L&T hits new high in weak market; Analysts see up to 10% further upside

Shares of Larsen & Toubro (L&T) hit a record high of Rs 3,050.70, gaining 3 per cent on the BSE in Thursday’s intra-day trade in an otherwise weak market owing to healthy business outlook. In comparison, the S&P BSE Sensex was down 0.43 per cent at 65,837 at 11:57 AM.

The stock of civil construction company surpassed its previous high of Rs 3,008 touched on September 12, 2023, a day which it turned ex-date for share buyback. The buyback offer closed on Monday, September 25.

The company had proposed to buyback 31.25 million equity shares at offer price of Rs 3,200 per equity share, not exceeding an aggregate consideration of up to Rs 10,000 crore. 

In FY22, L&T formulated its Lakshya ’26 Strategic Plan'. One of the key strategic objectives in Lakshya’26 is to improve return on equity and maximize shareholder value. Increased profitability, release of working capital, higher dividends apart, return of extra capital to shareholders in the form of Buyback of shares of the Company is one such initiative which can help in meeting these objectives.

Meanwhile, ordering momentum for the engineering, capital goods and infra sector (ex. Roads) continued with April-August 2023 reporting around 40 per cent year-on-year (YoY) growth.

During the first two months of Q2FY24, growth has accelerated (Q1FY24 YoY growth at ~10 per cent). Power T&D (Smart metering mainly), power equipment, railways, and irrigation drove the growth, according to analysts at Emkay Global Financial Services.

Analysts at Prabhudas Lilladher maintain ‘Buy’ rating on L&T with target price of Rs 3,302 per share, given recent large order wins aiding strong revenue visibility and improving Hyderabad Metro Performance.

L&T has been issued letter of intent worth ~$3.9bn from Saudi Aramco for phase-II expansion of its Jafurah unconventional gas production project which itself can meet ~13 per cent of FY24 order inflow guidance. The company bagged orders worth Rs 65,520 crore in Q1FY24.

The brokerage firm expects L&T to comfortably surpass its order inflows guidance of 10-12 per cent growth for FY24 (~Rs 2.3 trillion in FY23) aided by large international and domestic order wins. The company had revised its tender prospects in Q1FY24 to Rs 10.07 trillion for 9MFY24 vs Rs 9.73 trillion guided for 12MFY24. The prospect revision was mainly in hydrocarbon business (Rs 3.47 trillion guided in Q1FY24 vs Rs 2.44 trillion in Q4FY23) mainly from Middle East market.

Analysts believe L&T is well-placed to benefit in the long run given strong tender prospects, better order conversion in domestic markets, significant traction in hydrocarbon and renewable energy orders from international markets like Saudi Arabia and expected uptick in domestic private capex.