Larsen & Toubro hits all-time high; rallies 6% in 1 week on strong outlook

The stock hit a new high of Rs 3,948, surpassing its previous high of Rs 3,919.90 touched on June 3 and rallied 13 per cent in 12 trading days

Shares of Larsen & Toubro (L&T) continued their upward movement for the fifth straight trading day to hit an all-time high of Rs 3,948, as they rallied 2 per cent on the National Stock Exchange (NSE) in Monday’s intra-day trade in an otherwise subdued market on a strong outlook. In comparison, the Nifty 50 was down 0.31 per cent at 24,602 at 10:08 AM.

 

The stock of the civil construction major has surpassed its previous high of Rs 3,919.90 touched on June 3. In one week, L&T has outperformed the market by surging 6 per cent, as compared to the 2.3 per cent rise in the benchmark index. Since November 21, in 12 trading days, the stock has rallied 13 per cent from the level of Rs 3,483.

 

 

L&T is India’s largest engineering & construction (E&C) company, with interests in EPC projects, hi-tech manufacturing and services. The company primarily operates in infrastructure, heavy engineering, defence engineering, power, hydrocarbon, and services business segments, among others. Infrastructure segment contributes approximately 50 per cent to consolidated revenue, followed by services (approximately 29 per cent) and international markets (40 per cent of backlog from international markets).

 

On November 12, L&T had announced that L&T Energy CarbonLite Solutions secured ‘Limited Notice to Proceed’ (LNTP) (Ultra Mega) from NTPC Ltd for setting up thermal power plants in Madhya Pradesh and Bihar. The orders pertain to main plant packages of 2x800 MW Stage-II thermal power plant at Gadarwara in Madhya Pradesh and 3x800 MW Stage-II thermal power plant at Nabinagar in Bihar.

 

L&T has classified the order as "Ultra Mega", which means that the order value is more than Rs 15,000 crore.

 

The company has carved out a separate business vertical for renewable energy in September 2024 out of the power transmission and distribution business within its infrastructure segment to capitalise on the growth opportunities in the renewable segment in a more focused manner.

 

Meanwhile, the management has guided order inflow to grow at 10 per cent plus for the financial year 2024-25 (FY25), revenue at 15 per cent and earnings before interest, tax, depreciation and amortisation (EBIDTA) margins in the range of 8.25-8.5 per cent (Core E&C).

 

With healthy inflows from international markets and improving domestic outlook, L&T is on track as per guidance, according to analysts.

 

India Ratings and Research (Ind-Ra) expects L&T’s 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. 

 

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, the ratings agency said in rationale.

 

Given the prospects of Rs 8.1 trillion, L&T expects to meets order inflow (OI) growth guidance for FY25E. Overall analysts at ICICI Securities expect 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.

 

“Securing OI near the guidance range, despite an unusually large Q2FY24 base speaks of the diversity of the company’s operations. We 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,” analysts at the brokerage firm said. They have maintained their 'Buy' rating on L&T with a target of Rs 4,262.

 

Analyst at LKP Securities, meanwhile, see L&T as well-positioned for long-term growth due to strong international prospects in the Middle East, a solid domestic pipeline from public and private capital expenditure, improving profitability in development projects, and expansion into sectors like green energy, electrolyzers, semiconductors and data centers.

 

While public state capital expenditure has slightly slowed, significant private investments are expected to boost domestic order intake in H2FY25. L&T has re-entered the bidding for the boiler, turbine and generator (BTG) orders in thermal power projects, aiming to secure around 4GW from NTPC. The company is also expanding into renewable energy, electrolysers, data centers, and semiconductors, with ongoing strong performance in international markets and anticipated growth in domestic execution in the second half of the year, the brokerage firm said.