L&T shares gain close to 2% after September quarter earnings; Citi sees 23% potential upside

Shares of Larsen and Toubro (L&T) in early morning deals on Wednesday scaled up to day’s high price of Rs 2983.05, gaining as much as 1.85 per cent, post its September quarter results.

For the September quarter, the company posted a 44.5 per cent year-on-year (YoY) increase in its consolidated net profit to Rs 3,222.63 crore. The net profit at the engineering and construction company in the year-ago period stood at Rs 2,228.97.

The consolidated revenue is reported at Rs  51,024 crore, recording a YoY growth of 19%, primarily aided by improved execution of the large order book and accelerated progress in the Projects and Manufacturing portfolio. International revenues during the quarter at Rs 21,898 crore constituted 43% of the total revenue. 

The consolidated order book at the company as on September 30, 2023 stood at Rs 450,734 crore, with international orders having a share of 35%. Last year, the company’s order book was placed at Rs 373,281 crore.

The company also successfully completed the first ever buyback of shares during the quarter, aligning with its long-term Lakshya 2026 plan to enhance shareholder value.

“In the near term, we remain cautiously optimistic, considering the recent geopolitical developments. However, we do expect sustained buoyancy of Services and Indian Government’s thrust on capex to continue,” S.N. Subrahmanyan, Chairman and Managing Director at L&T said while commenting on the results. 

Brokerages’ take on L&T post Q2 results 

Brokerages are largely bullish on the counter post its September quarter show. Here is summarised the rating on the stock by different brokerages together with the new target price.

Global brokerage CLSA is bullish and has suggested a target of Rs 3600, implying potential gains of 23 per cent from the last closing price. The brokerage noted that the spike in order inflow and capital return takes return on equity (RoE) at the company to over 15 per cent. Further the company reported guidance beating Q2 earnings, with order inflows up 72 per cent and execution up 25 per cent YoY. Weak link in 2Q was its E&C margin, down 78 bps, added the brokerage.

Jefferies also maintains its ‘Buy’ rating on the stock with an increased target price of Rs 3400. The brokerage highlighted that the construction company’s EBITDA during the review period was lower than estimates. “Management said it should do better than FY24E order flow/revenue guidance, but margin was revised to 8.5-9% from 9% earlier,” added the brokerage.

Citi is also positive on the stock and has suggested a target price of Rs 3550. The brokerage noted that the company reported very strong order inflow(+96% YoY in P&M business) & revenue growth (+25% YoY in P&M business) in 2Q. But may face some headwinds in the near term i.e. 4QFY24/1QFY25.