L&T stock dips 6% on cut in margin guidance; brokerages remain optimist

The stock was trading at its lowest level since February 2, 2024, down 15 per cent from its record high level of Rs 3,859.95 touched on April, 2, 2024.

Shares of Larsen & Toubro (L&T) hit over two-month low at Rs 3,290, falling 6 per cent on the BSE in Thursday’s intra-day trade after the civil construction company cut its margin guidance, due to the higher share of fixed-price contracts in its order book, supply chain issues, and global political uncertainties.

The stock was trading at its lowest level since February 2, 2024. With today’s decline, the stock price of L&T has slipped 15 per cent from its record high level of Rs 3,859.95 touched on April, 2, 2024.

At 09:21 am; L&T was trading 5 per cent lower at Rs 3,312.70, as compared to 0.18 per cent fall in the S&P BSE Sensex.

For the financial year 2024-25 (FY25), L&T’s management guided for 15 per cent growth in revenue and 10 per cent growth in order inflow from a year ago, with core margins expected to remain at 8.25 per cent. The company expects the order inflow momentum to pick up by the end of the second quarter once the new government is formed and stabilised. The bidding pipeline for FY25E stands at Rs 12.1 trillion, up 24.1 per cent year-on-year (YoY) mainly led by infra and hydrocarbon segment.

The company has reduced its future margin guidance to 8.2-8.3 per cent for FY25 to bake in supply chain disruptions, an uncertain political environment, and ongoing conflicts across several areas, Motilal Oswal Financial Services said. The brokerage firm, however, reiterated its BUY rating on L&T with target price of Rs 4,000. “Our multiple takes into account the continuously improving prospect pipeline and improvements in NWC and RoE, despite margins being lower than guidance,” the brokerage firm said.

Strong backlog and bidding pipeline will ensure robust execution and profitability trends. The company’s focus on creating value is clearly visible from the enhancement in ROE from 10 per cent in FY21 to 15 per cent in FY24 via monetisation of non core assets, reducing working capital intensity and executing profitable growth, ICICI Securities said in a note. The brokerage firm believes L&T is the best way to play the India capex story.

“In our opinion, the long-term prospects for L&T appear favourable due to promising tender opportunities, substantial traction in hydrocarbon and renewable energy orders from international markets, and the anticipated increase in domestic private capital expenditure,” analyst at Prabhudas Lilladher said.

Meanwhile, in a separate statement, rating agency S&P assigned its ‘BBB+’ long-term issuer credit rating to the company and said the stable rating outlook reflects its expectation that L&T’s stable earnings with earnings before interest, taxes, depreciation, and amortization (EBITDA) margin and strong order backlog would improve its earnings and cash flow over the next two years.