Larsen & Toubro shares rallied 4 percent intraday Monday as brokerage houses retained their bullish view on the stock post stable first quarter earnings and FY18 guidance maintained.
"L&T Q1FY18 PAT was in-line with consensus at Rs 890 crore (up 46 percent led by lower tax cost) though 12 percent ahead of our estimates. However, the key story in the quarter was sharp uptick in domestic revenue growth especially infra segment. Company has maintained guidance on all parameters," Macquarie said while maintaining high conviction outperform rating with 12-month target price of Rs 1,417 per share.
L&T retained its FY18 guidance (12-14 percent order inflow growth, 12 percent revenue growth & 25bps improvement in core margins.
The research house feels L&T is well set for significant earning upgrades for FY18/19 and with uptick in infra investments in India, stock is very compelling at 19x FY19 earnings.
Apart from the external environment, L&T is making significant progress on improving capital structure and return ratios, Macquarie said.
JPMorgan also retained overweight call on L&T with a target price of Rs 1,925, saying June quarter order inflow dip was predictable.
Order inflow declined by 11 percent to Rs 26,352 crore on YoY basis due to high base but domestic order inflows (up 12 percent in Q1 YoY) have now grown faster than international orders (down 41 percent) for last 2 quarters.
According to JPMorgan, the company has to bag big defence & Mumbai urban infra orders to meet the guidance.
Credit Suisse also maintained outperform rating on possibility of margin making up in full year, domestic execution pick-up, steady Middle East, reducing working capital and reasonable valuation at 19x FY19 consolidated EPC.
However, it reduced FY18/FY19 EPS estimates by 4.7 percent on lower profitability in the others and other model changes and revised target price to Rs 1,330 (from Rs 1,373).
Bank of America Merrill Lynch, which has maintained buy call with a target price of Rs 1,322, said Q1 surprised positively on strong domestic execution.
Large order backlog & pick-up in execution would enable L&T to meet its 12 percent sales growth/25bps margin improvement guidance for FY18, it feels.
"L&T trades at 20x FY19 EPS, which is in-line with its mid-cycle valuations. Visible signs of improvement in capex cycle, rising return on equities, likely gains from divestment of non-core assets and 16 percent EPS CAGR still leave room for further re-rating," BofAML said.
Jefferies also believes the order pipeline of USD 50 billion should help the company meet full year guidance.
"Within this, infrastructure is 50 percent and hydrocarbon is 26 percent. They indicated Middle East order flow visibility beyond the existing pipeline is limited, though major project execution delays were not highlighted. Visibility on defence orders of USD 4-5 billion value should also help in meeting their annual USD 25 billion asking rate in FY18," the research house said.
Jefferies said Q1FY18 results are operationally in line with expectations and beaten at PAT given better performance on JVs and associates. Consolidated E&C revenues has seen a double-digit rise, driven by domestic execution. Hence, it has retained buy rating on L&T, with 32 percent upside to target price of Rs 1,533.
At 13:44 hours IST, the stock price was quoting at Rs 1,196.00, up Rs 36.90, or 3.18 percent on the BSE.
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