L&T shares up 40% in 2023 so far; Prabhudas Lilladher sees stock at Rs 3,300

Shares of construction major Larsen & Toubro (L&T) have surged nearly 40 per cent on a year-to-date (YTD) basis. Around 36 per cent of the said rise came in the last six months. Prabhudas Lilladher (PL) has maintained a 'Buy' call on the counter and upwardly revised its target price to Rs 3,302 from Rs 2,955 earlier.

The domestic brokerage believed that L&T is well-placed to benefit in the long run given strong tender prospects; better order conversion in domestic markets; significant traction in hydrocarbon; and renewable energy orders from international markets like Saudi Arabia and expected uptick in domestic private capex.

"L&T has bagged two engineering, procurement and construction (EPC) orders as part of Saudi Aramco's second expansion phase in its Jafurah unconventional gas production project worth Rs 33,260 crore. Scope of work includes setting up a gas processing plant, its main process units and to construct gas compression units as part of the Jafurah unconventional gas production project. The first contract to set up a gas processing plant and its main process units is estimated to be worth around $2.9 billion (Rs 24,000 crore). Second contract to construct gas compression units is worth $1 billion (Rs 8,320 crore)," PL stated.

Commenting on the company's upcoming buyback offer, the brokerage said, "L&T has increased shares buyback price from Rs 3,000-3,200 per equity share, keeping total buyback value unchanged at Rs 10,000 crore. One of the key objectives of the company's Strategic Plan, Lakshya 2026, is to enhance the return on equity (ROE). Return on equity capital to shareholders in the form of buyback of shares of the Company is a step in that direction."

The share buyback of engineering and infrastructure conglomerate would open on September 18 and conclude on September 25, L&T said in its Letter of Offer.

PL also said that tender prospects for 9MFY24 stand at Rs 10.07 lakh crore vs Rs 7.52 lakh crore in Q1 FY23, comprising of infrastructure (Rs 5.85 lakh crore vs Rs 5.47 lakh crore in Q1 FY23), hydrocarbon (Rs 3.47 lakh crore vs Rs 1.02 lakh crore in Q1 FY23), power (Rs 0.45 lakh crore vs Rs 0.6 lakh crore in Q1 FY23) and others (Rs 0.29 lakh crore).

"Tender prospects is higher compared to full year prospect guided earlier (in Q4 FY23 concall) of Rs 9.73 lakh crore, mainly due to increased prospects from hydrocarbon business (Rs 3.47 lakh crore guided in Q1 FY24 vs Rs 2.44 lakh crore in Q4 FY23) mainly from Middle East market," it added.

"We revise our FY24/25E estimates by 1.7 per cent/3.7 per cent, post factoring in healthy growth prospects for hydrocarbon business. The stock is currently trading at PE of 32.9x/27.1x FY24/25E. Maintain 'Buy' rating on stock with revised SoTP based TP of Rs 3,302 (Rs 2,955 earlier) valuing core business at PE of 25x FY25E (22x earlier, given recent large order wins aiding strong revenue visibility and improving Hyderabad metro performance," it mentioned.

On technical setup, Mileen Vasudeo, Senior Technical Research Analyst at Arihant Capital Markets told BT TV, "One should accumulate L&T at around Rs 2,900-2,850 levels, keeping a stop loss placed at Rs 2,732. On the higher side, this counter may see Rs 3,100-3,200 levels in a couple of months."

L&T shares were last seen trading 0.21 per cent higher at Rs 2,914.25 in Thursday's trade.

(Disclaimer: Under no circumstances should any person at this platform make trading decisions based solely on the information discussed herein. You should consult a qualified broker or other financial advisor prior to making any actual investment or trading decisions. All information is for educational and informational use only. Business Today does not guarantee, vouch for, endorse any of its contents and hereby disclaims all warranties, express or implied, relating to the same.)

Also read: Stocks that share market analysts recommended on September 14, 2023: Apollo Pipes, Bharat Forge, Bajaj Finance and Star Health

Also read: PM Modi to launch projects worth over Rs 50,000 crore, Samhi Hotels IPO, Zaggle Prepaid IPO to open in Top News on September 14: Share markets, Bank Nifty outlook, Tata Nexon EV facelift

Also read: Stocks to watch on September 14, 2023: KEC International, Coffee Day, Vadilal Industries, Radico Khaitan, others