Engineering and construction conglomerate Larsen & Toubro’s net profit in the second quarter is likely to jump 22 percent year-on-year on the back of strong sales growth and improved execution in the infrastructure segment, analysts said.
Net profit is likely to grow to Rs 2,721 crore, according to the estimates of five brokerages. Revenue may rise 17 percent to Rs 50,093 crore in the three months ended September amid improved construction activity.
The company is scheduled to report Q2 results on October 31.
Earnings before interest, tax, depreciation, and amortisation (Ebitda) are pegged to grow 6 percent to Rs 5,209 crore, although Ebitda margins are likely to contract by as much as 96 basis points (bps) to 10.5 percent (see table).
Strong order pipeline
Analysts see a strong tender pipeline from domestic and overseas markets. L&T announced total orders amounted in the range of Rs 24,500-44,500 crore during the quarter. The company bagged two orders from Aramco to set up a gas processing plant and its main units estimated at Rs 24,000 crore, while the second contract was to construct gas compression units worth Rs 8,300 crore.
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The company received a mega order from the Mumbai Metropolitan Region Development Authority to design and construct an underground road tunnel.
“Order inflow has been robust this year and we expect the management to increase its revenue and order inflow guidance upwards for the rest of fiscal year,” said analysts at Centrum.
On October 30, the company said its construction division bagged large orders for the power transmission and distribution business in India and overseas.
L&T secured an order to establish transmission lines in Chhattisgarh. Another order was won in Saudi Arabia for construction of a 380 kilo-volt substation and transmission lines. A third order was won in Kuwait to build five sub-stations to provide efficient power supply to an upcoming residential city.
ALSO READ: Larsen & Toubro bags mega project in Middle East
Valuation and outlook
Shares of L&T traded at 36 times price-to-earnings multiple on October 30 compared with the industry mean of 21.6x. The stock gained 0.9 percent to Rs 2,927.35 at the close on the National Stock Exchange.
Analysts at Prabhudas Lilladher have a ‘buy’ rating on L&T with a target price of Rs 3,302, implying a 13 percent upside from the current level.
“We believe L&T to comfortably surpass its order inflows guidance of 10-12 percent growth for FY24 aided by large international and domestic order wins. We revise our FY24/25E estimates by 1.7/3.7 percent, post factoring in healthy growth prospects for hydrocarbon business,” the brokerage firm added.
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