Shares of Larsen & Toubro (L&T) jumped over 5 percent to hit their fresh all-time high of Rs 1,624.90 in intraday trade on BSE on July 15.
In the year 2021, the stock has gained 20 percent on BSE, as of July 14, against an 11 percent rally in the Sensex. If the stock closes in the green on July 15, it will be its fourth consecutive day of gains.
L&T is a largecap stock. The company operates in technology, engineering, construction, manufacturing and financial services and has a global presence.
Arafat Saiyed, Senior Research Analyst at Reliance Securities, pointed out that L&T is one of the key beneficiaries of investment upcycle in India.
“The company has sustained its order book with robust order inflow owing to the strong performance of the key segments i.e. infrastructure and hydrocarbon,” he said.
“The plan to exit from development assets especially monetisation of Hyderabad metro is a long-term positive. L&T deserve higher valuation given restart of ordering activity on large multilateral projects, an uptick in investment cycle and healthy subsidiary performance.”
As per brokerage firm JM Financial, L&T expects a strong ordering pipeline for FY22 of Rs 9.6 lakh crore versus Rs 8.5 lakh crore in FY21, split between Rs 6.56 lakh crore domestic and Rs 2.5 lakh crore international worth of works.
“Pipeline is dominated by: (a) infra (77 percent mix) across sector like T&D, heavy civil, water (desalination, pipeline, waste/effluent treatment), metro, solar, data centres, IT capex, and (b) hydrocarbon (16 percent mix) on the back of rising oil prices,” JM Financial said.
“Given L&T’s balance sheet strength, record-high order book, 12 percent higher tender pipeline, management confidence of 13-15 percent growth while maintaining margins, we find that L&T has the advantage of faster execution recovery versus peers,” JM Financial said.
The brokerage firm believes the execution lost in FY21 will be made up in FY22 since several of L&Ts projects are large and important infra projects— airports, bridges, metros, etc— for state and Union governments.
“Many of these projects are also multi-laterally funded, which allows for smooth payment cycles. Hence, we find a sharp jump in FY22 earnings given the low base of FY21. We also believe its arms are also on well-placed
which augers well for Larsen & Toubro,” said JM Financial.
The company will release its June-quarter scorecard on July 26 in which it is expected to report a strong set of numbers on a year-on-year (YoY basis. However, on a quarter-on-quarter (QoQ) basis, the numbers may be subdued.
The numbers may be strong YoY due to the low base as the coronavirus pandemic hit performance in the June quarter of FY21.
Brokerage firm ICICI Direct expects Larsen and Toubro to report net profit at Rs 604 crore, up 114.5 percent YoY, but down 75.5 percent QoQ. Net Sales are expected to increase by 46.1 percent YoY, but down 60 percent QoQ to Rs 11,904.4 crore.
Brokerage firm Motilal Oswal Financial Services expects a 378.8 percent YoY jump in reported PAT. Revenue may see a jump of 42.4 percent YoY.
“Watch out for ramp-up in execution trends and outlook across various segments. Outlook for nine-month FY22 and commentary on working capital management are key monitorables,” Motilal Oswal said.
With markets at record highs, some of the index majors are doing really well and L&T among them, Ajit Mishra, VP Research, Religare Broking, observed.
“It has witnessed a breakout from a consolidation range of Rs 1,330-1,580 after spending nearly five months. We expect this momentum to continue, citing the noticeable rise in volumes,” said Mishra.
“Traders can consider creating fresh positions at the current market price of Rs 1,610 for the positional target of Rs 1,750+. In case of any dip, the Rs 1,540-1,570 zone would act as a cushion. They should maintain a stop loss at Rs 1,530 for this position,” said Mishra.
Shares of L&T traded 4.14 percent higher at Rs 1,608.30 on BSE at 1215 hours.
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