Larsen & Toubro Ltd. is expected to achieve the upper end of its guidance for sales and order inflow for the current fiscal due to strong project-execution capabilities demonstrated in the first quarter and order-inflow visibility for the coming quarters.
With a 57% order growth in the first quarter, the company just needs to post a growth of 2% in the next nine months to meet the FY24 growth target of 12%, which is the upper end of the guidance, Jefferies said in a post-earnings report on Tuesday.
Morgan Stanley said the project execution in the core business came as a surprise and the ask rate for the balance of nine months appeared achievable. "We have revised FY24 core revenue growth estimate to 18% from 15% against the guidance of 12-15% given by the company."
The construction firm's net profit rose 46.5% to Rs 2,493 crore in the April-June quarter in comparison to Rs 1,702 crore during the same period last year, according to an exchange filing on Tuesday. This compares with the Rs 2,128 crore consensus estimate of analysts tracked by Bloomberg.
The earnings were primarily aided by the execution of a healthy order book in its projects and manufacturing portfolio. International revenue at Rs 19,022 crore, constituted 40% of the total revenue, it said.
L&T Q1 FY24 Highlights (Consolidated, YoY)
Revenue from operations rose 33.5% to Rs 47,882.4 crore, as against a Bloomberg estimate of Rs 41,056.8 crore.
Operating profit, or Ebitda, rose 23% to Rs 4,868.6 crore, as compared with a Bloomberg estimate of Rs 4,490.5 crore.
Operating margin at 10.1% versus 11.03% a year ago.
Shares of the company rose 3.95% to Rs 2,662.10 apiece as of 9:43 a.m., as compared to 0.38% gain in the NSE Nifty 50. The scrip gained as much as 4.26% intraday, hitting an all time high. The stock has rise nearly 27.47% year-to-date
The relative strength index was at 75,indicating stock may be overbought. Total traded volume stood at 12.1 times its 30-day average.
Out of the 41 analysts tracking the company, 38 maintain a 'buy' rating, one recommend a 'hold' and two suggest to 'sell' the stock, as per the Bloomberg data. The average calculated from the 12-month price target given by analysts implies a potential upside of 1%.
Read What Brokerages Have To Say:
Morgan Stanley
Execution in the core business has come as a surprise and the ask rate for the balance of nine months appears achievable,
Revised the estimate for FY24 core-revenue growth to 18% from 15% against the guidance of 12–15% given by the company. It implies 8% growth in the rest of FY25, which is achievable.
Raised earning-per-share estimates to 7% for FY24 and 8% for both FY25 and FY26 on stronger execution in the core business and mark-to-market impact of subsidiaries' market capitalisation.
Management has reiterated its core margin outlook for FY24 and improvement in the second half of the fiscal.
Reiterate the overweight rating.
The revised weighted sum-of-the-parts valuation is Rs 2,850 compared with Rs 2,647 earlier.
Emkay Global Financial Services
L&T reported better-than-expected numbers for the quarter, with growth in sales at 34% year-on-year and profit after tax at 46%.
Ebitda margin at 10.2% was below estimate, but the high top-line growth more than offset the margin decline.
Management has maintained guidance of 10–12% sales growth and 12–15% inflow growth, though it looks conservative on current run-rate basis.
Ebitda margin is expected to clock 9% for the projects business as improvement is expected in the second half of the fiscal.
Order prospects for the remaining nine months of the fiscal are up 34%, largely backed by international hydrocarbon projects.
Increased the sales and EPS estimates for FY25E by 6–7% and introduced EPS estimate for FY26E at Rs 128.
Inflow trajectory has been strong and a 34% high-prospect YoY implies it will remain strong for the coming quarters.
Roll-forward valuation estimated to June 2024 and arrive at a target price of Rs 2,550 per share.
Maintains hold on the stock as margin concerns persist and as the brokerage is still uncertain about medium-term sustainability of the higher capex in the Middle East.
Jefferies
L&T's Q1 revenue and Ebitda were 17% and 16% above expectations.
With a 57% order growth in Q1, the company needs to just post growth of 2% in the next nine months to meet the FY24 growth target of 12%, the upper end of the target.
The first half of FY24 is expected to bring order flow traction as elections will drive front-loaded order flow.
The second half of FY24 may benefit from margin recovery as the execution of projects won in an inflated commodity price environment will pick up.
Both of L&T's key geographies India and the Middle East are seeing capex traction.
Maintain buy rating with a revised price target of Rs 3,050, valuing core engineering and construction at 16 times FY25 estimate EV/Ebitda versus Rs 2,915 earlier.
Anticipate core engineering and construction Ebitda to rise 25% compound annual growth rate versus 16% in FY15–19 when it traded at 12 times EV/Ebitda.
Major risk to the stock could be reduction in government expenditure focus.
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