Motilal Oswal Recommends Investors To Buy This Stock For 15% Upside

The brokerage firm Motilal Oswal recently recommended buying the stocks of Larsen & Toubro for a 15% upside. The firm stated that L&T remains the best play on the CAPEX cycle in India.

Target Price

The Current Market Price (CMP) of Larsen & Toubro is Rs. 1899. Motilal Oswal has estimated a Target Price for the stock at Rs. 2165. The company is expected to offer a 15% upside, in 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 1899
Target Price	Rs. 2165
1 year return	15.00%

Company performance

Larsen & Toubro's adjusted PAT declined by 9% YoY to Rs. 20.5b and was in line with our estimate (base year benefitted from bulky Real Estate sales). The company maintained its order inflow/revenue/core margin guidance, though it did highlight some risk of a spillover of order inflows from 4QFY22 into FY23. Consolidated revenue grew 11% YoY to Rs. 396b. EBITDA grew 6% YoY to Rs. 345.3b. EBITDA margin came in at 11.5%. Adjusted PAT fell 9% YoY to Rs. 20.5b. Core E&C revenue grew 9% YoY to Rs. 271b. The company's working capital, as a percentage of sales, improved to 23.1% (v/s 26.2% in 3QFY21).

Comments by Motilal Oswal

Motilal Oswal stated, "We note that core E&C revenue grew 4% on a 2-year CAGR basis, of which domestic core E&C grew at 6% CAGR, while international execution was -2%. E&C EBITDA margin came in at 7.5% v/s 9% in 3QFY21: L&T's order book grew 3% YoY to Rs. 3.4t, with the order book/revenue ratio at 3.3x. The international business constituted 24% of the order book. In terms of clientele, the Centre/state governments formed 10%/29%, PSUs 44%, and the private sector 16%. We estimate an FY21-24E EPS CAGR of 25%, led by 15% CAGR in the core E&C business."

About the company

Larsen & Toubro, an Indian multinational engaged in EPC Projects, Hi-Tech Manufacturing, and Services, operates in over 50 countries. L&T Construction is India's largest construction organization and ranked among the world's top 15 contractors. L&T executes power projects - coal, gas-based, nuclear, hydro, solar, power transmission, and distribution. L&T Heavy Engineering manufactures and supplies custom-designed equipment & critical piping to process industries such as fertilizer, chemical, refinery, petrochemical, and oil & gas, thermal & nuclear power, and aerospace. L&T provides indigenous, design-to-delivery solutions across the defense spectrum.

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Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.