Larsen & amp; Toubro is already the largest contractor in India, but stands nowhere compared to its Chinese counterparts.
NEW DELHI: Larsen & amp; Toubro, the name synonymous with mega engineering and construction projects in India and also the most valued contractor in the country, is sure to get bigger, according to global brokers.
Some analysts see an upside potential of up to 25 percent in the next 12 months after the quarterly results. The company had its best-ever quarter in terms of orders, largely thanks to two contracts to build high-speed rail.
In the post-earnings announcement, UBS said L & T’s book-to-bill ratio is at a 20-quarter high, which offers significant revenue visibility. Valuations remain undemanding, however, as the market is not valuing its market share gains at the expense of its competitors, he said, advocating buying the stock. It has a goal of Rs 1,575.
L&T said Monday its net income was up 5 percent to Rs 2,466.71. The turnover from the operational business decreased however compared to the previous year by 1.78 percent to 35,596.42 billion rupees. Orders for the quarter were up 76 percent from a year earlier, totaling Rs 73,233 billion.
Credit Suisse maintained an « outperform » rating on the stock with a target of Rs 1,700 and said results are in line with estimates. “The outlook is positive with attractive ratings. Procyclicality can fuel the uptrend. The valuations remain attractive despite the ramp-up. The record booking of orders, supported by large orders, and the momentum remain strong, ”it says.
The company is now also hoping for the future, as its boss SN Subrahmanyan admitted: « At the moment, it is a problem of abundance. » L & amp; T said it sees the third quarter as the « turnaround quarter ».
The stock traded at 1,343 rupees on a market-wide sell-off 1.3 percent on Wednesday. The stock is up 27 percent in the past three months to improve the outlook for the infrastructure sector.
« By improving the proportion of low-risk orders and potentially reducing debt, L&T is well placed in commodities despite short-term headwinds, » said Priyankar Biswas and Neelotpal Sahu, analysts at Nomura.
They kept the EPS estimates for Fiscal Year 21-23, with minor changes where L&T was rated on a SOTP basis to hit a target of Rs 1,616, an upward movement of 19 percent. Accordingly, the main risks are a delay in economic recovery, a sharp rise in the cost of raw materials such as steel and cement, and an increase in working capital.
Brokers are also seeing the company deleverage as the collection of public sector contracts remains robust. L & amp; T has already reduced its net debt by Rs 13,100 billion in the third quarter of the current fiscal year compared to FY 20.
The company is already the largest contractor in India, but nowhere compared to its Chinese counterparts, who are among the largest construction companies in the world. The sustained gains in market share in the domestic and foreign markets could, however, push close to this level.
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1 comment on this story
Mammoth is a bad choice of words as mammoths are extinct. « Behemoth » is more appropriate.