L&T gains 3% in two days, hits record high on strong order prospects

The inflow momentum looks set to continue with a strong Rs 6.3 trillion-prospective pipeline and better conversion ratio

Shares of Larsen & Toubro (L&T) gained 1 per cent and hit an all-time high of Rs 2,079.60 on the BSE in Friday’s intra-day trade on strong order prospects. The stock of the engineering & construction company has surpassed its previous high of Rs 2,078.20, touched on January 18, 2022. In comparison, the S&P BSE Sensex was down 0.06 per cent at 62,238, at 09:30 am.

In the past two trading days, L&T has gained 3 per cent after the company won an order worth Rs 1,000-2,500 crore from Greenko Group, one of the world's leading renewable energy companies, for development of an off stream pumped storage project in Madhya Pradesh.

The project is designed to meet a pumped storage capacity of 10,080 megawatt-hours. It envisages creation of an upper reservoir near Khemla block village, (about 75 kiometers from Neemuch, Madhya Pradesh) while the existing Gandhisagar reservoir will be the lower reservoir. The civil and hydro mechanical works of the project will be executed through a consortium led by L&T, under a stringent timeline of 30 months, the company said in regulatory filing.

In the first half--April-September – of the current financial year 2022-23 (1HFY23) L&T announced order inflows of around Rs 93,719 crore. The management is confident to achieve its full year guidance of around Rs 2.22 trillion for FY23E. Order inflow comprises of sectors like railways, hydrocarbon, power T&D, water treatment, heavy engineering, buildings & factories segments.

Also, L&T is on track to maintain its revenue guidance of 15 per cent, with core EBITDA margin of around 9.5 per cent, for FY23E, ICICI Securities said in a note.

With a better conversion ratio expected on Rs 6.3 trillion order prospects in H2FY23, management also retained its 12-15 per cent order inflow growth guidance. Analysts at Anand Rathi Share and Stock Brokers expect the sustained double-digit growth momentum, focus on cash-flow generation & execution and less exposure to non-core assets to augment return ratios.

The strong domestic growth momentum was aided by private and public capital expenditure. Private capex is gaining traction, with orders comprising 29 per cent of domestic inflows in Q2FY23 (22 per cent last year). The inflow momentum looks set to continue with a strong Rs 6.3 trillion-prospects pipeline and envisaged better conversion ratio, the brokerage said in a Q2 result update.

Analysts at Prabhudas Lilladher believe that L&T is well-placed to benefit from the overall diversified tender prospects with better order conversion in domestic market, significant traction in capex from oil exporting countries mainly in hydrocarbon segment and expected uptick in private capex. Given a healthy order book, tender prospects, diversification into new business (hydrogen, green EPC), improving operational performance of Hyderabad Metro and continued execution momentum, the brokerage expects L&T to report revenue and PAT CAGR of 10.2 per cent and 18.2 per cent from FY22 to FY25.

Technical View

Bias: Positive

Target: Rs 2,160

Near hurdles: Rs 2,094; Rs 2,106

Support: Rs 2,016

Larsen & Toubro has witnessed a steady rise since the stock sustained above its 50-DMA (Daily Moving Average) in late October. Post which, during the recent volatility in the last two weeks, the stock found consistent support near its 20-DMA.

Today, the stock has broken above the higher-end of the Bollinger Bands on the daily chart, thus implying further strength at the counter. The short-term bias is likely to remain positive as long as the stock sustains above Rs 2,063 - the higher-end of the Bollinger Bands. Below which, the next significant support will be the 20-DMA at Rs 2,016.

On the weekly scale, the stock is now seen testing resistance at the higher-end of the Bollinger Bands at Rs 2,094 level, above which the immediate hurdle seems to be Rs 2,106. The stock needs to break and sustain above the same, for the up move to continue.

Post breakout, the stock can potentially rally to Rs 2,160 indicates the monthly Fibonacci chart.

(With inputs from Rex Cano)