L&T hits record high on strong business outlook; stock jumps 9% in 6 days

On Monday, L&T announced that the hydrocarbon business of the company secured a significant order under its AdVENT (Advanced Value Engineering and Technology) business vertical

Shares of Larsen & Toubro gained 2 per cent to hit a record high of Rs 2,319.65 per share in Monday’s intra-day trade, in an otherwise range-bound market. The stock of capital goods company quoted higher for the sixth straight day and rallied 9 per cent, during this period, on strong business outlook. It surpassed its previous high of Rs 2,297.30, which it had touched on January 20, 2023.

On Monday, L&T announced that the hydrocarbon business (L&T Energy Hydrocarbon – LTEH) of the company secured a significant order under its AdVENT (Advanced Value Engineering and Technology) business vertical.

In the prior week, the company had also announced that it won mega orders for its hydrocarbon business. Though the management did not provide the exact value of the contract, but specified that as per its classification, a mega project is of over Rs 7,000 crore, while significant project is in the range of Rs 1,000 crore to Rs 2,500 crore.

By virtue of its leadership and diversified offerings in the EPC (engineering, procurement, and contract) domain, analysts believe that the company would be a key beneficiary of the government’s infrastructure thrust and capex revival in private sectors.

Moreover, increased investments in infrastructure and hydrocarbon in the Gulf Cooperation Council (GCC) region would also provide diverse opportunities.

"Given L&T's strong order book at around Rs 3.9 trillion (2.2x its TTM revenue) and order prospects of Rs 4.87 trillion for Q4FY23, we expect robust execution going forward. Multiple margin tailwinds – easing supply chain, stable commodity prices, and higher margin orders, too, indicate margin recovery from FY24. That apart, the company's focus on sunrise sectors such as green hydrogen, data centres, e-commerce as well as defence would lead to further diversification," said analysts at Sharekhan.

Meanwhile, analysts at Kotak Institutional Equities expect execution of all capital goods companies and most EPC companies to remain healthy on a year-on-year (YoY) basis, led by strong order book accretion in the past 5-6 quarters. The brokerage firm expects EBITDA margin to benefit from the recent moderation in commodity prices.

“We expect 10 per cent YoY improvement in the core EPC revenues, as we bake in improved construction activity across projects in Q4FY23. We bake in inflows of Rs 63,000 crore for Q4FY23E and expect the core E&C business' EBITDA margin at 10.4 per cent, up 40 basis points YoY, on the back of lower commodity prices,” the brokerage firm added.