L&T shares surge 14.04%, post biggest gain in 7 years on robust results

Mumbai: Shares of Larsen and Toubro Ltd on Thursday jumped 14.04%, their biggest gain in seven years, after the company posted better-than-expected March quarter earnings and most brokerages increased the target price on the stock and maintained a “buy” rating on it.

The stock touched a high of Rs.1,484, a level last seen on 30 October 2015. It gained as much as 15%, the maximum gain since 7 March 2011. This was the third consecutive session when the stock gained. Since 23 May, it has gained 18.68% and so far this year, it has gained 15.44%.

The stock closed at Rs.1,472.60 on BSE, up 14.04%, the maximum gains since 18 May 2009, from previous close while India’s benchmark Sensex rose 1.88% to close at 26,366.68 points.

Broking firms Jefferies India, Emkay Global, Edelweiss and Antique Stock Broking have maintained a buy rating on the stock and have also increased the target price.

Consolidated net profit in the three months ended March stood at Rs.2,453.64 crore, up 18.55% from Rs.2,069.64 crore in the year-ago quarter. Net sales rose 18.51% to Rs.32,812.24 crore from Rs.27,687.12 crore in the year-ago quarter. About 54% of the total revenue in the quarter came from its infrastructure business, in which revenue rose about 19% to Rs.18,654.9 crore from a year earlier.

L&T won fresh orders worth Rs.1,36,858 crore at the group level during the quarter, which constituted 62% of domestic and 32% of international orders. The consolidated order book of the group rose 7% to Rs.2,49,949 crore for the year ended 31 March, with international orders constituting 28% of the total. Ebitda (earnings before interest, tax, depreciation and amortization) margins expanded to 16.4% in the March quarter from 13.6% a year ago and from 7.9% in the December quarter. The margin expansion was driven by execution progress and favourable input costs.

“L&T’s E&C margins have surprised sharply with a 140 bps (basis points) jump YoY (year-on-year) to 10% in FY16. 4QFY16 saw the bulk of this surprise coming through, which management attributed to job mix and lower commodity prices. We believe strong cost controls especially on fixed costs would have also contributed to the same. However, we have factored some dip in FY17E-18E as we believe Middle East revenues rising will cap margin upside,” said Jefferies India, in a note to its investors.

“L&T has positively surprised on earnings in 4QFY16 especially on execution recovery. We believe order flow guidance of 15% YoY may be ambitious as private sector capex is yet to recover. However, we believe double-digit execution growth and 5-10% YoY order flow growth in FY17E should see the stock re-rate,” it added.

Jefferies India has upgraded the stock to buy from neutral and revised its target price to Rs.1,750 from Rs.1,250 earlier. Antique Stock Broking maintained a buy rating on the stock with 27% increase in target price to Rs.1,640 a share, Emkay Global has maintained accumulate rating on the stock and increased the target price by 12.2% to Rs.1,450 per share. Edelweiss Securities has maintained a buy rating and increased its target price to Rs.1,750 a share.

Of the analysts covering the stock, 36 have a “buy” rating, seven have a “hold” rating, while five have a “sell” rating, according to Bloomberg data.

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