Larsen & Toubro trades higher for third straight day, up 5% in a week

Shares of Larsen & Toubro (L&T) were trading higher for the third straight day, up nearly 3 per cent at Rs 1,458 on the BSE in intra-day trade on Monday. The stock of the engineering and construction giant has gained 5 per cent in the past one week as compared to a 2 per cent gain in the S&P BSE Sensex. It was quoting at its highest level since March 18, 2021.

From October 2020 to February 2021, the stock witnessed an impulsive upmove towards Rs 1,600. It had hit a 52-week high of Rs 1,593 on February 2, 2021. Since then, it has remained largely range-bound amid time and price-based correction. In the past three months, L&T has underperformed the market by falling 5 per cent, as compared to a marginal 0.18 per cent decline in the benchmark index.

L&T’s order pipeline prospects stand at Rs 9.6 trillion, 13 per cent higher compared to the beginning of the last year. International and domestic market forms 26 per cent and 74 per cent, respectively of its prospects. The Infrastructure, Hydrocarbon sector forms 77 per cent and 16 per cent, respectively of overall prospects. Stable oil prices auger well for prospects in the Hydrocarbon segment as well as improves overall prospects in the Middle East.

Management believes FY22 will witness healthy orders from both domestic and international markets. Recovery in key international markets, continuous focus on infrastructure by the government, and rebound in crude oil prices augur well for L&T, according to analysts.

“With improving macro in international markets and government’s focus on infrastructure at home, L&T is hopeful of low to mid-teens growth in order inflow. We maintain BUY on L&T, given its strong order book (Rs 3.3tn, ~3xFY21 core EPC revenue), healthy balance sheet, and robust services business,” analysts at HDFC Securities said. They have a 12-month target price of Rs 1,800 per share.

L&T has rightly prioritized its balance sheet strength over growth during the second Covid wave. "While Covid 2.0 has brought on similar challenges as last year, construction activity has been ongoing unlike last year and hence, the impact should be lower than last time," analysts at Motilal Oswal Securities said in the results update. Our target price stands at Rs 1,700 per share on account of unchanged core business target, P/E multiple of 20x versus the long-term average of 22x, and contribution from four listed subsidiaries, after applying a 20 per cent holding company discount, the brokerage firm said.