Buy Larsen and Toubro; target of Rs 2030: Prabhudas Lilladher

The research firm ICICI Securities believes earnings of apparel brands and retail companies under their coverage may surprise positively from Q3FY22E as the likely demand recovery may result in better than expected margin performance. Some of the costs savings achieved during pandemic may sustain and coupled with high operating leverage may lead to higher than pre-covid margins from Q3FY22E.  Stocks like Trent, V-Mart and Aditya Birla Fashion and Retail are the preferred picks backed by their strong and consistent track record of execution.

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Prabhudas Lilladher's research report on Larsen and Toubro

Larsen & Toubro (LT) reported a healthy quarterly performance with revenue growth of 22.2% YoY to Rs358.5bn, largely driven by improved execution in infrastructure segment and better growth in IT & Technology services business. Order inflows came in at Rs418bn, due to improving order finalization in domestic market and large order wins in international markets. Order book (OB) stands strong at Rs3.6trn (2.2x TTM revenue). Tender prospects for 9MFY23 stands at Rs7.6trn comprising of domestic (Rs 6.1trn) and international market (Rs1.5trn). Net working capital (NWC) to sales improved to 20.9% vs 22.9% in Q1FY22, owing to better collections during the quarter. Hyderabad metro performance is expected to improve in FY23, on back of improved ridership, assistance from Telangana government and refinancing of debt. Given healthy OB and tender prospects, management maintained its revenue and order inflows growth guidance of 12-15%, with core EBITDA margin of ~9.5%. for FY23. NWC to sales to be ~20% (20-22% guided earlier).

Outlook

The stock is currently trading at PE of 23x/20x FY23/FY24E. We maintain our ‘Buy’ rating on stock with revise TP of Rs2,030 (Rs2,091 earlier), factoring in revised valuation for subsidiary businesses.

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Larsen & Toubro - 270722 - prabhu