L&T guidance on FY24 revenue and order growth implies that the management expects core engineering and constriction (E&C) business to grow even lower, said Ambit Capital. Larsen & Toubro Ltd (L&T) shares slipped 4 per cent in Thursday's trade, as a significant deterioration in core engineering and constriction (E&C) performance led to Ebitda miss in the March quarter and analysts found 12-15 per cent revenue growth and 10-12 per cent order growth guidance in FY24 uninspiring.
Ambit Capital, which has a 'Sell' rating on L&T said weak March quarter margins reversed Street hopes built over the previous nine months of FY23. It said FY24 revenue and order growth guidance implies that the management expects core E&C business to grow even lower.
"Even as broader industrial sector (ABB, Siemens) is recording decadal high margins, L&T is guiding
for 40-50bps margin improvement from an all-time low this year, highlighting why it is no longer a play on cyclical industrial/private capex recovery," Ambit Capital said while suggesting a target of Rs 1,666 on the stock.
Following the results, L&T shares fell 4.46 per cent to hit a low of Rs 2,261 on BSE. The stock is up 8 per cent year-to-date and 44 per cent in the last one year.
The engineering and construction major said its consolidated net profit jumped 10 per cent year-on-year (YoY) to Rs 3,987 crore for the March quarter against Rs 3,621 crore profit in the same quarter last year.
Revenue for the S N Subrahmanyan-led company rose 10 per cent YoY to Rs 58,335 crore compared with Rs 52,851 crore in the corresponding quarter last year. Ebitda margin for the quarter came in at 11.7 per cent against 12.3 per cent in the year-ago quarter.
Emkay Global has downgraded the stock to to 'Hold' from 'Buy', with March 2024 target of Rs 2,303, on the back of significant outperformance-- L&T outperformed Nifty by 30 per cent in the last one year, even as core margin remains dismal.
Emkay said the L&T management highlighted that the conservative revenue growth probably factors-in FY24 being likely impacted to some extent by the elections.
"While LT remains one of the best plays in the engineering and infrastructure space, we believe a moderate margin and significant stock outperformance do not offer much scope of an upside presently. Hence, we downgrade the stock, while maintaining our target price. Risks include execution slowdown in the later part of the year, when the 2024 elections will be around the corner," it said.
Nuvama Institutional Equities has factored in the upper end of sales growth guidance (12–15 per cent) with a delayed margin recovery (FY24/25E core Ebitda margin of 8.9 per cent/9.3 per cent).
It still finds L&T as an attractive steady compounder with potential triggers of margin expansion and rising inflows. It has upped its taret on the stock to Rs 2,750 from Rs 2,700 earlier.