scorecardresearchLarsen and Toubro stock check: Up 23% in last one year; is it still a ‘buy’?

Larsen and Toubro stock check: Up 23% in last one year; is it still a ‘buy’?

Updated: 04 Mar 2023, 09:59 AM IST
The company's consolidated net profit rose 24 percent year-on-year (YoY) to 2,553 crore in the third quarter of 2022-23 (Q3FY23).
L&T's December quarter numbers were on expected lines.

L&T's December quarter numbers were on expected lines.

Shares of Larsen and Toubro have witnessed a healthy gain in the last one year, outperforming the equity benchmark Sensex.

They have gained nearly 23 percent against an 8 percent gain in the benchmark Sensex.

The stock hit its 52-week high of 2,297.30 on BSE on January 20, 2023, and as of March 3 closing at 2,121.35, it is down nearly 8 percent from that level.

The company's December quarter numbers were on expected lines.

As Mint reported, the company's consolidated net profit rose 24 percent year-on-year (YoY) to 2,553 crore in the third quarter of 2022-23 (Q3FY23).

The company reported a 17 percent growth in consolidated revenue from the year-ago to 46,390 crore during Q3, aided by better execution of infrastructure projects and growth momentum in the IT and technology services portfolio.

Larsen & Toubro stock in last one year.

Is the stock buy-worthy at this juncture? MintGenie talked to several analysts to understand the fundamentals and technicals of the stock. Here's what they said.

Fundamental views

Khadija Mantri, Associate VP of Research at Sharekhan by BNP Paribas

L&T’s nine months of the financial year 2022-23 (9MFY23) have been commendable despite cost pressures in its core business and supply chain challenges.

L&T’s order prospects for Q4FY22 stand strong at 4.87 lakh crore, while the order book is also robust at nearly 3.9 lakh crore (2.2 times trailing twelve-month revenue).

The company also expects the margin to improve from Q4FY23 onwards, however, it has trimmed margin guidance for FY23.

The international outlook is also buoyant, given a healthy order pipeline and emerging opportunities in non-oil segments as well.

Over the long term, L&T remains at the forefront to reap benefits from increasing investments and growth in defence, infrastructure, heavy engineering and IT sectors.

The company aims to improve RoE (return on equity) to 18 percent (11 percent in FY22) under Lakshya FY26 through the sale of non-core assets/strategic capital allocation.

The analyst recommends a 'buy' with a SOTP-based target price of 2,455.

Akhilesh Jat, Category Manager of Equity Research at CapitalVia Global Research

Larsen & Toubro Limited is India’s largest engineering and construction company involved in manufacturing, technology, engineering and financial services company.

It is a market leader in turnkey projects and one of Asia's largest vertically integrated engineering procurement and construction (EPC) companies.

Net sales in the previous quarter i.e. December 2022 of the company have increased by 17.26 percent (year-on-year). Sales growth of the company is nearly 9 percent for the last five years while its return on equity is 11 percent and the return on capital employed is over 14 percent for the last five years.

Over 61 percent of the company's shares are collectively held by domestic and foreign institutional investors.

"With a DE ratio (debt-to-equity) of 0.30, Larsen & Toubro has a small amount of debt compared to its capital. However, the PE (price-to-earnings) ratio for Larsen & Toubro is 38.49, which is high and noticeably excessive," said the analyst.

Technical views

Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers

After making the low of 1,456.80 on June 20, 2022, the stock had been making higher top and higher bottom structures which resulted in a whopping return of 46 percent in almost eight months.

But from January 20, 2023, it has discontinued its higher top and higher bottom structure which is a matter of concern now.

Recently, it has broken its parallel channel with negative divergence on daily RSI. Additionally, negative MACD crossover is throwing early warning signs (refer to the chart below).

"As of now, no fresh longs are recommended since we are expecting some profit booking in this counter," said the analyst.

Larsen & Toubro technical chart.

Vaishali Parekh, Vice President - Technical Research, Prabhudas Lilladher

The stock, after a short correction, has again reached near the trendline support of 2,080, indicating a trend reversal with an improvement in the bias.

Moving past the significant 50EMA (exponential moving average) level of 2,142 has further strengthened the trend.

"We anticipate the move to continue till 2,240-2,250 levels where it can face some resistance. At the same time, a decisive breach below 2,080 would turn the bias weak and can cause a further slide," said the analyst.

According to a MintGenie poll, 37 analysts on average have a ‘strong buy’ call on the stock.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of MintGenie.

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First Published: 04 Mar 2023, 09:59 AM IST