Weak margins posted by infrastructure giant L&T in the fourth quarter of FY23 has sent the stock on a downward spiral since Thursday.
On Wednesday, the company reported a 10.11 per cent jump in its consolidated net profit for Q4 at ₹3,986 crore as against ₹3,620 crore registered in the year-ago period. The results were not on expected lines, dragged down by a dip in operating margins. However, reports attributed the downward march of the company’s scrip to the its non-executive chairman, AM Naik, stepping down from the post.
The stock has tumbled 6.16 per cent in two days — over 5 per cent on Thursday to ₹2,241.65 from Wednesday’s close of ₹2,366.75; it was in negative territory on Friday, too, touching a low of ₹2,197.85 before closing at ₹2,220.90 (almost 1 per cent down). However, the stock did not fall short of brokers’ confidence, as they still remain bullish on it.
Thumbs up
YES Securities, which said the stock did “miss on margins”, but with the “order book at record high,” it recommended investors to ‘ADD’ the stock with a target price of ₹2,654. “We believe that L&T is well placed to emerge stronger given its financial, technical and managerial capability for sustaining and gaining market share,” a report from the brokerage said. L&T believed that RoE margins will improve on the back of sale of IDPL; improving operational performance of Hyderabad Metro and Nabha power plant; better margin in P&M business; and share buyback, the report added.
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According to Ravi Singh, Vice-President and Head of Research, Share India, margins saw a blip with the 100 bps decline from 15 per cent in Q4 FY22. “We can expect some corrections in the near term, but the overall outlook remains good in the long term,” he added.
Brokerages such as Jefferies, HDFC Securities, Prabhudhas Lilladher, CLSA, LKP Securities and Goldman Sachs gave a thumbs-up to the stock with a ‘Buy’ rating. “Given the record-high order book of ₹4-lakh crore and order inflows of ₹2.3-lakh crore; bottoming out of infra margins; improvement in subsidiary performance; improvement in net working capital levels; and pick-up in private and public capex in the coming years, we have increased the standalone multiple to 24x from 23x. We maintain a BUY on the stock with an increased TP of ₹2,724/share (24x core March-2025 EPS),” said HDFC Securities.
Tender prospects
Analysts are bullish on L&T as they expect the company to benefit from tender process.
Amit Anwani, Research Analyst, Prabhudas Lilladher Pvt Ltd, said: “We believe L&T is well placed to benefit in the long run with strong tender prospects, better order conversion in domestic market, significant traction in the hydrocarbon segment from exports market and expected uptick in private capex.”
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According to Sharekhan, the infrastructure sector is witnessing healthy tendering and awarding activity, wherein private sector project announcements are also gaining momentum. “Although margins have been under stress for the past few quarters, improvement is expected from H2 FY24,” it said.
Bloomberg data show that L&T’s operating margins for Q4 of the last financial year was at 10.25 per cent, down from 12.76 per cent sequentially.
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