Brokerages optimistic about L&T following its Q1 Results

Brokerages have either upheld their optimistic outlook on Larsen & Toubro (L&T) or increased their target prices for the stock following the company's first-quarter fiscal year 2025 earnings, which slightly surpassed market expectations.

Analysts note that L&T's strong market position across various sectors allows the company to selectively take on projects, thereby enhancing overall profitability.

On Thursday, July 25, following the announcement of its financial results for the April-June quarter, L&T share price experienced a rise. In early trading, the stock increased by 1.6% to ₹3,578.8 on the National Stock Exchange (NSE) and saw a 1.3% uptick to ₹3,566.7 on the BSE.

For the quarter ending June 2024, L&T's consolidated net profit increased by 12% year-on-year to ₹2,786 crore, with revenue from operations growing by 15% YoY to ₹55,120 crore. The company's earnings before interest, taxes, depreciation, and amortization (EBITDA) also saw a 15% YoY increase to ₹5,615 crore, maintaining a margin of 10.2%. International revenue for the quarter stood at ₹26,248 crore, making up 48% of the total revenue. The consolidated order book as of June 30, 2024, was ₹4,90,881 crore, a 19% YoY growth, with international orders comprising 38%.

Citi has reiterated its 'Buy' rating on L&T with a target price of ₹4,396, emphasizing the company's advantageous position to benefit from capital expenditure growth in India and the Middle East. Citi continues to rank L&T as its top sector pick.

Emkay Global has also maintained its 'buy' rating but has reduced the target price to ₹4,100 from ₹4,200 per share due to an earnings cut for FY26-27E, attributed to lower estimates for other income. Despite L&T's positive Q1 performance, Emkay Global noted slower domestic market execution due to heatwaves and general elections during the quarter. However, execution is expected to improve in the second half of the year. While management has guided lower order prospects, especially in Hydrocarbon, at ₹9.1 lakh crore, the FY25 guidance on order inflow, revenue, and margin remains unchanged.

SN Subrahmanyan, Chairman and Managing Director of L&T, stated, "We have achieved steady growth across all financial parameters in Q1, 2024-25, despite the geopolitical situation across the globe. Amidst various transformational shifts happening worldwide, we are well-positioned to grasp these opportunities." Management highlighted that labor availability challenges across markets should gradually improve.

Nuvama Institutional Equities predicts that the transportation, factories, and buildings segments will drive L&T's future growth. They pointed out a robust project pipeline in sectors like transportation (railways, metro, and roads) and factories and buildings over the next five years, which bodes well for L&T. The company's strong execution record and substantial balance sheet position it to capture a significant share of the ₹40 lakh crore infrastructure capex opportunity over FY21-23E.

Analysts note that L&T has divested non-core businesses, significantly strengthening its balance sheet in recent years. They suggest that utilizing these proceeds, including additional surplus from E&C cash flows, to reward stakeholders could yield reasonable returns. Consequently, the target price for the stock has been raised to ₹4,040 from ₹4,000, with a 'hold' rating maintained.

In the semiconductor sector, the firm recently inked a share purchase agreement with Bengaluru-based chip design company SiliConch Systems.