 5:02pm
 
what are your views on L & T at current levels? Is it worth entering at this level? Since it is cum-bonus, what level it is likely to stabilise after bonus considering its ex-bonus date is 29 th sept, which is also close to end of second quarter?

Pl. give your analysis and advice.

 
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basant
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Quote basant Replybullet Posted: 06/Sep/2006 at 5:27pm

Kiran Ji:

Over the next 3 years India is set to spend some Rs 700,000 crores as capital expenditure. L&T should be a prime beneficiary there. and the recent moves by the company to get into ship building, defense etc should keep adding to the bottom-line.

 

CMP

Rs 2556

Market cap

Rs 35,750

EPS Fy 07 (E)

Rs 97

PE

26 times

RoE

26%

 

AT the present level the stock appears having discounted its near term developments but if you are building a portfolio for 1- 2 years then   L& T should form a part of your portfolio.

 

Now on the bonus issue:

 

I have never given importance to a bonus issue. The effects of a bonus are:

1) Reduces the share price but also reduces the EPS but the PE remains same.

2) Number of shares increases but their price falls but the wealth remains unchanged and so does the market cap.

3)) RoE and RoCE remains same after a bonus or a split.

 

You would argue that if all seems so apparent why is it that a company that issues bonus sees its share price going up in the next 12 -18 months

 

1)      Bonus is more of a statement of confidence. Companies that issue bonus shares indicate to the public that their results in the  immediate future is expected to be very good.

2)      After a bonus retail investors buys the stock as they get interested in the stock (since it appears cheaper) but this is a mirage.

 
Prosperity: No idea on Narmada generally do not follow  fertilizer stocks they are only for the very patient and contended investors..


Edited by basant - 06/Sep/2006 at 5:40pm
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omshivaya
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Quote omshivaya Replybullet Posted: 11/Sep/2006 at 2:17am
And also if I may add, companies paying regular dividends have a relationship to bonuses. Suppose:
 
1) TCS pays 10 bucks a share. For 1000 shares I get 10K.
 
After the bonus, the wealth remains the same, but my shares are now 2000 and my dividend for the year would be 20K.  Dividend is only important as a pocket money, to do some spare shopping or have some handy cash in hand! To each his own. That is why good and consistent dividend paying companies help in such bonuses!
 
 
Kindly correct me if I am wrong basant jee.
 
Thanks very much!
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basant
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Quote basant Replybullet Posted: 11/Sep/2006 at 7:17am
If after a 1:1 bonus you are assuming a consistent dividend it means  that you expect the company to have an EPS growth of 100%(normally.It is not certain that the company will keep the dividend paid per share as a constant figure. But a bonus is a statement of management confidence.
 
I do not like to look at the companies only because they have given a dividend or a bonus or a split. Yes the dividend does attract but there are far more important things to focus on.
 
After all a stock that has a 4% yield falls 25% a share holder still loses 21%. Worldwide around 44% of all equity gainbs are made through dividends and 56% through capital gains.Normally an investor should focus on both these elements.
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Quote basant Replybullet Posted: 29/Sep/2006 at 3:23pm

Over the next few years Corporate India is expected to spend Rs 700,000 crores in capex. This coupled with the Infrastructure BOOM would help the leader of this space L&T to deliver a CAGR of more then 25% for the next 3-4 years.

 

The domestic petroleum sector is expected to an investment of over Rs 150,000 crores – The Company expects this segment to be a key growth engine for the company over the next few years.

 

The strong order backlog coupled with the sustained flow of orders in the engineering and construction segment should logically increase the operating margins – When a company is booked with orders it could choose and take such projects where margins are higher.

 

L&T has been significantly present in the power sector with the boast to this space L&T should be further benefited.

 

The problems that the company foresees is “attrition” skilled man power are always in demand and

 

The key challenge in a skilled manpower project business is managing HR. This could see some poaching but smarter people generally like to work with larger stable companies unless they see a niche somewhere else.

 

The stock does trade at premium valuations to the sector as a whole but considering the long term visibility this premium could well, be sustained.

 

The stock looks fairly priced from the near term angle.
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Quote India_Bull Replybullet Posted: 01/Nov/2006 at 9:51pm
Hello Basantji,
 
L&T is going to separate L&T infotech and some other companies sooner or later and hopefully that will unlock great value for the shareholders.
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Quote basant Replybullet Posted: 01/Nov/2006 at 9:55pm
SHould be but not sure if the dates are out. Also we have to see whether existing shareholders would be given shares of the new co. or will it be held by the parent. In case of the latter it is not that exciting.
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Quote India_Bull Replybullet Posted: 01/Nov/2006 at 9:58pm
The dates are not there, but in one of the interviews, Walk the talk I heard Mr.Naik saying he will do it in a couple of years time.
 
Another case is HDFC boss (Not Mr.Parekh) saying on CNBC on the qtry results day about unlocking shareholer value by separating insurance etc.
 
Both seem to me good compunders if not multibaggers..
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