L&T: Why Analysts See Good Gains For The Stock?

Larsen and Toubro reported quarterly numbers that were in line with expectations and on some parameters even beat expectations. Post the quarterly results some analysts continue to remain upbeat on the stock.

Broking firm Motilal Oswal has revised the target price on the stock to Rs 1,700 post the quarterly numbers of the company.

Balance Sheet improvement is a key highlight of FY21

"Contrary to the expectations of a hit due to the nature of its business, L&T managed to end FY21 with the strongest Balance Sheet after more than a decade. Working capital cycle improved to 22.3% of sales (23.7% in FY20). Consolidated net D/E improved to 1x in FY21 (1.5x in FY20), with core business being net cash," the broking firm has noted.

According to it, the Order book was strong at Rs 3.3 trillion, with bid pipeline better than last year. The order book grew 8% YoY to Rs 3.3trillion, with order book/revenue ratio of 3.5 times being the highest in many years. Order pipeline prospects currently stood at Rs 9.6 trillion (+13% YoY).

"Our target price stands at Rs 1,700 per share. Adjusted for valuation of subsidiaries (INR605/share contribution), L&T trades at FY22E/FY23E P/E of 17x/14.8x, providing ample valuation comfort," the broking firm has said.

 

Solid order book

The order book of Rs 3274 billion for the quarter, was up 8 per cent when compared to Rs 3034 billion in the corresponding period of last year.

The Q4 ordering momentum for the company was led by Infra, Hydrocarbon & Heavy Engineering, Power generation order book at the company continued to remain subdued.

"FY21 order inflows is a result of strong ordering momentum witnessed in 2nd half, Visible Capex focus in Union Budget 2021-22. Order prospects pipeline remains healthy for FY22, private capex is yet to pick up momentum and large & diversified order book provides healthy revenue visibility," the company stated in a presentation.

 

Will second wave Covid 19 impact the performance?

It is likely that the first quarter of 2021-22 is unlikely to be great for L&T, because of the Covid-19 infections. However, beyond that with revenue visibility due to strong order book, things are likely to look up.

There are a number of reasons for the optimism. The limited restrictions as against complete lockdown augurs well for the company and the vaccination announced would eventually cover a larger population. Apart from this the RBI continues to pursue accommodative policy. With momentum likely in the second quarter of the current fiscal and improved GCC and Africa performance, L&T shares is likely to do well.

 

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