L&T Stock Falls Even As Brokerages Remain Bullish After Q2 Results
Larsen & Toubro (L&T) employees work in the heavy engineering division in Hajira, India. (Photographer: Prashanth Vishwanathan/Bloomberg News)

L&T Stock Falls Even As Brokerages Remain Bullish After Q2 Results

Most analysts remain bullish on Larsen & Toubro Ltd. after its second-quarter results, citing attractive valuation and balance sheet strength. Still, the stock is the worst performer on the Nifty 50 today.

Net profit before exceptional item of India’s largest engineering-to-construction company fell 41.8% year-on-year to Rs 1,462.84 crore in the quarter ended September. Including exceptional item, the loss stands at Rs 2,322.10 crore.

The company’s revenue, too, fell 12.2% over the year ago to Rs 31,034 crore. Its order inflow book declined 42% year-on-year in the second quarter.

Brokerages, however, remained divided on the company’s net working capital position at 26.7% of sales. While Nomura finds it elevated even as trade receivables reduced significantly from FY20 levels, Credit Suisse said it’s stable.

L&T declared a special dividend of Rs 18 apiece, leading to an outgo of about Rs 2,500 crore versus Credit Suisse’s estimate of Rs 5,000 crore. The company, according to the research firm, may have felt the need to be conservative to address standard net debt and capital needs in Hyderabad Metro.

Still, of the 42 analysts tracking L&T, 39 have a ‘buy’ rating, two recommend a ‘hold’ and one suggests a ‘sell’. The average of Bloomberg consensus 12-month target price implies an upside of 26.6%.

Shares of L&T fell as much as 4.9% in early trade on Thursday compared with a 0.55% drop in the Nifty 50 Index.

Also read: L&T Q2 Results: Profit, Order Inflow Decline Despite Easing Lockdown Curbs

Here’s what brokerages have to say…

Nomura

  • Maintains ‘buy’ with target price at Rs 1,152 apiece
  • Q2 FY21 results operationally stronger than expected
  • Infrastructure is in line and hydrocarbon execution ramping well
  • Stronger-than-estimated core Ebitda margin
  • Working capital level remains elevated despite lower debtors as trade payables continue to fall
  • Special dividend was below expectation
  • Capital allocation issue still lingers

Credit Suisse

  • Maintains ‘outperform’ with a target price of Rs 1,150 apiece
  • Meets expectations; lacks spark on dividends
  • Lacks spark on inflows and execution
  • EPC value back to levels seen more than decade ago
  • A fall in working capital in challenging environment positive, dividend underwhelming
  • Strong diversification, balance sheet, backlog, less cyclical public sector dependence aids
  • Attractive valuation of 12 times price-to-earnings and 8 times EV/Ebitda estimated in FY22

Jefferies

  • Maintains ‘buy’ with a target price stands at Rs 1,280 apiece
  • Q2 order flow down 42% year-on-year versus an expected 48% decline
  • Net working capital including finance assets/liabilities is 98% of sales versus 95% over the year ago
  • Expects net working capital to end FY21 at 105%, which could see some positive surprise
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