L&T hits 5-month high; stock rises 17% in three-weeks

The stock was up 1.5% at Rs 1,405, trading at its highest level since May 3, 2018, 5% away from its record high level of Rs 1,470 touched on February 1, 2018.

Shares of Larsen & Toubro (L&T) hit an over five-month high of Rs 1,405 per share,  rising by 17% in past three weeks, as compared to 4.7% rise in the S&P BSE Sensex.

The stock of engineering & construction firm was trading at its highest level since May 3, 2018, on the BSE in intra-day trade. It is 5% away from its record high level of Rs 1,470 touched on February 1, 2018.

The brokerages have been bullish on the stock after L&T reported a better-than-expected September quarter result and remains the best proxy for the Indian infrastructure story.

L&T posted 23% year-on-year (Y-o-Y) jump in its consolidated net profit at Rs 22.30 billion in the September quarter (Q2FY19).  The company witnessed a strong growth of 46%, with order wins worth Rs 419 billion at the group level during Q2FY19, due to pick-up in domestic ordering activity. Its order book stood at Rs 2.81 trillion, as of September 30, of which, the international order book constituted 22%.

“Strong near-term order inflow performance, better-than-expected order/revenue growth guidance, management focus on RoE improvement afford a good entry point into the stock trading at 19.2x 1-yr forward EPS, in our view. From a two-year investment horizon we believe that L&T offers a focus on a potential recovery in the private investment cycle too,” analysts at JP Morgan said in a report dated November 6. The brokerage firm ‘overweight’ on the stock with a target price of Rs 1,620.

“RoE expansion through a combination of balance sheet de-leveraging, incremental operating margin gains, focus on an asset light pure play EPC model should sustain valuations for L&T. Given the stock correction, we upgrade the stock to Buy with target price of Rs 1,600 per share,” analysts at Dolat Capital said in result update.

“L&T is consistently delivering in terms of bagging orders, strong execution of backlog and at the same time improving the quality of its balance sheet thereby generating reasonable cash flows. PAT CAGR of 20% over FY18-20 coupled with improvement in return ratios should rerate the stock as the expected performance is among the best in the capital goods space,” ICICI Securities said with ‘buy’ rating on the stock and target price of Rs 1,655.