CLSA maintains 'buy' on L&T, sees 20% upside; here is why the brokerage remains bullish

Larsen & Toubro (L&T) shares rose on Thursday after CLSA maintained a 'buy' call on the construction major's stock with a target of Rs 4,260 per share, recovering some of their losses in a market-wide sell-off the previous day. The L&T stock gained by as much as Rs 55.7, or 1.6 per cent, to Rs 3,598 apiece in early deals on BSE.

Earlier in the day, the company informed the exchanges that it has bagged a major onshore gas pipeline project from a prestigious client in the Middle East.  

The foreign brokerage's target implies an upside of 20-odd per cent from the previous close. 

Here's why the foreign brokerage maintains its bullish stance on L&T: 

CLSA has said that the company’s client, Aramco, is guiding for a capex hike as well as non-fossil capex. In September, L&T bagged a mega order from Saudi oil major Aramco for a gas development programme worth Rs 24,000 crore.

The brokerage highlighted that the oil giant has guided for a 7 per cent increase in its capex this year as against the higher base of 28 per cent in 2023.

L&T is a key India and Middle East capex cycle play, according to CLSA.  

The infrastructure company has an improving outlook, with a 29 per cent year-on-year increase in its $7,500-crore pipeline for the fourth quarter, according to the brokerage.

The company’s margin will improve from the fourth quarter of the financial year on lower legacy orders in its backlog, it added.

Valuation comfort 

L&T shares are commanding reasonable valuation with a trailing 12-month (TTM) price-to-earnings multiple well below the industry average, and is trading above is 30-, 50-, 100- and 200-day simple moving averages, suggesting that it is a long-term uptrend, according to equity research portal Trendlyne.

The stock has been accorded a ‘buy’ call by as many as 32 analysts, with 21 of them signalling a 'strong buy', according to Trendlyne.

The analysts' average one-year target for the stock stands at Rs 3,911, suggesting an upside of 11 per cent from the previous close.

L&T is a largecap stock commandiang a weightage of 4.28 per cent in the Nifty50 index.

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