L&T shares hit fresh high. What CLSA, ICICI Securities say on $4 bn Saudi Aramco order
L&T: ICICI Securities said given the order inflow, including the mentioned order, L&T could beat its earlier order inflow guidance. L&T had earlier said that order prospects improved sequentially.
- Sep 8, 2023,
- Updated Sep 8, 2023 2:19 PM IST
Shares of Larsen & Toubro (L&T) hit a fresh high in Friday's trade as the engineering and construction major emerged as a preferred contractor for nearly $4 billion order for Jafurah Unconventional Gas Field, Saudi Arabia. ICICI Securities said given the recent order inflow, including the mentioned order, L&T could beat its earlier order inflow guidance. L&T had earlier said its order prospects improved sequentially on Middle East (ME) hydrocarbons but maintained its order inflow growth guidance of 15 per cent YoY for FY24.
Foreign brokerage CLSA said the biggest opportunity for L&T in rest of FY24 is ME hydrocarbon, which should address market concerns of slowdown in government orders in Q4FY24 ahead of elections.
"ME is transitioning well using gas as a transition fuel before renewables take over the long-term with Aramco launching $100 billion gas field at Jafurah. L&T guided for a bigger prospective pipeline for 9MFY24 versus the start of the year at $125 billion up 34 per cent YoY for its core E&C business led by a spike in GCC capex. L&T with its long standing in MENA and competency, is a one of the few preferred contractors of Aramco," CLSA said.
Orders, CLSA said, are likely to flow through with Aramco likely to order $10 billion worth orders for Jafurah, where L&T has emerged as a preferred bidder for orders worth $3.9 billion(17 per cent of FY24 inflows.
"By the time orders are placed and EPS gets visible, we expect the stock to re-rate. Hence, we raise our E&C multiple to 25 times vs 24 times and hike our SOTP-based target to Rs 3,240 (3,080)," CLSA said.
The scrip climbed 2.84 per cent to hit a record high of Rs 2,927.95 on BSE, taking its market capitalisation to Rs 4.07 lakh crore. This was in addition to 4.26 per cent jump in the previous session.
As per reports, L&T has been issued a letter of intent in the Middle East for two packages worth $4 billion. Aramco is the developer of Jafurah field, which is the first unconventional gas field of Saudi Arabia with 2 trillion cubic feet of reserves. It awarded the contract for Phase 1 worth $10 billion.
Till date in FY24, L&T has announced orders worth over Rs 75,000 crore. "With this significant accretion in orders, L&T could report over 20 per cent growth in order inflow in Q2 (excluding services), in our view," ICICI Securities said.
ICICI Securities said it likes the renewed focus of L&T to reward minority shareholders with a significant buyback announced in Q1FY24. It expects L&T's return on equity (RoE) to improve 200 basis points in the medium term.
"We upgrade the stock to BUY on strong consecutive order inflow for two quarters (Q1, Q2FY24), which could likely result in beat to order inflow guidance for FY24, a significant buyback to reward shareholders and consequent improvement in RoE. We expect margin improvement in Q4 and FY25E for core business amidst benign raw material prices. We upgrade the stock to BUY with SOTP based target of Rs 3,141," ICICI Securities said.
Disclaimer: Recommendations provided in this article and/ or any reports attached or relied on herein are authored by an external party. The views expressed herein are those of the respective authors/ entities, and do not represent the views of Business Today (BT). BT does not guarantee, vouch for, endorse any of its contents and hereby disclaims all warranties, express or implied, relating to the same. BT further urges you to consult your financial adviser and seek independent advice regarding the contents herein, including stock investments, mutual funds, general market risks etc.
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Shares of Larsen & Toubro (L&T) hit a fresh high in Friday's trade as the engineering and construction major emerged as a preferred contractor for nearly $4 billion order for Jafurah Unconventional Gas Field, Saudi Arabia. ICICI Securities said given the recent order inflow, including the mentioned order, L&T could beat its earlier order inflow guidance. L&T had earlier said its order prospects improved sequentially on Middle East (ME) hydrocarbons but maintained its order inflow growth guidance of 15 per cent YoY for FY24.
Foreign brokerage CLSA said the biggest opportunity for L&T in rest of FY24 is ME hydrocarbon, which should address market concerns of slowdown in government orders in Q4FY24 ahead of elections.
"ME is transitioning well using gas as a transition fuel before renewables take over the long-term with Aramco launching $100 billion gas field at Jafurah. L&T guided for a bigger prospective pipeline for 9MFY24 versus the start of the year at $125 billion up 34 per cent YoY for its core E&C business led by a spike in GCC capex. L&T with its long standing in MENA and competency, is a one of the few preferred contractors of Aramco," CLSA said.
Orders, CLSA said, are likely to flow through with Aramco likely to order $10 billion worth orders for Jafurah, where L&T has emerged as a preferred bidder for orders worth $3.9 billion(17 per cent of FY24 inflows.
"By the time orders are placed and EPS gets visible, we expect the stock to re-rate. Hence, we raise our E&C multiple to 25 times vs 24 times and hike our SOTP-based target to Rs 3,240 (3,080)," CLSA said.
The scrip climbed 2.84 per cent to hit a record high of Rs 2,927.95 on BSE, taking its market capitalisation to Rs 4.07 lakh crore. This was in addition to 4.26 per cent jump in the previous session.
As per reports, L&T has been issued a letter of intent in the Middle East for two packages worth $4 billion. Aramco is the developer of Jafurah field, which is the first unconventional gas field of Saudi Arabia with 2 trillion cubic feet of reserves. It awarded the contract for Phase 1 worth $10 billion.
Till date in FY24, L&T has announced orders worth over Rs 75,000 crore. "With this significant accretion in orders, L&T could report over 20 per cent growth in order inflow in Q2 (excluding services), in our view," ICICI Securities said.
ICICI Securities said it likes the renewed focus of L&T to reward minority shareholders with a significant buyback announced in Q1FY24. It expects L&T's return on equity (RoE) to improve 200 basis points in the medium term.
"We upgrade the stock to BUY on strong consecutive order inflow for two quarters (Q1, Q2FY24), which could likely result in beat to order inflow guidance for FY24, a significant buyback to reward shareholders and consequent improvement in RoE. We expect margin improvement in Q4 and FY25E for core business amidst benign raw material prices. We upgrade the stock to BUY with SOTP based target of Rs 3,141," ICICI Securities said.
Disclaimer: Recommendations provided in this article and/ or any reports attached or relied on herein are authored by an external party. The views expressed herein are those of the respective authors/ entities, and do not represent the views of Business Today (BT). BT does not guarantee, vouch for, endorse any of its contents and hereby disclaims all warranties, express or implied, relating to the same. BT further urges you to consult your financial adviser and seek independent advice regarding the contents herein, including stock investments, mutual funds, general market risks etc.
Also read: Adani Power, YES Bank, Kaynes Technology: Trading strategies for these buzzing stocks
Also read: Mazagon Dock shares in news on signing MSRA with US government. Key details