 "L&T stock gains 2% on healthy profitability outlook")
Shares of Larsen & Toubro advanced 2 per cent to Rs 3,739.80 on the BSE in Friday’s intra-day trade on healthy profitability outlook in the near-to-medium term. The stock price of civil construction major has rallied 7 per cent in the six trading days. It had hit a record high of Rs 3,948.60 on June 3, 2024.
L&T is India’s largest engineering & construction (E&C) company, with interest in EPC projects, hi-tech manufacturing and services. The company primarily operates in infrastructure, heavy engineering, defence engineering, power, hydrocarbon, services business segments.
L&T’s consolidated order book stood at Rs 5.1 trillion at end of September 2024 (H1FY25) (FYE24: Rs 4.76 trillion; FYE23: Rs 4 trillion; FYE22: Rs 3.58 trillion), to be executed predominantly over H2FY25-FY28. The strong order book across segments mitigates the risks arising from cyclicality in any particular segment, resulting in sufficient revenue stability. Moreover, about 70 per cent of the orders are covered through price variation clauses, thereby mitigating any significant commodity risk.
According to analysts, ordering momentum in the domestic space may pick up in H2 with strong domestic infra pipeline of Rs 4.13 trillion. With existing pipeline of Rs 8.01 trillion, the management is confident of achieving guided inflows.
India Ratings and Research (Ind-Ra) expects the consolidated order book to grow at a sustainable pace over FY25-FY26 due to order inflows from both domestic and international segments. Overseas orders are likely to be driven majorly by the hydrocarbon and the power & transmission segments, especially in the renewable sector. The rating agency believes the consolidated revenue will grow at 8 per cent-10 per cent year-on-year (YoY) annually in FY25 and FY26, backed by the strong order inflow during FY23 and FY24.
Meanwhile, analysts at ICICI Securities believe given the backlog growth and pick up in execution there remains a strong probability of a beat on the revenue growth guidance. With continued focus on improvement of overall return ratios and aspiration of 18 per cent ROE by 2026 looks a realistic one, the brokerage firm said. It maintains BUY rating on L&T with target of Rs 4,262.
The execution trends of Q2FY25, especially in infra, hydrocarbon and precision engineering space clearly indicated execution momentum which will help the company easily meet its revenue guidance. Given the prospects of Rs 8.1 trillion, L&T expects to meets order inflow growth guidance for FY25E. Overall the brokerage firm expects revenues and profit after tax to grow at compound annual growth rate (CAGR) of 14.7 per cent and 15.1 per cent over FY24-FY26E.