hares of Larsen & Toubro (L&T) rose about 3 percent in intraday trade on Match 17 as investors continuted buying the large cap stocks a day after it announced its renewable arm of the business had won an order to construct a 245 MW solar power project in Rajasthan.
Besides, the recent budget allocation for Hyderabad Metro is seen as a positive for the company. The Telangana government in its budget has allocated nearly ₹2,500 crore for Hyderabad Metro over FY22.
Global brokerage firm CLSA has maintained a 'buy' call on the stock with a target price at ₹2,340, highlighting that the Hyderabad Metro project has been a problem for the company and it knocked off 22 percent of the company's FY21 consolidated profit. Metro Rail Hyderabad is set to turn with debt refinancing, CLSA said.
Mint Genie talked to various analysts to know if one should buy the stock of L&T at this juncture. Almost all said yes. Let's take a look at their views on the stock:
Analyst: Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities
In the last 10 years, L&T has outperformed its peers and has grown order backlog by nearly 2.5 times to ₹3.4 lakh crore. This gives revenue visibility for the next 2-3 years.
L&T can continue to gain market share based on its balance sheet strength, but the competition is once again gaining ground in recent times. L&T had a healthy prospect pipeline of ₹3.9 lakh crore (up 48 percent year-on-year) for Q4FY22 which was spread across markets. But there are challenges from higher crude prices potentially impacting the government’s finances which may negate the boost to infrastructure spending from an uptick in GST collection.
We believe that L&T’s hydrocarbon and defense segments (contributing 30 percent of overall revenue) are better placed in the current scenario. We expect core engineering and construction (E&C) earnings to grow at 22 percent CAGR in FY21-24 despite recent challenges and making the stock is trading at an inexpensive valuation. We maintain a 'buy' on the stock with a target price of ₹2,200.
Analyst: Santosh Meena, Head of Research, Swastika Investmart
We are very bullish on capital goods and infrastructure space for the next 5 years as they are coming out of 14 years of a tough time. The sector is poised for strong growth from here on the back of supporting government policy and China plus one policy where we are seeing private CAPEX is also picking up which was absent for a long time.
L&T is a perfect play for capital goods and infrastructure theme who is a leader in this space. Technically, it has broken out multimonth resistance at ₹1,600 in July-21 and it took support at the same level during the recent correction. On the upside, ₹1,800-1,850 is an immediate resistance area; above this, we can expect a rally towards the ₹2,000-2,070 zone.
Analyst: Amit Anwani - Research Analyst at Prabhudas Lilladher
Given the strong financial, technical expertise and management capability, it is well to benefit from the pickup in economic activity and capex cycle backed with a focus on asset-light model and divestment of non-core assets (Hyderabad Metro, Nabha power, etc.).
Order book stands strong at ₹3.4 lakh crore providing revenue visibility for a couple of years, while a strong tender pipeline continues to provide decent order inflow visibility. Going forward,it is looking to allocate capital to new-technology areas like data centers, the manufacturing of electrolysers and batteries.
Given the government's focus on overall infrastructure development, backed with a visible uptick in private capex, ordering activity is expected to continue its momentum in the medium to long term, thereby benefiting L&T. We have a buy call on the stock with a target price of ₹2,382.
Analyst: Arafat Saiyed - Senior Research Analyst at Reliance Securities
The management is optimistic about healthy order inflows in the next couple of years. We expect an order inflow of ₹1,70,000 crore in FY22 from ₹1,75,500 crore in FY21. With strong order prospects, L&T scouts for opportunities of ₹3.9 lakh crore during Q4FY22. Cash burns in Hyderabad metro project and higher input costs are seen as the key near-term overhangs.
However, an expected healthy pick-up in ordering activities and a sharp improvement in order inflow may drive the stock’s performance in the medium-to-long-term. Valuation of 18 times FY24E earnings still looks comfortable, as L&T continues to enjoy decent value accretion from its subsidiaries. We believe L&T deserves a higher valuation, given the commencement of ordering activities in large multilateral projects, an uptick in the investment cycle, and the healthy performance of its subsidiaries.
For nine months of FY22, the company delivered a strong 44 percent growth in PAT, while revenue improved by 18 percent. We expect the growth momentum to continue with a revenue and EBITDA CAGR of 11 percent and 19 percent respectively, during FY21-FY24E. We have a buy rating on L&T, with a 1-year SOTP-based target price of ₹2,194.
Analyst: Siddharth Sedani – Vice President, Equity Advisory, Anand Rathi Shares and Stock Brokers
To tap emerging green hydrogen opportunities in India, L&T and Renew Power recently agreed on a partnership, we believe this agreement will help L&T extend its EPC basket to the new and crucial area of Green Hydrogen that is fast taking shape globally.
Its “green” offerings account for nearly 30 percent of revenue ( ₹27,700 crore) and its foray into green hydrogen could lead to a further increase. L&T reaffirmed its commitment to carbon neutrality by 2040 and water neutrality by 2035. Order inflows came in at ₹50,359 crore.
Net working capital to sale is expected to remain stable for FY22E. Focus on asset monetisation will further strengthen the balance sheet and improve return ratios.
We iterate our positive stance on L&T’s execution pace of its robust order backlog, sturdy balance sheet and improving Hyderabad Metros financials. Buy with a target price of ₹2,298.
Analyst: Likhita Chepa, Senior Research Analyst at CapitalVia Global Research
L&T has sharply bounced back from the previous breakout levels and is now trading above the 200-day exponential moving average (EMA) levels. We believe with the global geopolitical tensions decreasing we expect the rally to continue in the market. We have observed the momentum indicators like RSI and MACD as well as strengthening our positive view in the market. We recommend a 'buy' on L&T above ₹1,785 with a target price of ₹1,930 and a stop loss of ₹1,690.
Market sentiment on the stock is ‘neutral’, according to a MintGenie poll and an average of 36 analysts has a ‘strong buy’ call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.