Prabhudas Lilladher's research report on Larsen and Toubro
Larsen & Toubro (LT) reported decent set of quarterly performance with consolidated revenue growth of 10.4% YoY, while margins contracted 74bps YoY due to cost pressure in certain EPC project. NWC to sales improved to 16.1% in FY23 vs 19.7% in FY22, owing to robust operational cash flows supported by smart execution and customer’s advances. Project and Manufacturing (P&M) margins came in at 8.6% in FY23 below guidance of 9%, owing to impact of increase in commodity prices and freight issue. Margins are likely to improve from H2FY24, with new projects reaching margin recognition threshold. NWC to sales guided to be 16-18% for FY24. Tender prospect from Infrastructure stands at Rs6.5trn, Energy - Rs2.9trn and Hi-tech -Rs0.25trn. We believe L&T is well-placed to benefit in long run with strong tender prospects, better order conversion in domestic market, significant traction in hydrocarbon segment from exports market and expected uptick in private capex. We revise our estimate by 0.6/-1.0 for FY24/25, factoring in lower margins in P&M business in short term.
Outlook
The stock is currently trading at PE of 26.7/22.7 FY24/25E. Maintain BUY rating, with revised SoTP of Rs2,615 (Rs2,479 earlier), valuing core business at PE of 21x FY25E, (20x earlier), given sustainable growth visibility in revenue and order inflow front.
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