L&T shares could decline further: Analysts

The company reported a decline of 12.5% in its net profit in the quarter ending June 30 from a year ago

The worst might not be over yet for engineering and construction company Larsen and Toubro (L&T). Analysts expect L&T shares to decline another 10 per cent in the near term, after dropping 7.5 per cent on Monday on weaker-than-expected first quarter results.  The stock closed at Rs 901.95 on Monday.

The company reported an annual decline of 12.5 per cent in its net profit in the June quarter, missing analysts’ estimates by a wide margin. The collapse in the stock triggered a five per cent fall in the BSE Capital Goods Index, in which its weightage is around 62 per cent.

Brokers and analysts said the decline in L&T profits had come as a disappointment to investors as the company had managed to remain resilient despite the slump in capital goods and construction-related sectors.

“We were hoping against hope that the results would be better. Till now, it is only L&T that was beating and meeting market expectations. But at some point, it had to come to an end as companies in this sector have been suffering badly,” said Sudip Bandyopadhyay, chief executive of Destimoney Securities.

Technical analysts said the key support level for the stock would be Rs 890. “On a weekly basis, the stock has been forming a head-and-shoulder pattern--an indication that it is negative for the stock. If it breaks the Rs 890-level, it could fall 8-10 per cent more,” said A K Prabhakar, senior vice-president of research at Anand Rathi Financial Services.

So far, in 2013, the stock has fallen 43 per cent against a 60 per cent rise in 2012.

“While there may be some more pain in store for the stock till the next results, the company does have a strong order book. That should be a good reason to buy into the stock from the short-to-medium term perspective,” added Prabhakar.