L&T share price up 46% year-to-date; is the stock buy-worthy at this juncture? Experts weigh in

Despite strong gains, analysts believe the stock has more steam left for the long term.

Most analysts and brokerage firms are positive about L&T stock for the long term because of the company’s strong order pipeline and growing might in emerging sectors such as green hydrogen, semiconductors and data centres.

As Mint reported earlier, L&T expects to surpass its order inflow target of 10-12 per cent and revenue growth forecast of 12-15 per cent for FY24. At the group level, L&T received orders worth ₹89,153 crore in Q2, representing a 72 per cent year-on-year growth. This was the highest-ever quarterly order inflow.

Also Read: L&T orders shine, but margins dull

We collated the views of several experts to understand what should investors do with L&T stock at this juncture. Here’s what they said:

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Fundamental views

Elara Capital

The brokerage firm has a buy recommendation on the stock with a target price of ₹ 3,750.

L&T Hydrocarbon, Larsen & Toubro’s wholly-owned subsidiary, with three decades of experience in offering integrated solutions across the hydrocarbon value chain, saw robust order inflows in the past two years as well as in the current fiscal, largely from the Middle East, said Elara Capital.

The new near-term order pipeline is also up three times which should double the annual order inflow run-rate to ₹60,000 crore. Growth in the hydrocarbon segment is positive due to the space yielding a higher EBITDA margin at nearly 10 per cent (versus Infrastructure’s nearly 8 per cent), low competitive intensity (competition largely from global peers), lean working capital requirements and high RoCE (return on capital employed) of +50 per cent, Elara Capital observed.

Also Read: Will L&T become the world’s favourite Indian stock?

In the past decade, according to Elara Capital, engineering and construction (E&C) saw a revenue CAGR of 7 per cent versus IT Services’ 23 per cent. This could change.

“In FY24E-26E, expect E&C to outpace IT Services, led by (i) strong inflows, and (ii) as also on FY23-26E revenue CAGR of 18 per cent versus IT Services’ 14 per cent. Also, despite domestic inflows facing the risk of disruption from elections, international orders may be buoyant. We remain structurally positive on India’s capex which may unveil an opportunity worth $1.2 trillion in the next decade, said Elara Capital.

“Poised at the mid-point of its Lakshya-26 journey, L&T is on track to achieve its financial goals. Led by robust long-term new order pipeline, both globally and domestically, growth for E&C will surely rev up,” said Elara Capital.

“We up FY25E/26E estimates 5 per cent each as also SoTP-target price to ₹3,750 from ₹3,540, valuing E&C on unchanged FY26E P/E (price-to-earnings ratio) of 22 times, investments in IT and financial services at market value and investments in PPP assets at one-time book value,” said Elara.

Key risks for the stock, as per the brokergae firm, are the impact of geopolitical crises on crude/GCC capex, focus shifting from domestic capex and labour scarcity.

Also Read: L&T Finance gets $125 million loan from Asian Development Bank to support farmers, women borrowers

Sanjay Moorjani, Research Analyst, SAMCO Securities

According to Moorjani, Larsen & Toubro continues to be an attractive pick for investors. It recently concluded its first-ever buyback at ₹3,200 per share.

Moorjani pointed out that fundamentally, L&T looks as strong as ever with robust growth led by record-high order books, strong order inflows from the Middle East, the bottoming out of infrastructure margins and increased public capex from the domestic markets. In the recent conference call, the management expressed confidence in surpassing the guidance for FY24.

“Looking ahead, L&T’s prospects appear promising, especially with its involvement in emerging sectors such as green hydrogen, semiconductors and data centres. L&T definitely remains buy-worthy. Investors can look for a target of ₹3,600 while keeping a strict stop loss at ₹2,700,” said Moorjani.

Technical views

Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers

Since the last year or so, this counter has been making higher highs and higher lows, which is a sign of an established uptrend. It is trading above all major daily exponential averages.

At the current juncture, on a daily scale, it has made a bearish-harami candlestick pattern along with a double top of approximately ₹3,100. The daily RSI has made a bear divergence.

“One book profit in the zone of ₹3,000–3,100 and wait for a meaningful correction. The best re-entry levels would be ₹2,900–2,950,” said Patel.

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The capital goods sector experienced a significant surge last year, with L&T, the sector leader, registering an impressive gain of over 45 per cent this year.

“Despite this positive trend, L&T is currently undergoing a short-term consolidation phase, with ₹3100 serving as a resistance level and ₹2,850 providing support. Once it breaks above ₹3,100, it is likely to regain its bullish momentum. Looking ahead, ₹3,400 and ₹3,800 are the potential targets for the near and long term, respectively. In case of a significant correction, ₹2,700 will act as a crucial support level,” said Meena.

Shiju Koothupalakkal, Technical Research Analyst, Prabhudas Lilladher

Koothupalakkal pointed out that the stock has witnessed resistance once again near the ₹3,115 level, indicating a double top formation on the daily chart and can expect some slide with profit booking seen. So, one can wait for fresh buying and expect the stock to sustain around the near-term support of ₹2,970 level which is where the significant 50EMA level lies expecting a reversal.

Further, a decisive breach above ₹3,115 may confirm a breakout and signal a further upward move in the coming days.

“The long-term trend is maintained strong with a major support zone visible near ₹2,850 and upside, as mentioned earlier, with a decisive breach above ₹3,115 should confirm a breakout for a further upward move to ₹3,470-3,500 levels for the short term timeframe. The long-term timeframe chart indicates an upside target of ₹4,340-4,400 levels as per the trend-based Fibonacci extension tool with the indicators maintained positive with immense upside potential visible from current levels,” said Koothupalakkal.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Updated: 28 Nov 2023, 01:52 PM IST