Larsen and Toubro (L&T) and Karnataka Power Corporation Ltd (KPCL) have signed a joint venture agreement for the 1,600MW (2 X 800MW) coal-based super critical thermal power project at Godhna in Chhattisgarh.
This will be the second venture in thermal power generation for L&T, the first being the 1,320MW power project being developed in Punjab. This memorandum of understanding is also in line with the plans of L&T to achieve 6,500MW power generation capacity in the next few years. Karnataka is not blessed with coal, gas or oil. Hence, the government took initiatives to approach the coal-rich Chhattisgarh to put up a thermal plant in the state.
The Chhattisgarh state government has allotted 1,260 acres to KPCL for the project. Most of the clearances have been obtained and land acquisition is in progress. About 80% of the output is expected to be sold on a long-term basis to the Karnataka State Grid. The project is expected to get commissioned in 2014.
The order backlog of the company at the end of Q3FY2010 stood at Rs91,104 crore, indicating a 32% year-on-year (y-o-y) growth. This growth momentum in the order inflow is expected to continue driven by the power, road and hydrocarbon sectors. So far in Q4FY2010 L&T has already announced order inflow of over Rs7,000 crore. We believe that the execution will be the key to the Q4FY2010 performance. At the current market price, the stock is trading at 19.5x its FY2011E consolidated earnings.
We remain positive on L&T given its capabilities, robust order book, opportunities in the infrastructure space and new ventures like defence, shipping etc. Hence, we maintain our HOLD recommendation and sum-of-the-parts (SOTP) price target of Rs1,658 on the stock.
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