Larsen & Toubro hits record high; market-cap crosses Rs 3 trn mark

Larsen & Toubro (L&T) joined the elite club of companies with Rs 3 trillion market capitalization on the BSE, after its share price hit a new high of Rs 2,139.70, on rallying 2 per cent in intra-day trade on Wednesday. With a market-cap of Rs 3.01 trillion, at 10:30 AM, L&T stood at number 20th position in the overall market-cap ranking, the BSE data shows.

In past one month, L&T has outperformed the market by gaining 6 per cent, as compared to 2.5 per cent rise in the S&P BSE Sensex on strong order prospects.

L&T, the engineering behemoth, with its decades of experience in engineering & construction and robust track record is well poised to be the key beneficiary of capex upcycle driven by investments in both public and private sectors, according to analysts.

In the first half - April-September - of the current financial year 2022-23 (1HFY23) L&T announced order inflows of around Rs 93,719 crore. The management is confident to achieve its full year guidance of around Rs 2.22 trillion for FY23E. Order inflow comprises of sectors like railways, hydrocarbon, power T&D, water treatment, heavy engineering, buildings & factories segments.

L&T is the best proxy for domestic capex given its market leadership in the engineering and construction industry, diversified revenue stream and strengthening balance sheet. A pick-up in infrastructure spends by the government, PLI schemes, uptick in private capex and traction in GCC region would drive long-term growth. Further, green hydrogen, data centers and e-commerce present strong growth opportunities, according to analysts at Sharekhan.

For FY23, it is well on track to attain order intake and revenue growth guidance of 12-15 per cent with a bias towards the upper band. It expects OPM in the core projects business to be at 9.5 per cent with a downside risk of 30 bps. However, with margin tailwinds in the form of better margin new orders, declining commodity prices and operating leverage we expect better margin profile in the coming quarters, the brokerage firm said stock update.
 
With a better conversion ratio expected on Rs 6.3 trillion order prospects in H2FY23, management also retained its 12-15 per cent order inflow growth guidance. Analysts at Anand Rathi Share and Stock Brokers expect the sustained double-digit growth momentum, focus on cash-flow generation & execution and less exposure to non-core assets to augment return ratios.

The strong domestic growth momentum was aided by private and public capital expenditure. Private capex is gaining traction, with orders comprising 29 per cent of domestic inflows in Q2FY23 (22 per cent last year). The inflow momentum looks set to continue with a strong Rs 6.3 trillion-prospects pipeline and envisaged better conversion ratio, the brokerage said in a Q2 result update.

Technical View

Bias: Positive

Support: Rs 2,127; Rs 2,122

Resistance: Rs 2,153

Larsen & Toubro (L&T) has been trading upwards since the stock managed to sustain above its short-term (20-DMA) in late October 2022. The stock since then has rallied nearly 15 per cent.

Currently, the stock is seen trending along the higher-end of the Bollinger Bands on the daily chart at Rs 2,127-level. The near-term bias is likely to remain bullish as long as the stock trades above Rs 2,127. Similarly, the weekly chart indices near support for the stock at Rs 2,122.

The monthly Fibonacci chart indicates, that the stock may face considerable resistance around Rs 2,140 to Rs 2,153 range; and strong support expected around Rs 2,100-level. Only, on sustained break and trade above Rs 2,153 the stock could witness further upside.

(With inputs from Rex Cano)