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L&T retains order inflow, revenue guidance in Q3; should you buy the stock?

Construction & Engineering major Larsen & Toubro (L&T) stock on Thursday climbed around 3.5 per cent to Rs 1,339.50 apiece on the BSE, a day after the company unveiled its financial result for the quarter ended December 31, 2019. 

At 09:59 am, shares of the company were trading 2.53 per cent higher at Rs 1,327 on the BSE. In comparison, the S&P BSE Sensex was trading 226 points or 0.55 per cent higher at 41,341.56 levels.

On consolidated basis, net profit from continuing operations for the period stood at Rs 2,161 crore, up 13.8 per cent over the
corresponding quarter of the previous year. The overall profit came in at Rs 2,352 crore, including the PAT from discontinued operations for the quarter, up 15.2 per cent over the corresponding quarter of the previous year.

Consolidated gross revenue of of the company stood at Rs 36,243 crore from continuing operations, achieving YoY growth of 6 per cent. The International revenue during the quarter at 12,871 crore constituted 36 per cent of the total revenue.


During the quarter, L&T won new orders worth Rs 41,579 crore at the group level amid subdued business environment. International orders at Rs 17,901 crore increased to 43 per cent of the total order inflow, on large value order wins in Power Transmission & Distribution and Metallurgical and Material Handling business, the company said in its press release. 

Segment-wise, Infrastructure secured orders of Rs 28,115 crore, up 28 per cent YoY while Power segment secured orders worth Rs 816 crore. 

The company mentioned that Q3 revenue growth was driven by Hydrocarbon and IT&TS businesses. Hydrocarbon Segment recorded Customer Revenue of 4,386 crore during the quarter under review, registering a robust YoY growth of 17 per cent on the back of strong execution momentum in Onshore vertical. IT & Technology Services Segment achieved Customer Revenue of 6,090 crore during the period including Rs 1,965 crore on account of the Mindtree acquisition, L&T said in its press release. 

Further, the company maintained order inflow guidance at 10-12 per cent while revenue growth guidance was also maintained at 12-15 per cent for FY20. 


With no major capex and aversion to capital allocation in the asset business, there is a high likelihood that L&T may announce special dividend to return excess cash to shareholders, especially as the new tax rules for buyback have made it redundant for the company to choose between the two options. Any such announcement can be a re-rating catalyst for the stock. Additionally, any improvement in the macro environment would be beneficial for the stock, said analysts at Motilal Oswal Financial Services (MOFSL) in a result review note. 

"At CMP, the stock trades attractively at FY21/22E P/E of 16.8x/14.1x (adjusted for valuation of non-core businesses). Maintain Buy with the target price of Rs 1,680," it said. 

Analysts at ICICI Securities, too, have maintained 'buy' call on the stock with the target price of Rs 1,740. "L&T has consistently been delivering in terms of bagging orders while also maintaining its strong position through preservation of working capital levels despite slowdown, which helps control the situation on the balance sheet front. We expect it to deliver 12.1 per cent revenue CAGR (ex-E&A business) and 15.7 per cent PAT CAGR on a standalone basis over FY19-21E. This is likely to improve return ratios," they said. 

Prabhudas Lilladher has also maintained its BUY recommendation on L&T on the back of its strong business model with robust order book, diverse skill sets, strong execution capabilities and increased focus on improving return ratios. The brokerage has set sum of the parts (SOTP)-based target price of Rs 1,800. 

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