Analysts at Jefferies said an early recovery in macro investment cycle should see a sharp pick-up in the company's order flow
Shares of Larsen & Toubro (L&T) rallied 4 per cent to Rs 914.70 on the BSE in the intra-day trade on Friday after global brokerage Jefferies maintained 'buy' rating on the stock with a SOTP price target of Rs 1,280 per share.
In the past seven weeks, L&T had underperformed the market by falling 11.5 per cent, as compared to 6 per cent rise in the S&P BSE Sensex.
Analysts at Jefferies said an early recovery in macro investment cycle should see a sharp pick-up in the company's order flow and valuations. The Middle East (ME) margin contraction factored-in does not come through in case of better margin order flow.
"L&T's hydrocarbon segment and heavy engineering should continue to see improving margin trends. While rising share of domestic execution backed by orders picked up in the last 2 years gives margin comfort," the brokerage firm said in stock update.
Meanwhile, Reserve Bank of India (RBI) governor Shaktikanta Das said today that the Indian economy will contract 9.5 per cent in fiscal 2020-21 due to disruptions caused by the Covid-19 pandemic that has hit economic activities.
"The manufacturing purchasing managers' index (PMI) for September 2020 rose to 56.8, its highest mark since January 2012, supported by acceleration in new orders and production. The services PMI for September at 49.8 remained in contraction but have risen from 41.8 in August. These expectations are also reflected in our growth projections which suggest that GDP growth may break out of contraction and turn positive by Q4," the governor said in a statement.
Emkay Global Financial Services, on the other hand, expect L&T to report a 3.2 per cent decline in revenues in July-September quarter (Q2FY21) as execution was impacted by labor shortage, social distancing norms and deferral by indecisive customers.
"We expect a relatively lower impact in its services business, which should offset the revenue decline. Margins and working capital are also likely to deteriorate on lower resource utilization and difficulty in receivable collection. Announced order inflows for Q2FY21 are about Rs 175 billion and we estimate Rs 27,000 crore of total order inflows during Q2, including service revenues," it said.