L&T share price targets post buyback announcement, Q1 results suggest upside potential
L&T approved a share buyback of 3.33 crore shares at a maximum price of up to Rs 3,000 per share and consideration of up to Rs 10,000 crore.
- Jul 26, 2023,
- Updated Jul 26, 2023 3:32 PM IST
Shares of Larsen & Toubro (Ltd) climbed over 4 per cent in Wednesday's trade to hit a fresh record high following the announcement of the Rs 10,000 crore share buyback, a special dividend and also better-than-expected June quarter results. Analysts such as Khadija Mantri of Sharekhan said L&T’s consolidated numbers exceeded Street estimates by a wide margin on the top and bottom line fronts, but the operating margin missed estimates. They noted the order inflows jumped 57 per cent to Rs 65,520 crore for the quarter, with order book scaled the Rs 4 lakh crore mark.
The stock rose 4.21 per cent to hit a record high of Rs 2,670 on BSE. With this, the stock is up 28 per cent in 2023 so far.
Kotak Institutional Equities said L&T reported a sharp 12 per cent beat in core E&C (engineering and construction) Ebitda in spite of sub-par margins. Healthy ordering levels boosted growth visibility for attaining the higher end of the unchanged business guidance range, it said adding that working capital levels continued to defy seasonality and grow return on equity (RoE).
"The Saudi boost to ordering ensured the rem-FY2024 order pipeline for L&T is up over 30 per cent YoY. We increase our ordering estimates by 4 per cent and FV by 9 per cent to Rs 2,400 on roll-forward. Our 'REDUCE' stays on expensive valuations," it said.
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Margins are likely to improve from H2FY24, with legacy orders likely to be completed soon and new projects reaching margin recognition threshold, said Prabhudas Lilladher.
"We believe L&T is well-placed to benefit in long run with 1) strong tender prospects, 2) better order conversion in domestic market, 3) significant traction in hydrocarbon and 4) renewable energy orders from international markets like Saudi Arabia and expected uptick in private capex in domestic market. The stock is currently trading at PE of 29.1 times/24.4 times FY24/25. Maintain ‘BUY’ rating with revised SoTP of Rs 2,955 ( from Rs 2,615 earlier), valuing core business at PE of 22 times FY25E, given strong revenue visibility, prudent NWC management and improving Hyderabad Metro operational performance," Prabhudas Lilladher said.
L&T approved buyback of 3.33 crore shares at a maximum price of up to Rs 3,000 per share and consideration of up to Rs 10,000 crore. It also approved a special dividend of Rs 6 per share, which amounted to Rs 843 crore.
Jefferies said the buyback quantum shows the confidence of the company in future cash flow generation. This brokerage has suggested a target price of Rs 3,050 on the stock.
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"We estimate a robust 27 per cent EPS CAGR for the P&M business over FY23-25. Further, improved cash distributions along with lower asset intensity should help L&T get closer to its targeted ROE of 18 per cen by FY26 from 12.2 per cent in FY23. We maintain 'BUY' with revised price target of Rs 2,834," JM Financial said.
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Shares of Larsen & Toubro (Ltd) climbed over 4 per cent in Wednesday's trade to hit a fresh record high following the announcement of the Rs 10,000 crore share buyback, a special dividend and also better-than-expected June quarter results. Analysts such as Khadija Mantri of Sharekhan said L&T’s consolidated numbers exceeded Street estimates by a wide margin on the top and bottom line fronts, but the operating margin missed estimates. They noted the order inflows jumped 57 per cent to Rs 65,520 crore for the quarter, with order book scaled the Rs 4 lakh crore mark.
The stock rose 4.21 per cent to hit a record high of Rs 2,670 on BSE. With this, the stock is up 28 per cent in 2023 so far.
Kotak Institutional Equities said L&T reported a sharp 12 per cent beat in core E&C (engineering and construction) Ebitda in spite of sub-par margins. Healthy ordering levels boosted growth visibility for attaining the higher end of the unchanged business guidance range, it said adding that working capital levels continued to defy seasonality and grow return on equity (RoE).
"The Saudi boost to ordering ensured the rem-FY2024 order pipeline for L&T is up over 30 per cent YoY. We increase our ordering estimates by 4 per cent and FV by 9 per cent to Rs 2,400 on roll-forward. Our 'REDUCE' stays on expensive valuations," it said.
Watch: I-T Notice: 7 reasons why you can get a notice from Income Tax Department
Margins are likely to improve from H2FY24, with legacy orders likely to be completed soon and new projects reaching margin recognition threshold, said Prabhudas Lilladher.
"We believe L&T is well-placed to benefit in long run with 1) strong tender prospects, 2) better order conversion in domestic market, 3) significant traction in hydrocarbon and 4) renewable energy orders from international markets like Saudi Arabia and expected uptick in private capex in domestic market. The stock is currently trading at PE of 29.1 times/24.4 times FY24/25. Maintain ‘BUY’ rating with revised SoTP of Rs 2,955 ( from Rs 2,615 earlier), valuing core business at PE of 22 times FY25E, given strong revenue visibility, prudent NWC management and improving Hyderabad Metro operational performance," Prabhudas Lilladher said.
L&T approved buyback of 3.33 crore shares at a maximum price of up to Rs 3,000 per share and consideration of up to Rs 10,000 crore. It also approved a special dividend of Rs 6 per share, which amounted to Rs 843 crore.
Jefferies said the buyback quantum shows the confidence of the company in future cash flow generation. This brokerage has suggested a target price of Rs 3,050 on the stock.
Also read: Hot stocks on July 26, 2023: Delta Corp, Suzlon Energy, Tata Motors, Adani Green Energy and more
"We estimate a robust 27 per cent EPS CAGR for the P&M business over FY23-25. Further, improved cash distributions along with lower asset intensity should help L&T get closer to its targeted ROE of 18 per cen by FY26 from 12.2 per cent in FY23. We maintain 'BUY' with revised price target of Rs 2,834," JM Financial said.
Also read: Suzlon Energy shares in focus after Q1 results, management commentary
Also read: Tata Motors DVRs may see a gap-up start, says Nuvama. Here's why