L&T gains 4% after net profit spikes 45% YoY to Rs 1,702 crore in Q1FY23

Analysts believe that the company's strong order book position at Rs 363,448 crore suggests good revenue visibility in the coming years.

Shares of Larsen & Toubro (L&T) were up nearly 4 per cent to Rs 1,813.20 on the BSE in Wednesday’s intra-day trade. The spike comes after the engineering, designing & construction major reported a good set of numbers for the quarter ended June 2022(Q1FY23). The company’s strong order book at Rs 363,448 crore, too, suggested optimistic revenue visibility in the coming years.

In Q1FY23, L&T secured orders worth Rs 41,805 crore at the group level, registering a growth of 57 per cent over corresponding quarter of the previous year. Meanwhile, international orders at Rs 17,842 crore during the quarter comprised 43 per cent of the total order inflow.

L&T reported nearly 45 per cent growth in its consolidated net profit to Rs 1,702 crore for Q1FY23 from Rs 1,174 crore in the year-ago period. However, sequentially, net profit was down 53 per cent. The company’s consolidated revenue from operations increased 22.22 per cent to Rs 35,853 crore during the quarter under review, aided by improved construction activity and strong execution across projects.

The company expects profitable growth in the coming years after they announced their 'Lakshya 2026 Strategic Plan'. The plan showcased efficient and timely execution of large order book, value enhancing measures, retention of leadership position and improved shareholder returns on a sustainable basis.

The company is on the path of diversification into new businesses of Green Energy and e-Commerce Platforms. At the same time, the company is also pursuing exit options and restricting exposure in non-core businesses over the Lakshya 2026 strategic plan period.

Analysts at HDFC Securities believe that the company's large order book size of Rs 3.6 trillion and private capex are furture growth triggers. “Given large order book size and improvement in health of Hyderabad metro project, we maintain 'buy' stance on the counter. However, we reduce the SOTP-based target price to Rs 2,135/sh (22x core Mar-24 EPS), largely on account of realignment in IT subsidiary valuation. The raw material cost inflation, supply chain bottlenecks, talent management and lacklustre private Capex are key risks for target price," the brokerage firm said.

That said, analysts at ICICI Securities believe that the company is well-poised to achieve their guidance of 12-15 per cent revenues and order inflow growth for FY23E.

"The margins guidance has been pegged at 9.5 per cent given the volatile commodity outlook. On the working capital to sales ratio the company had guided for a range of 20-22 per cent in the beginning of FY23 but now the company is quite confident to end at the lower end of the guidance given pick up in execution and normalisations of debtor’s cycle," brokerage firm ICICI Securities added.

That apart, L&T will focus on emerging portfolios like Green EPC, manufacturing of electrolysers, battery and cell manufacturing, data centres and platforms (Sufin & Edutech) over the next 5 years. The focus on asset monetisation is also expected to further strengthen the balance sheet and improve return ratios.