CLSA suggests buying L&T stock; key reasons why the brokerage is bullish on it

L&T share price: Investors in Larsen & Toubro (L&T) shares have been in a happier space as the stock of the engineering conglomerate has given around 45 per cent returns in the past year, which is commendable for any blue-chip company. It deserves applause even more as the market has been quite volatile in the past 12 months, with its fair share of highs and lows amid tough macros, rate hike concerns, and selling by foreign investors. FIIs were net sellers in the year 2022 as they sold equities worth Rs 2.78 lakh crore.

Moreover, as per analysts, the stock's ascent has just begun as the company is on a terrific growth trajectory. L&T's stock has been hitting fresh peaks of late, as multiple brokerages and analysts have exuded confidence in the company's business, and projects.

CLSA is the latest brokerage to join the bandwagon. The foreign brokerage has assigned a 'BUY' rating to the stock with a target price of Rs 3,240. Increasing project inflows, record backlogs, and good execution are the main factors behind CLSA's faith in the engineering and construction major.

The brokerage's note says that the company is expected to witness margin expansion in the second half of FY24. Its return on equity (RoE) is increasing continuously due to the buyback offer. The stock has been on a rising spree ever since the company announced a Rs 10,000 crore buyback offer.

L&T to benefit from the big order

CLSA said that the company will benefit from the big hydrocarbon project that it won in the Middle East. As per reports, L&T has won contracts worth Rs 32,400 crore from Saudi Aramco for Phase II of the Jafurah unconventional gas development. The brokerage further said that L&T is among Aramco's favourite contractors. Further, engineering and construction (E&C) business multiples have been increased to 25 times from 24 times. It also expects a 15-20 per cent increase in order inflow in Q2 due to the continuous increase in the order book.

L&T's order book

Until June 30, 2023, the company has a strong order book of Rs 4.12 lakh crore and an order pipeline worth Rs 10 lakh crore. Since the beginning of FY24 till date, the company has received orders worth more than Rs 75,000 crore.

L&T Green Hydrogen Project

In August last year, L&T announced the commissioning of a new green hydrogen plant in Gujarat's Hazira, adding that its daily output will be 45 kg.

"The scope involves the generation of high-purity green hydrogen (99.99 per cent) and oxygen and their captive consumption in the manufacturing shops. A blend of 15 per cent hydrogen with natural gas will be used as a fuel, and oxygen will supplement the existing usage in cutting and welding applications," L&T said in a press release.

The plant is designed for an electrolyser capacity of 800 kW, comprising both alkaline (380 kW) and PEM (420 kW) technologies, and will be powered by a rooftop solar plant of 990 kW peak DC capacity and a 500 kWh battery energy storage system (BESS), the company further said.