Larsen & Toubro hits over three-month low; stock declines 13% in one month

L&T sees prospects in the areas of government buildings, data centres, etc. It is uncertain, however, of the timelines when these projects will take off.

Shares of Larsen & Toubro (L&T) hit an over three-month low of Rs 862, down 2 per cent on the BSE on Tuesday as near-term macro risks, likely government capital expenditure (capex) cut appear challenging for the company. 

The stock of the construction & engineering major was trading at its lowest level since May 28, 2020. In the past month, L&T has underperformed the market by falling 13 per cent, as compared to a 1.7 per cent decline in the S&P BSE Sensex.

L&T sees prospects in the areas of government buildings, data centres, healthcare infra, airports, metro railways, water projects including wastewater treatment and irrigation, hydel projects, expressways as well as onshore and offshore hydrocarbon projects. It is uncertain, however, of the timelines when these projects will take off.

“The Covid-19 pandemic and its fallout make it difficult to forecast the future with any degree of certainty. While we are hopeful that the second half of FY2020-21 will herald better economic and business activity in terms of tendering, good liquidity, and revival of labour and supply chains, it would be premature to predict the company’s business outcomes for FY2020-21,” AM Naik, Group Chairman said in 2019-20 annual report.

“The dependence on large orders given their size, subdued private sector capex, and near to medium term spending constraints on state and Central governments is likely to impact the order intake outlook,” analysts at ICICI Securities said in June 2020 quarter review.

However, the brokerage firm believes both state and central governments will soon start focusing on investment towards infrastructure building and job creation. "This can likely ramp-up order intake from the overall public sector; however, L&T’s high base and its dependence on large infrastructure projects can cap near-term growth in order intake," the brokerage added.