Engineering and construction major Larsen and Toubro's (L&T) shares jumped over 4 percent to its 52-week high on the back of healthy earnings in the June quarter (Q1FY24) and the first-ever buyback announcement.
The company announced that it will buy back as much as ₹10,000 crore worth of shares, for the first time ever in 80 years. Its board has approved the proposal to buy back 3.33 crore shares, representing 2.4 percent of the total paid-up equity share capital through a book-building process at a maximum price of ₹3,000 apiece, the company said in a statement. This is 17 percent above its current market price of ₹2,562, as on July 25.
The buyback is subject to approvals of the shareholders as well as market regulator Securities Exchange Board of India (Sebi). In 2019, the board had approved a buyback of ₹9,000 but it was denied by Sebi due to non-compliance with regulations.
Meanwhile, in the June quarter, the firm reported a 46.5 percent rise in its consolidated net profit at ₹2,493 crore versus ₹1,702.07 crore in the same quarter last year. Its revenue from operations also advanced 33.5 percent to ₹47,882 crore in Q1FY24 from ₹35,853 crore a year ago. Both profit and revenue came in above analyst estimates.
However, its consolidated earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin dipped 80 bps YoY to 10.2 percent compared to 11.04 percent in the year-ago quarter and 11.68 percent in the March quarter.
The Board of Directors also recommended a special dividend of ₹6 per equity share for the approval of shareholders.
The company stated that its strong growth in the topline was primarily aided by the execution of the order book in the projects and manufacturing portfolio. International revenues during the quarter were ₹19,022 crore and constituted 40 percent of the total revenue.
The consolidated order book of the group also rose 13.5 percent to ₹4,12,648 crore as on June 30, 2023, with international orders having a share of 29 percent.
In the press release, L&T stated that given the healthy balance sheets of banks and corporates and declining uncertainty, conditions are favorable for the capex cycle to sustain the momentum.
"Higher government capex allocation in the green economy, including clean and renewable energy will provide the necessary impetus to investments in energy transition and larger infrastructure projects," it noted, further adding that it will continue its planned trajectory of profitable and return accretive growth.
Brokerage views
Centrum Broking: The brokerage maintained its ‘add’ call on the stock but raised its target price to ₹2,892 ( ₹2,246 earlier), indicating a 13 percent upside. L&T reported a stellar set of numbers with strong growth in revenue and adjusted PAT driven by better execution in P&M (projects and manufacturing) segment, noted Centrum. “Given the record order book of ₹4.1 lakh crore, robust prospect pipeline of Rs10tn, controlled NWC environment, and improving development business dynamics, we maintain our ADD rating on the stock,” said the brokerage. It sees a 15 percent revenue growth in core E&C business with more than 150 bps margins improvement by FY25.
Emkay: The brokerage has retained its ‘hold’ call on the stock but raised the target price to ₹2,550, indicating a flat return trend.
"LT reported better than expected numbers for the quarter, with sales and PAT growth. EBITDA Margin was below our estimate, but high top-line growth more than offset the margin decline. Management has maintained guidance of 10-12 percent sales growth and 12-15 percent inflow growth, though it looks conservative on the current run-rate basis but Management seems to be factoring in some impact of the elections in 4QFY24. EBITDA margin is expected to clock at 9 percent for the Projects business, as improvement is expected in H2FY24. Order prospects for 9M are up 34 percent (largely backed by international hydrocarbon projects) and are a key positive," it said.
Emkay increased its FY25E sales/EPS by 6-7 percent and introduced FY26E EPS at ₹128. Inflow trajectory has been strong and a 34 percent high prospect YoY implies it will remain strong for coming quarters, it added.
Prabhudas Lilladher: The brokerage reiterated its ‘buy’ call on the stock but raised its target price to ₹2,955 (from ₹2,615), indicating an upside of 15 percent. L&T reported a healthy set of quarterly performance with consolidated revenue growth while margins contracted due to the business mix and legacy project reaching completion. Margins are likely to improve from H2FY24, with legacy orders likely to be completed by Q2/Q3FY24 and new projects reaching the margin recognition threshold, said the brokerage.
Management is confident to achieve its ROE target of over 18 percent by FY26, driven by a strong business outlook, prudent balance sheet management and returning surplus cash to shareholders (announced Rs100bn buyback & special dividend), it noted.
"We believe L&T is well-placed to benefit in the long run with 1) strong tender prospects, 2) better order conversion in the domestic market, 3) significant traction in hydrocarbon and 4) renewable energy orders from international markets like Saudi Arabia and expected uptick in private capex in the domestic market," explained PL.
JM Financial: The brokerage maintained its ‘buy’ call on the stock and raised its target price to ₹2,834, implying a 10.6 percent upside. L&T’s Q1 PAT beat estimates led by higher revenue and higher other income. Meanwhile, P&M (plant and machinery) business EBITDA margin at 7.5 percent missed the estimate of 8.5 percent but L&T remained confident of meeting its guidance of 9 percent in FY24 (FY23: 8.6 percent) with the completion of legacy low-margin projects in H1, stated JM. It expects an EPS CAGR of 27 percent over FY23-25 for L&T’s P&M business. Asset intensity continues to reduce which along with strong growth and push from increased cash distribution to shareholders bodes well for ROE expansion to a targeted level of 18 percent, added JM.
