It seems the September quarter scorecard of Larsen & Toubro (L&T) failed to impress the market as the shares of L&T fell almost 2% in morning trade on November 1, a day after the engineering and construction firm reported a 26% year-on-year (YoY) jump in consolidated net profit after tax (PAT) at ₹2,819.20 crore for the September quarter of the current financial year (Q2FY23).
The consolidated revenue from operations rose 22.9% YoY per cent to ₹42,762.61 crore from ₹34,772.90 crore in the July-September quarter a year ago.
So far this year, the stock has broadly remained in sync with the benchmark. The stock is up about 7% this year till October 31 against a 4% gain in equity benchmark Sensex.
The Q2 numbers do not seem to have disappointed brokerage firms as some of them have raised their target prices for the stock. A few, however, have downgraded the stock but do not see a significant downside in the stock.
Brokerage firm Prabhudas Lilladher has a buy call on the stocks and raised the target price to ₹2,384 from ₹2,030 earlier.
"We believe that L&T is well-placed to benefit from overall diversified tender prospects with (1) better order conversion in the domestic market, (2) significant traction in capex from oil exporting countries, mainly in the hydrocarbon segment, and (3) expected uptick in private capex," said Prabhudas Lilladher.
"Given a healthy order book, tender prospects, diversification into a new business (hydrogen, green EPC), improving
the operational performance of Hyderabad Metro and continued execution momentum, we expect L&T to report revenue and PAT CAGR of 10.2% and 18.2% from FY22 to FY25. The stock is currently trading at a PE of 26.7 times/23.1 times/19.8 times FY23/24/25E," said the brokerage firm.
However, Kotak Institutional Equities (Kotak Securities) downgraded the stock to an 'add' from a 'buy', fixing the target price (fair value) of ₹2,160.
"Better collections led to L&T’s healthy uptick in execution, although margin weakness yielded an in-line core E&C EBITDA. We look beyond the margin miss, marginally increase estimates and roll forward to a nearly 7% higher fair value of ₹2,160. We downgrade to an 'add' from a 'buy' and note the implementation of revised procurement guidelines for central government projects (nearly 40% of order backlog) as a key upside risk," said Kotak.
Among the global brokerage firms, CNBC-TV18 reported Credit Suisse has an 'outperform' call on the L&T stock with a target price of ₹2,250. The brokerage firm believes stronger traction on domestic execution and inflows bode well for the stock.
JPMorgan maintained an 'overweight' call on the stock and raised the target price to ₹2,200 from ₹2,045. It estimates return on equity (RoE) expansion to 15.9% by FY26 without monetisation benefits, as per CNBC-TV18.
Morgan Stanley, as per CNBC-TV18, also maintained an 'overweight' call on the stock and raised the target price to ₹2,305 from ₹2,178. It raised the FY23-25 EPS estimate by 1-8% on strong execution momentum.
CLSA has maintained a buy call on the stock with a target price of ₹2,350 and said that the recent stock outperformance is likely to be supported by the rise in infra order inflows, reported CNBC-TV18.
According to a MintGenie poll, an average of 34 analysts have a ‘strong buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of the broking firms. These do not represent the views of MintGenie.