Shares of Larsen & Toubro (L&T) cracked five percent in the early trade on May 11 as weak profitability dampens investor spirit.
Goldman Sachs said a weak margin remains an area of disappointment. A weak margin offset an otherwise strong outlook, it added. Core EBITDA margin came in at 8.7 percent, flat QoQ and 80 bps lower YoY.
Even CLSA said that a decline in core engineering and construction margins was also a disappointment. Moreover, the key surprise was mega defence orders which L&T did not announce.
At 09:57 am, L&T was quoting at Rs 2,241.05, down Rs 125.70, or 5.31 percent. The scrip was trading with volumes of 104,987 shares today, as compared with its thirty-day average of 79,903 shares, an increase of 31 percent.
The Engineering, Procurement and Construction (EPC) major L&T on May 10 reported a consolidated net profit for the quarter ended March 2023 at Rs 3,987 crore, up 10 percent compared to Rs 3,621 crore in the same quarter last year. Revenue stood at Rs 58,335 crore, a growth of 10 percent from Rs 52,851 crore a year ago.
CLSA highlighted that the company’s Q4 beat three out of four guidance targets and the management guided for an even stronger FY24 on a higher base. The brokerage house has a ‘buy’ rating on the stock with a target price of Rs 2,790.
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Goldman Sachs has a ‘buy’ rating on the EPC major’s shares with a target price of Rs 2,540.
HDFC Securities said that the margin was impacted largely by higher input prices in projects and manufacturing portfolios.
FY23 order inflow rose 20 percent YoY to Rs 2.3 trillion, even as 4Q inflows increased marginally around 3 percent YoY given a high base. Order book at Rs 4 trillion as of March FY23 is at a record high. International orders share has increased to 43 percent in the quarter under review from 39 percent in Q4 FY22 while private orders share declined to 18 percent from 22 percent.
L&T has guided for an order book and sales growth of 10–12 percent and 12–15 percent respectively for FY24 along with margin guidance of 9–9.1 percent given 40 percent of older projects, which had cost hits, have been already executed while the remaining shall get executed over next 12–24 months.
Talking about profitability, the company said in its conference call that after an 8.6 percent core EBITDA margin for FY23, it believes the worst is behind us for the projects it secured. Orders that the company bagged in later FY22 and in FY23 factor into account current input costs and better margin trajectories which it will see in the latter part of FY24.
Nuvama Institutional Equities has factored in the upper end of sales growth guidance of 12–15 percent with a delayed margin recovery. The domestic brokerage firm has retained its ‘buy’ rating with a hike in target price to Rs 2,750 from Rs 2,700.
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