L&T Stock Gains As Motilal Oswal Hikes Target Price
Shares of Larsen & Toubro Ltd. gained after Motilal Oswal listed the company as its top pick in the capital goods sector as a proxy to play India’s capex story.
The brokerage maintained its ‘buy’ rating on the nation’s largest construction and engineering company, and hiked its price target from Rs 1,835 to Rs 1,950, implying a potential upside of 22%, according to its report.
“L&T’s core E&C business remains best placed to benefit from any capex upcycle, supported by its leaner asset-light business model and diversified segments. Therefore, although the buildings and power segments were weaker in FY21, this was largely offset by strong orders from the international power T&D (transmission & distribution) and hydrocarbons segments,” Motilal Oswal said.
L&T’s capability to win large ticket size projects, such as airports and high-speed rail, according to the report, has been remarkable and has compensated for its exit from the roads sector.
According to the brokerage, the company has been strengthening its business model by exiting non-core businesses, going asset-light (no exposure to road hybrid annuity models), and sharpening its focus on receivables rather than just execution. “L&T continues to maintain high liquidity on its balance sheet.”
While order inflows have been weaker on account of Covid-19, things, the report said, should “start to improve as we move past the pandemic”.
The target price hike, according to Motilal Oswal, was largely driven by the mark-to-market of L&T’s listed IT subsidiaries — L&T Infotech Ltd., MindTree Ltd. and L&T Technology Services Ltd. The three units have rallied as much as 18%, 28% and 11%, respectively, in the past month.
The brokerage also highlighted a few catalysts emerging for L&T in the next two years:
Asset monetisation for Hyderabad Metro and Nabha Power.
Free cash flow generation of $1.5–2 billion (Rs 11,000-15,000 crore) annually in the core business.
Improvement in order inflows prior to the elections.
Improved execution, aided by a better working capital cycle — as the government focuses on capex towards economic growth and job creation.
Separately, L&T has submitted its bid to New Space India Ltd. for a contract to develop and build five polar satellite launch vehicles, the Times of India reported.
Shares of L&T gained as much as 4.45% to Rs 1,660.7 apiece around 1:25 p.m. on Friday. The stock is nearing its 52-week high of Rs 1,677.05. Of the 43 analysts tracking the company, 41 have a ‘buy’ rating, while one each suggest a ‘hold’ and a ‘sell’, according to Bloomberg data. The average of 12-month consensus price targets implies an upside of 12.4%.