L&T slips 2% on near-term headwinds

Shares of Larsen & Toubro tumbled on Monday despite most analysts remained bullish on the stock. Even on a day when the BSE Sensex jumped almost 850 points, shares of L&T slipped 2 per cent to ₹1,386.75 on the NSE.

According to analysts, the company faces near-term execution headwind due to Covid pandemic that appeared to have affected the sentiment for the stock on Monday. Besides, rising commodity prices such as cement, steel and other metal prices will also impact the company margins, they added.

However, marketmen expect the company to overcome near-term challenges.

Strong performance

Goldman Sachs said: L&T’s Q4 results showcased strong performance. “More importantly, a note of optimism from the company on both domestic and international markets amid near-term Covid impacts in India supports our positive view on the stock and is reflected in the company’s guidance.”

Larsen and Toubro has reported a 4 per cent increase in consolidated net profit at ₹3,696 crore for the fourth quarter of FY21 compared to ₹3,562 crore in the corresponding previous quarter on cost control amid Covid-19 crisis. Revenue was up 9 per cent at ₹48,088 crore. The board has recommended a final dividend of ₹18 a share.

“These results also allay investor worries around structural margin concerns with full-year FY21 coming in better-than-expected in addition to improving working capital — all indicate strong discipline and focus on profitability,” said the foreign brokerage Goldman Sachs.

‘Compelling’ valuation

According to Morgan Stanley, though L&T's guidance will be a discussion point, the fact is the company has delivered well in far tougher fiscal. While flat margins are a positive outcome, Morgan Stanley said: “valuations remain compelling”.

Bernstein, which believes it is still too early to say goodbye to L&T, said: Q4 was respectable with strong cash flows and improved margins. “Still the guidance of mid-teens growth for orders and revenues may appear aggressive especially as we head into a quarter with significant weakness owing to execution challenges around Covid.”

The message from management was that of significant optimism and control over the business and this is likely to please the markets, it further said.

‘Proven track record’

“We believe that the diversified order book, strong execution capabilities across geographies, competent workforce, thrust on technology along with international presence and proven track record works in favour of the company. We remain optimistic over the medium to long term growth,” said YES Securities, which maintained its Buy stance the stock with a revised target price of ₹1,643 from ₹1,584 earlier.

However, for Ambit Capital, it still a ‘Sell’ candidate. “We see margin headwinds in FY22 (vs management expectation of steady margins) given elevated commodity pricing (40 per cent of order book is fixed priced),” it cautioned.

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