Prabhudas Lilladher Suggests To Buy This Large Cap Construction Company Stock

A research analyst from Parbhudas Lilladher has suggested investors buy Larsen & Toubro stock, as he feels that the stock price can rally further by nearly 10.62%. The company posted a healthy performance amid near-term challenges.

Larsen & Toubro (LT) reported a decent set of quarterly performance with consolidated revenue growth of 10.4% YoY, while margins contracted 74bps YoY due to cost pressure in certain EPC projects. NWC to sales improved to 16.1% in FY23 vs 19.7% in FY22, owing to robust operating cash flows supported by the smart execution and customer advances.

However, as per the management guidance, 10-12% order inflow growth and 12-15% revenue growth, with a core EBITDA margin of 9% for FY24. FY24 tender prospects stand strong at approximately Rs 9.7 trillion (up 14% YoY).

Project and Manufacturing (P&M) margins came in at 8.6% in FY23 below the guidance of 9%, owing to the impact of an increase in commodity prices and freight issues. Margins are likely to improve from H2FY24, with new projects reaching the margin recognition threshold. NWC to sales is guided to be 16-18% for FY24. The tender prospect from Infrastructure stands at Rs 6.5 trillion, Energy - at Rs 2.9 trillion, and Hi-tech -at Rs 0.25 trillion.

Prabhudas Lilladher's analyst believes that L&T is well-placed to benefit in the long run with strong tender prospects, better order conversion in the domestic market, significant traction in the hydrocarbon segment from the exports market, and an expected uptick in private capex.

The analyst shares the revised estimates of 0.6 and -1.0 for FY24 and 25 respectively, factoring in lower margins in P&M business in the short term. The stock is currently trading at PE of 26.7/22.7 FY24/25E. Maintain BUY rating, with revised SoTP of Rs2,615 (Rs 2,479 earlier), valuing core business at PE of 21x FY25E, (20x earlier), given sustainable growth visibility in revenue and order inflow front.

Disclaimer
The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.