Morgan Stanley upgrades Larsen and Toubro: Buy, sell or hold? Check target price

Morgan Stanley has upgraded the target price of Larsen and Toubro Ltd from Rs 2,401 to Rs 2,827 and said that engineering and manufacturing companies like L&T are in a prime position to take advantage of India's consolidating capex.

The report said that because of the strong capex, L&T is also a better stock to buy.

The note states that L&T has a monopoly in its area of expertise and is in much better financial condition than its rival companies. The report also says the company has the capability to make the most of the opportunities in the manufacturing sector. 

It said the company's order inflow has witnessed a good level of growth; its diversified order book and margin are going through fewer fluctuations; and the company has good management of its working capital. 

Another factor that goes in L&T's favour, Morgan Stanley says, is an increase in private equity (PE) in its various elements.

The report says the company has increased PE in the base case from 20X to 25X and in the bull case from 25X to 30X, while the PE in the bear case is stagnant at 15X.

The company's adjusted probability, Morgan Stanley says, is up from 75 per cent to 80 per cent.

Morgan Stanley says the factors that are injecting L&T's growth are India's consolidating capex, an increase in the rate of investment from 31 per cent of GDP in FY22 to an estimated 36 per cent in FY27, strong balance sheets of companies and banks, and corporate debt against GDP at its lowest level in the last 15 years.