Larsen & Toubro shares gain over 2% after strong Q3 earnings


The share price of Larsen & Toubro (L&T) gained more than 2 percent in early trade on Wednesday after the company reported stronger operational performance than expected in the December quarter with order inflows beating Street projections.

The engineering and construction conglomerate reported a net profit of Rs 2,466.7 crore in the third quarter of fiscal 2021, rising 4.9 percent from Rs 2,352 crore in the corresponding quarter of the previous fiscal. Net profit beat CNBC-TV18’s estimates of Rs 2,110 crore.

The revenue for the quarter, however, was down 1.8 percent to Rs 35,596.4 crore from Rs 36,243 crore, YoY.

The company’s EBITDA in Q3FY21 rose 4 percent at Rs 4,280 crore versus Rs 4,117 crore, while the EBITDA margin improved by 60 bps, contrary to expectations, to 12 percent versus 11.4 percent, YoY.

The order inflow in the third quarter was reported at Rs 73,233 crore against estimation of Rs 70,000 crore by analysts.

Read here: L&T Q3FY21 operationally stronger than expectations but revenue down 1.8%

Here are the brokerages’ views on the stock:

CLSA

Doubling its order inflow, a rebound in its backlog, a slight pick-up in the infrastructure segment margin and a 79 percent rise in cash flow operations (CFO) to Rs 44 billion were the highlights from L&T’s 3Q results.

Its engineering & construction (E&C) execution was weak, as expected. Rec PAT was 8 percent ahead on realty monetisation. The good news was its working capital has started to shrink. L&T confirmed it had a full workforce in 3Q, which should improve visibility on an execution pick-up in 4QFY21 with its solid USD 45 billion book, CLSA noted.

CLSA reiterated its ‘Buy’ rating on the stock with a target price of Rs 1,620 per share as it sees L&T as a good domestic Capex proxy. It is of the view that L&T is inexpensive at -0.7x std. and is on the cusp of the next Capex cycle upturn.

Morgan Stanley

Morgan Stanley remained ‘Overweight’ with a target of Rs 1,512 per share. The core margin was up 80 bps, helped by profit on the sale of the commercial tower. It’s continued to focus on strong cash generation and ended Q3 with record order inflows & order book, Morgan Stanley said.

Credit Suisse

Credit Suisse has maintained an ‘Outperform’ rating with a target at Rs 1,700 per share. The results were largely in-line with expectations. The EPC execution was lower on COVID-19 restrictions, it said.

Goldman Sachs

Goldman Sachs maintained its ‘Buy’ rating and raised the target price to Rs 1,650 per share from Rs 1,450 earlier.

The Q3 results were a strong performance in a challenging macro environment and Q3 earnings indicate sequential improvement in performance hereon, the brokerage house said.

UBS

UBS has maintained a ‘Buy’ call on the stock with a target of Rs 1,575 per share. The book-to-bill ratio was at a 20-quarter high, while valuations are still undemanding. The company is trading at a 12 percent discount to its 10-year average one-year forward PE. The market is not pricing in its market share gains, UBS said.

However, the key risk to its call is a scenario of a protracted trajectory of economic recovery, it added.

Citi

The research house maintained the ‘Buy’ call with a target of Rs 1,657 per share. The quality and competitive advantage shine through, while order inflows were driven by large orders from HSR & refineries, it said.

Motilal Oswal

The brokerage raised its FY21E EPS by 9 percent on account of the surprise in headline numbers but kept its FY22E/FY23E EPS largely unchanged. It maintained a ‘Buy’ rating with an unchanged target price of Rs 1,625 per share.

ICICI Direct

The brokerage expects L&T to deliver standalone revenue CAGR of 13.7 percent, EBITDA CAGR of 13.4 percent and PAT CAGR of 14.6 percent in FY21-23E. ICICI Direct changed its rating on the stock to ‘Buy’ from ‘Hold’ and raised the target price to Rs 1,640 per share from Rs 1,045 earlier.

At 10:10 am, the shares of L&T were trading 0.49 percent higher at Rs 1,368.15 apiece on the BSE as compared to a 0.64 percent loss in the benchmark Sensex.

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