Larsen and Toubro share price today: Sharekhan maintains Buy rating with price target of Rs 1795

Larsen and Toubro remains at the forefront to reap benefits from the recently-announced Budget 2021, with the government’s focus on reviving infrastructure spends and promoting domestic manufacturing. Apart from a higher allocation, focus has been to promote domestic manufacturing and efforts to ensure additional funding avenues for infrastructure. Larsen and Toubro share pirce today is Rs 1489, up Rs 37 or 2.55%. 

Larsen and Toubro remains the largest beneficiary given that more than 50% of its annual domestic inflow comes from water supply, transportation, which have seen handsome allocations. Additionally, stress on project cash flows, clarity on funding, etc., have been a cyclical challenge for Larsen and Toubro, which were addressed to some extent directionally. Recently the management indicated that the potential for investment in infrastructure in India is $80-100 billion per year and if consistently done over the next 4-5 years, an opportunity worth $500 billion can be created.

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Going forward, the capex curve would be upward-sloping from 2022-23 onwards and the management expects an average of $50 billion annually as a realistic amount wherein $10- 15 billion would be private capex and $35 billion would be from the public sector. Further, the funding for these large public sector projects is done through multilateral agencies which are providing momentum to the large projects.

Looking at the opportunities arising Larsen and Toubro is one of few players with the capacity to handle large and complex projects as, seen by its recent award wins, such as India’s largest ever tender for the Rs 25000 cr package C4 of the Mumbai-Ahmedabad High Speed Rail as well as the Rs. 7400 cr package C6 apart from large refining order from Rajasthan refinery. Order inflow grew 76% yoy to Rs 73200 cr, taking the order book to record high at Rs. 3.31 lk cr (negligible slow moving orders).

Orders continue to trickle in Q4 FY21 for Larsen and Toubro, which largely remains a strong quarter for order inflow. The order pipeline remains healthy at Rs 2.65 lk cr (Rs 2.2 lk cr of domestic orders in infra) for Q4FY2021 while there are Rs 15000 cr worth of opportunities in the hydrocarbon segment.

Sharekhan believes Larsen and Toubro remains at the forefront to reap benefits from the AtmaNirbhar Bharat Scheme with its diversified businesses across sectors such as defence, infrastructure, heavy engineering, and IT.

Larsen and Toubro remains focused on keeping working capital levels stable yoy and Larsen and Toubro expects net working capital for March 2021 to be the same as March 2020 level which factors higher asking rate of collection for Q4FY2021. Larsen and Toubro is trading at a P/E of 21.4x/18.1x its FY2022E/FY2023E, which remains lower to its long-term average and provides comfort on valuation. Hence, Sharekhan maintains Buy rating on the stock with a revised SOTP-based price target of Rs 1795.

Larsen and Toubro Key Risks:

Slowdown in the domestic macro environment or weakness in international capital investment can negatively affect business outlook and earnings growth.