Larsen and Toubro (L&T) reported marginally lower-than-expected execution in Q2FY2022 while OPM remained in line with estimates. Consolidated revenue grew by 12% y-o-y to Rs. 34,773 crore, where domestic revenues grew by 19% y-o-y at Rs. 22455 crore. Consolidated OPM at 11.5% (up 74 bps y-o-y). Consolidated adjusted net profit stood at Rs. 1,723 crore (up 55.7% y-o-y, adjusted for exceptional items in Q2FY2021). The management retained its guidance for low to mid-teens growth in order intake and revenues for FY2022, while it expects OPM and working capital requirements to remain at FY2021 levels. Order prospects as on September 2021 were healthy at Rs. 6.83 lakh crore. The company’s order book is at a record level at Rs. 3.31 lakh crore translating to 2.2x its TTM consolidated revenues.
Maintain Buy with a revised PT of Rs. 2,150: L&T’s healthy operational performance despite supply chain challenges and seasonality along with retaining guidance related to execution, order intake, OPM and working capital for FY2022 are key positives emerging out of the Q2FY2022 results. International outlook looks buoyant with a pick-up in crude oil prices. On the longer term, L&T remains at the forefront to reap benefits from the AtmaNirbhar Bharat Scheme with its diversified businesses across sectors such as defence, infrastructure, heavy engineering, and IT. The company remains the best proxy for domestic capex and an improving business environment. We maintain our Buy rating on the stock with a revised SOTP-based price target (PT) of Rs. 2,150 factoring upwardly revised valuation of its key IT&TS subsidiaries and favourable core business valuation.
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