L&T gains 2% post December quarter results; analysts see further upside

Shares of Larsen & Toubro (L&T) rose 2 per cent to Rs 1,393 on the BSE in intra-day trade on Wednesday after the company reported better-than-expected December quarter numbers. The consolidated net profit during the said quarter stood at Rs 2,467 crore, up nearly 5 per cent from the same period last year. On a consolidated basis, adjusted revenues from continuing operations fell 1.8 per cent YoY to Rs 35,596 crore.

At 09:20 am, the construction and engineering company’s stock was trading 1 per cent higher at Rs 1,375 as against a 0.53 per cent decline in the S&P BSE Sensex. The scrip hit a 52-week high of Rs 1,396 on Monday, January 25.

During the quarter, L&T’s standalone adjusted net profit came in at Rs 1,705 crore for Q3FY21 compared with Rs 1,261 crore in Q3FY20. Revenue from operations, meanwhile, came in at Rs 19,620 crore for the quarter under review, down 1.3 per cent from previous year revenue of Rs 19,985 crore. The company’s standalone EBITDA (earnings before interest, taxes, depreciation, and amortization) margins improved 210 basis points (bps) to 9.5 per cent on a YoY basis led by control on operating expenses, job mix and better performance in others segments.

For Q3FY21, L&T registered strong order inflows at the group level worth Rs 73,233 crore, up 76 per cent YoY, led by mega EPC orders won in infrastructure segment, including high speed rail (HSR), special bridge project, rural water supply scheme (MP), international order in power T&D etc.

Meanwhile international orders for Q3FY21 came in at Rs 10,253 crore, contributing 14 per cent to order inflows. L&T’s order backlog is at a record high of Rs 331,061 crore, up 9 per cent YoY, with international orders constituting 20 per cent of order backlog.

The management said with the spectre of the pandemic yet lingering amidst us, the business pursuits need to factor the safety precautions warranted to ensure responsible conduct towards the new emerging opportunities and growth prospects. Against such a backdrop, the company will focus with cautious optimism on large project wins smart execution of its large order book and preservation of liquidity and optimum use of capital and other resources.

“L&T reported strong order inflows while execution is seeing traction amid higher work force mobilisation and supply chain normalisation that could improve over next few months. Also, improved collections would further help improve working capital situation while cash proceeds from E&A have provided much needed liquidity comfort and ability to repay debt further strengthening the balance sheet,” analysts at ICICI Securities said.

Analysts at YES Securities believe order book diversification, global competence, technology differentiation, proven track record and cost efficiencies bode well for the company. The brokerage raised its FY22 earnings estimates marginally by 2 per cent and retained ‘BUY’ rating on the stock with a target price target of Rs 1,584. “Core business revenue ramp up, infra margin recovery, prudent capital allocation and improving return ratios over FY21‐23E are key stock triggers,” it said.

According to Antique Broking, while near term earnings is expected to remain volatile on account of Covid-19 pandemic-led business challenges and uncertainties, long-term business prospects of L&T remain promising given infrastructure development remains one of the key pivotal theme of the government to revive economy.

“We remain positive on the long-term prospects of the company and maintain our ‘Buy’ rating on the stock with increased target of Rs 1,655,” it said.

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