L&T hits fresh high on EPC order win of Rs 5K-10K crore; zooms 70% in 2023

Shares of Larsen & Toubro (L&T) rose 2 per cent Wednesday to a fresh high of Rs 3,548 on the BSE. The stock reacted to the company's arm winning a major engineering, procurement and construction (EPC) order. 

The 'major' order won by L&T Construction pertains to establishing systems related to renewable energy generation and utilities, for the Amaala project in the Red Sea region, Saudi Arabia. 

L&T classifies a 'major' order as the one worth anywhere between Rs 5,000-Rs 10,000 crore. 

Amaala is an ultra-luxury destination set in the Prince Mohammed bin Salman Natural Reserve along Saudi Arabia’s northwestern coast. 

L&T said that the consortium of UAE's clean energy powerhouse Masdar and French Electricity utility EDF has signed the concession agreement for the fully integrated utility project with the developers of Amaala. 

L&T has entered into the EPC agreement with the sponsors viz. EDF and Masdar.

Meanwhile, in the past one month, L&T has outperformed the market by surging 16 per cent as compared to a 8.4 per cent rise in the S&P BSE Sensex.

So far in the calendar year 2023, the stock has zoomed 70 per cent as against a 17.3 per cent gain in the benchmark index.

L&T is India’s largest engineering & construction (E&C) company, with interest in EPC projects, hi-tech manufacturing and services.

The company primarily operates in infrastructure, heavy engineering, defence engineering, power, hydrocarbon, services business segments.

As of H1FY24, the infrastructure segment contributed 47 per cent to consolidated revenue followed by services at 32 per cent.

The company with diversified presence across business verticals and geographies commands a mammoth order-backlog of Rs 4.5 trillion, up 22 per cent year-on-year (YoY) as of September 2023 (Q2FY24).

This provides strong revenue visibility over the next 2- 3 years. Coupled with this a strong project pipeline of Rs 8.8 trillion will ensure 15 per cent order inflow growth in FY24.

Strong scale up in services business like IT and Finance also provides cushion to cash flows and cyclical risk of engineering business, according to ICICI Securities.

The brokerage remains upbeat on the prospects of the company and believes L&T is the best proxy play on India capex story and preferred large cap capital goods pick.

It expects L&T to deliver 18.6 per cent and 26.5 per cent revenue and profit after tax CAGR over FY23-FY25E, respectively.

“We believe in selective profitable growth. Monetisation of non-core assets, strict balance sheet discipline will help L&T to achieve 18 per cent ROE by 2026 and create shareholder value,” ICICI Securities said in a Muhurat Pick report.

It assigned a fair value of Rs 3,560 to the stock.