Kotak - L&T, HPCL

Kotak Institutional in their report on L&T,

L&T has reported standalone revenues of Rs62.5 bn (our expectation of Rs69.9 bn) and profit after tax of Rs7 bn (v/s our expectation of Rs5.6 bn) for 4QFY07. Reported operating margin of 9.9% for the full year FY2007 is ahead of our expectation of 9.3%. Order backlog at end of FY2007 stands at Rs369 bn, which provides a visibility of 1.6X FY2008E revenues. We revise our FY2008E earnings estimates upwards by 3% to Rs73.3 EPS (from Rs71 earlier) and revise our target price to Rs2,125 as we roll over to March 09 basis. Our target price is based on DCF for core company valuation and SOTP to account for subsidiaries and associates. Reiterate outperform based on strong positive momentum in infrastructure as well as corporate investments.

Kotak Institutional in their report on HPCL,

HPCL reported 4QFY07 net income at Rs5.5 bn versus our expected Rs6.5 bn with lower taxation compensating for moderately higher depreciation, staff cost and inventory loss. HPCL's FY2007 reported net income is Rs15.7 bn (Rs50.1 EPS; adjusted EPS is Rs40). We have made modest earnings revisions for FY2008-FY2010E EPS based on FY2007 results. Our revised FY2008, FY2009 and FY2009 EPS estimates are Rs52.6, Rs59.5 and Rs61.1, respectively versus Rs48.9, Rs55.8 and Rs61.1, respectively, previously. We currently assume that the government will follow the same system for distribution of underrecoveries as it has done in FY2007. However, we will have to wait for more clarity on the vital issues of oil bonds and share of upstream companies; these variables can swing earnings of R&M companies dramatically. We retain our 12-month target price of Rs375 based on 30% discount to 5X normalized EBITDA plus value of investments. Key downside risks stem from higher-than-expected subsidy losses.