Larsen & Toubro nears record high after strong Q2FY23, healthy order book

Analysts believe that L&T is well-placed to benefit from overall diversified tender prospects with better order conversion in the domestic market

Shares of Larsen & Toubro were up nearly 1 per cent at Rs 2,035 per share in Tuesday’s intra-day trade, after the company reported a 22.5 per cent year-on-year (YoY) growth in consolidated net profit to Rs 2,229 crore for the quarter ended September 30, 2022 (Q2FY23).

At 11:23 AM; the stock traded flat at Rs 2,021.55, after it hit intra-day low of Rs 1,990. The stock was 2 per cent away from its record high level of Rs 2,078.20, which it had touched on January 18, 2022. In comparison, the S&P BSE Sensex was up 0.79 per cent at 61,224 points.

In Q2FY23, L&T gained from strong order inflows in the domestic market as consolidated revenue from operations increased 23 per cent to Rs 42,763 crore, in the recently concluded quarter. The company recorded orders worth Rs 51,914 crore at the group level in Q2, which registered a growth of 23 per cent over the corresponding quarter of last year.

Meanwhile, profit before interest depreciation and tax (PBIDT) was up 24.5 per cent YoY at Rs 5,638 crore for Q2. Operating margins, however, dipped by a marginal three basis points to 11.46 per cent versus last year.

"The margin of the infrastructure project segment was impacted due to cost pressures witnessed in few projects. However, energy projects segment saw margin improvement, on account of execution cost savings in certain hydrocarbon projects," the company said.

Besides, the consolidated order book of the group was at Rs 3.72 trillion as on September 30, 2022, with international orders at 28 per cent. That apart, the tender prospects for H2FY23 stand at Rs 6.3 trillion, including infrastructure at Rs 4.54 trillion and hydrocarbon at Rs 1.13 trillion.

Analysts at Prabhudas Lilladher believe that L&T is well-placed to benefit from overall diversified tender prospects with better order conversion in domestic market, significant traction in capex from oil exporting countries mainly in hydrocarbon segment, and expected uptick in private capex.

"Given healthy order book, tender prospects, diversification into new business (hydrogen, green EPC), improving operational performance of Hyderabad Metro and continued execution momentum, we expect L&T to report revenue and PAT CAGR of 10.2 per cent and 18.2 per cent from FY22 to FY25," the brokerage firm said, with a ‘buy’ rating on the stock, and revised target price of Rs 2,384 per share.

Moreover, analysts at ICICI Securitie believe that the stock is an attractive bet to ride in the infrastructure and manufacturing cycle revival theme.

"L&T is optimistic about meeting its 15 per cent growth guidance for revenue and order inflow in FY23. However, margins guidance has been pegged at 9.5 per cent owing to a mix of fixed price contracts and variable price contracts. The focus on monetisation of non-core assets, improving RoEs and reducing debt make it an attractive portfolio bet," the brokerage firm said.