300% Dividend, Rs 10,000 Crore Buyback; L&T Stock Hits New 1-Year High, Is There More Steam To Buy?

From an upbeat performance in Q1FY24 earnings, a 300% special dividend, to a buyback of Rs 10,000 crore, led the spirit high in the infrastructure giant Larsen & Toubro (L&T) share price on Wednesday. The stock rallied by more than 4% to even hit a new 52-week high. This has led analysts to raise their estimates of L&T's growth, especially on a healthy order pipeline and stable business module going forward.

At the time of writing, L&T's share price traded at Rs 2668.65 apiece, rising by Rs 106.70 or 4.16% on BSE. The stock touched a new 52-week high of Rs 2673.60 apiece earlier in the day.

In Q1FY24, the company's consolidated PAT rose by 46% YoY to Rs 2,493 crore, while revenue from operations climbed by 34% YoY to Rs 47,882 crore primarily aided by the execution of a healthy opening order book in its Projects and Manufacturing portfolio. International revenues in the quarter also jumped by 40% YoY to Rs 19,022 crore.

Further, in the quarter, L&T received orders to the tune of Rs 65,520 crore at the group level, registering a strong y-o-y growth of 57% YoY.

Apart from this, in a meeting held on Tuesday, L&T's board approved a buyback proposal worth Rs 10,000 crore at a price of Rs 3,000 per equity share. The buyback size would be f 3,33,33,333 of its fully paid-up equity shares having a face value of Rs 2 each.

Also, the board declared a special dividend of Rs 6 per share for FY24, for which the record date to determine eligible shareholders is fixed on Wednesday, August 2, 2023. This will be paid on or before August 14, 2023.

L&T also announced a key investment plan. It will infuse an additional Rs 506 crore in subsidiary L&T Energy Green Tech. Also, L&T will incorporate a JV for green energy business with an initial subscribed capital of Rs 1 crore. Lastly, the company will acquire the entire stake of Sapura Nautical Power Pte Ltd (JV partner) in L& T Sapura Offshore.

L&T shares have been on a bullish tone so far in 2023, with the year-to-date upside of nearly 28% on BSE. In a year, the stock advanced by over 52%. But, L&T's 5-year performance makes it a multi-bagger with gains of over 103% on BSE.

Should you buy L&T shares?

In its research note, post the Q1 results, JM Financial said, "We expect L&T to achieve the upper end of this guidance. Hyderabad Metro has
received state support of Rs 5.5 billion till date with Rs10bn pa each likely over 3 years. It also expects to monetise Rs 20 billion worth TOD real estate in Hyderabad over 2 years. IDPL monetization (likely to be completed by Dec-23) should fetch proceeds of c. Rs 14 billion. In 1QFY24 L&T sold commercial real estate worth Rs 2 billion in Mumbai."

Further, the brokerage added, "We expect EPS CAGR of 27% over FY23-25 for L&T's P&M business. Asset intensity continues to reduce which along with strong growth and push from increased cash distribution to shareholders bodes well for ROE expansion to a targeted level of 18%. Valuations at 21.5x FY25E P&M business EPS remain supported by these tailwinds. Our revised SOTP-based price target of INR 2,834 values the P&M business at 25x FY25E EPS. Maintain BUY."

Meanwhile, although, Kotak Institutional Equities increased its fair value target on L&T, but reduced its rating.

Kotak's note said, "We increase ordering estimates by 4% on the back of the strong 1Q print and healthy ordering prospects from Saudi Arabia. The FV captures a higher 7% boost, partly in the form of a higher 21X multiple. The multiple builds in a reasonable 12% PAT CAGR over the next two decades at ~7% PAT margin and
18% working capital. We retain REDUCE rating on expensive 28X/23X one/two-year forward earnings."

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns. in advises users to consult with certified experts before making any investment decision.