L&T gains 7% thus far in December; beats market on steady order inflow

Shares of Larsen & Toubro (L&T) were up 1 per cent on the BSE in Thursday's intra-day trade, quoting higher for the third straight day. Thus far in the month of December, the stock of the construction & engineering major has outperformed the market by gaining 7 per cent on the back of strong order inflows. In comparison, the S&P BSE Sensex and Nifty50 index were up 0.27 per cent each during the same period. The stock had hit a record high of Rs 1,982.95 on November 15, 2021.

In the past 10 days, L&T has announced winning of three large orders (ranging between Rs 2,500 crore and Rs 5,000 crore) and one significant orders (Rs 1,000 crore to Rs 2,500 crore) for its various businesses.

On Wednesday, L&T Construction announced winning a significant contract for its power buildings and factories business from a reputed developer to construct one of the largest residential townships in Bengaluru.

Overall, L&T has won orders worth Rs 68,700 crore in April-September (H1FY22). Further, continued momentum in winning large/mega complex orders/projects would substantially improve L&T's order intake for FY22E despite a challenging environment. This will further strengthen its order book and enhance its revenue visibility in the medium term. We expect standalone revenue, EBITDA CAGR of 12.1 per cent, 12 per cent, respectively in FY21-23E, ICICI Securities said in a note.

"Order inflow is expected to be good in H2FY22 given the expected high activity in tendering in and awarding. Order inflow for FY22 is expected to grow at low to mid-teens levels. Revenue is expected to reach normal recurring rate during H2FY22 if there are no third wave in the coming future. Revenue for FY22 is expected to grow at low to mid-teens levels," analysts at Edelweiss Securities said in September quarter result update.

L&T's management had indicated tender pipeline remains strong at Rs 6.83 trillion, largely from Infra (Rs 5.29 trillion) and Hydrocarbon (Rs 1.2 trillion). NWC as % to sales improved to 22 per cent from 22.9 per cent/26.2 per cent in Q1FY22/Q2FY21, mainly due to strong focus on collection. Given the strong order backlog and tender pipeline, management has maintained its low-to-mid teen revenue and order inflow growth for FY22.

Considering robust tendering pipeline, ordering activity will continue its growth momentum in the coming quarter. Analysts at Prabhudas Lilladher believe that L&T is well-placed to benefit from pickup in economic activity and private capex given its financial, technical & managerial capability for sustaining and gaining market share. The brokerage firm has 'buy' rating on the stock with target price of Rs 2,201.