JPMorgan backs L&T stock with 'Overweight' rating, sees strong revenue growth, margin gains

L&T’s core revenue is projected to grow by 16 percent, with an expected 60 basis points expansion in core margins over FY24-FY27, said JP Morgan

JPMorgan has initiated coverage on Larsen & Toubro (L&T) with an 'Overweight' rating and set a target price of Rs 4,360.

The brokerage believes L&T is well-positioned to benefit from the ongoing capital expenditure cycle in both India and the Middle East, making it an attractive investment at current valuations.

Analysts at JP Morgan also highlighted that L&T’s strong earnings growth prospects, supported by a bottoming out of its Plant and Machinery (P&M) margins, will act as a tailwind for its future earnings.

The firm projects L&T’s core revenue to grow by 16 percent, with an expected 60 basis points expansion in core margins over FY24-FY27, further boosting its earnings per share (EPS) growth.

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Earlier this month, the infra firm bagged a Rs 1,000 crore order from state-owned Rashtriya Chemicals and Fertilizers Ltd (RCF) for the establishment of a 1200 MTPD (DAP basis) complex fertiliser plant at its Thal facility.

The project will be executed on a lump-sum turn-key (LSTK) basis and is valued at approximately Rs 1,000.27 crore, excluding GST. The construction timeline for the plant is set for 27 months, the company said.

L&T's R Shankar Raman has projected the EPC major's current $60 billion order book to rise by four-fold in the next 25 years, and also underscored the need to reduce the 'life cycle cost' of India's infrastructure projects sharply down, to unlock greater value.

In a panel discussion at a CNBC-TV18 event recently, he said efforts are on at L&T to bring down the time taken to deliver on infrastructure projects, as that alone can enhance the sponsorship for such projects 'dramatically'.

This reduction in time taken to complete projects will also help reduce the cost Raman added. During its fiscal second-quarter earnings call, L&T said that it sees the Indian economy at an inflection point, moving towards transformational changes that can bring stability and growth.

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L&T shares ended nearly a percent higher at Rs 3,491.90 on the National Stock Exchange (NSE) in the previous session. The stock fallen nearly a percent so far this year, underperforming Nifty's returns of 14 percent.

In the last one year, the counter has risen around 12 percent compared to Nifty's gain of 26 percent during this period.

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