 "Larsen & Turbo, L&T")
Shares of Larsen & Toubro (L&T) dipped 4 per cent to Rs 2,270 on the BSE in Thursday's intra-day trade on profit booking after the engineering behemoth reported a 10 per cent rise in its consolidated net profit to Rs 3,987 crore for the March quarter (Q4FY23) compared to a profit of Rs 3,621 crore in the year-ago period. Revenue grew 10 per cent year-on-year (YoY) to Rs 58,335 crore.
The stock of the country's biggest infrastructure company had hit a record high of Rs 2,416 on May 2, 2023. However, despite the stock's 4 per cent decline from its all-time high level, L&T has outperformed the market by surging 9 per cent thus far in the calendar year 2023. In comparison, the S&P BSE Sensex is up 1.5 per cent during the same period. In the past one year, L&T has rallied 45 per cent, as against nearly 15 per cent gain in the benchmark index.
L&T’s growth on profit was supported by a 43.7 per cent YoY surge in other income to Rs 741 crore in Q4FY23. Profit before interest, depreciation and taxes (PBIDT) grew in single-digits, by 7.3 per cent, to Rs 9,095 crore compared to Rs 8,474 crore in the year-ago period.
The Q4 numbers, however, were marginally short of expectations. According to Bloomberg poll, analysts were expecting revenues of Rs 58,907 crore and net profit of Rs 4,032 crore for the March quarter.
L&T ended 2022-23 with a record high order book of Rs 4 trillion. The company said it received new orders worth Rs 2.3 trillion at the group level during the year ended March 31.
L&T has given guidance for sales growth/order inflow growth at 12-15 per cent/10-12 per cent, respectively. Management highlighted that the conservative revenue growth probably factors-in FY24 being likely impacted to some extent by the elections.
Meanwhile, L&T announced that it has appointed S N Subrahmanyan, as Chairman and Managing Director with effect from October 1, 2023. A M Naik after he decided to step down as Non-Executive Chairman of the L&T Group.
"L&T remains the best way to play the capex recovery theme in India given its strong execution capability, presence across diverse sectors and geographies, which makes its less vulnerable during down cycles. Focus on monetisation of non-core assets, enhancing RoEs and reducing debt makes its an attractive portfolio bet to ride the infrastructure and manufacturing cycle revival theme," the brokerage firm ICICI Securities said in a note.
L&T reported a weak print on core E&C EBITDA, flat YoY on low base and 13 per cent below estimates, said analysts at Kotak Securities.
The brokerage firm said it has cut its estimates by a similar quantum and cut Fair Value by a lower 4 per cent on roll-forward and higher 20X multiple. The latter bakes in the prospects of margins moving toward 10 per cent levels over time and better business returns reported, the brokerage firm said.
L&T reported decent set of quarterly performance with consolidated revenue growth, while margins contracted 74bps YoY due to cost pressure in certain EPC project. Net working capital (NWC) to sales improved to 16.1 per cent in FY23 vs 19.7 per cent in FY22, owing to robust operational cash flows supported by smart execution and customer’s advances, said analysts at Prabhudas Lilladher.
Project and Manufacturing (P&M) margins came in at 8.6 per cent in FY23 below guidance of 9 per cent, owing to impact of increase in commodity prices and freight issue. Margins are likely to improve from H2FY24, with new projects reaching margin recognition threshold. NWC to sales guided to be 16-18 per cent for FY24. Tender prospect from Infrastructure stands at Rs 6.5 trillion, Energy – Rs 2.9 trillion and Hi-tech –Rs 0.25 trillion.
The brokerage firm believes L&T is well-placed to benefit in long run with strong tender prospects, better order conversion in domestic market, significant traction in hydrocarbon segment from exports market and expected uptick in private capex.
Technical View
Bias: Consolidation likely
Support: Rs 2,200
Larsen & Toubro has witnessed a gradual up move since mid-July 2022, with charts showing that the stock has consistently taken support around the 20-WMA (Weekly Moving Average) during corrective phases.
Once again, the stock seems headed towards the 20-WMA support level, which now stands at Rs 2,200. As long as the stock maintains this on a weekly closing basis, the stock is likely to bounce back and re-test highs of Rs 2,400 level.
On the daily scale, the stock has given a negative divergence on more than one counts with today's sharp fall. Presently, the stock is seen trading below the 20-DMA (Daily Moving Average) which stands at Rs 2,295. The next support levels are at Rs 2,225 and Rs 2,190 - the 50-DMA and 100-DMA, respectively.
Further, among the key momentum oscillators, the Directional Index (DI) and MACD have given a negative divergence. Thus, hinting of a likely corrective phase or consolidation.
(With inputs from Rex Cano)
