Infrastructure

This large-cap engineering major's share price could rise over Rs 400 in the next 12 months

Updated : January 24, 2020 03:16 PM IST

Shares of Larsen & Toubro quoted at Rs 1,359 apiece on BSE at 1.14 pm, higher by 2 percent.

Shares of Larsen & Toubro (L&T) have returned a modest 5 percent in the last one-year, under-performing the Sensex by over 10 percent.

L&T reported a 15.2 percent year-on-year jump in consolidated net profit at Rs 2,352.1 crore for the third quarter ended December 31.

HDFC Securities remains bullish on long-term prospects of engineering major Larsen & Toubro on strong fundamentals and order flow. The domestic brokerage has raised its target price on the stock by over Rs 400 to Rs 1,720 a share despite weak third quarter performance.

Shares of Larsen & Toubro quoted at Rs 1,359 apiece on the BSE at 1.14 pm, higher by 2 percent. The stock opened at Rs 1,333, up 20 paise from its previous close of Rs 1,332.80, and hit the day's high at Rs 1359.

Shares of Larsen & Toubro (L&T) have returned a modest 5 percent in the last one year, under-performing the Sensex by over 10 percent. During the period, the BSE benchmark index returned 15 percent.

L&T reported a 15.2 percent year-on-year jump in its consolidated net profit at Rs 2,352.1 crore for the third quarter ended December 31. The company recorded consolidated gross revenue of Rs 36,243 crore from continuing operations for the quarter ended December 31, 2019, achieving YoY growth of 6 percent.

The consolidated order book of the Group stood at Rs 306,280 crore as of December 31, 2019, registering a reasonably high growth of 5 percent over March 2019. International orders constitute 24 percent of the total order book.

"We retain BUY on Larsen & Toubro (LT) despite Rev/EBIDTA miss (7.5/6 percent). Profit is in-line, driven by lower tax rate. L&T maintaining its growth/order inflow guidance vis-a-vis consensus expectation of a cut shall drive re-rating. Our SOTP of Rs 1,720 (vs Rs 1,703 earlier) is based on 22x Mar-

21E EPS. Minor adjustments in execution and Mindtree consolidation has resulted in FY20/21E EPS upgrade by 0.32/0.53 percent," HDFC Securities analysts said in a report on Thursday.

L&T remains a well diversified play on investment recovery and could benefit as the government attempts to revive growth through a major push in infrastructure spending. Union Minister for Road Transport and Highways Nitin Gadkari on Sunday said his ministry has planned to spend Rs 5 lakh crore on infrastructure development this year.

"In the last five years, I have awarded contracts worth Rs 17 lakh crore. This year, I'm planning to touch Rs 5 lakh crore-mark in spending on infrastructure development," Gadkari said at the inaugural function of the Diamond Jubilee celebrations of Visvesvaraya National Institute of Technology (VNIT) in Nagpur in Maharashtra.

L&T's prospect pipeline for 4QFY20 at Rs 3 lakh crore remains robust, HDFC Securities report said. The company's "win rate of 15 percent" could translate into order inflows of Rs 45,000 crore.

The brokerage said delays in government infrastructure spend and pickup in private sector spend as well as stressed payment cycles for government projects are major risks to the stock's upside potential.

Disclaimer: The CNBCTV18.com editorial team does not engage in speculative or active trading in stock markets and follows its Code of Conduct on securities trading and investment. Any investor/ viewer is advised to carry out necessary diligence on their own or through a certified registered financial advisor for investment decisions.

This large-cap engineering major's share price could rise over Rs 400 in the next 12 months

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