Buy Larsen and Toubro; target of Rs 1860: Sharekhan

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26 Aug, 2025 12:21

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Sharekhan's reserach report on Larsen and ToubroLarsen & Tourbo (L&T) has corrected by close to 12% in the past five weeks (after we downgraded the stock to hold at Rs1,790 on July 31, 2015) and the valuations have turnedcomfortable now. Thus, we are upgrading our recommendation to Buy from Hold with an unchanged price target of Rs1,860, which is derived using sum-ofthe- parts (SOTP) valuation method (valuing its stand-alone business and subsidiaries separately and adding it up).L&T is currently having tall order backlog of more than Rs2.3-lakh crore, close to 3x its FY2015 revenue (excluding IT and finance businesses). Given the impeccable execution track record of L&T and average execution period of 24-30 months of the existing backlog, the revenue outlook remains very healthy. The management retains its guidance for an order inflow growth and revenue growth at 15% for FY2016. We believe the growth outlook remains healthy beyond FY2016 too, as the expected ordering activities stemmed from the domestic investment cycle revival is yet to pick up and L&T is most suitably placed to capture opportunities owning to diversified presence, strong capability and healthy balance sheet. The management guides for a 100-basis point (BPS) year-on-year (Y-o-Y) margin expansion in FY2016 on the back of improvement in the performance of hydrocarbon business (worst is over) and stable margin in the infrastructure business; therefore, healthy bottomline growth to follow too.The share price of L&T has corrected substantially in the recent past (13% in a month). The current correction gives investors a better entry point in our view. After the Q1FY2016 result, we had revised down our rating on the stock from Buy to Hold but after the recent correction, we see a favourable risk reward at the current price. We continue to believe that L&T is most suitably placed to capture upcoming opportunities in the coming years with diversified presence, strong capability and healthy balance sheet. Therefore, we have upgraded our rating from Hold to Buy with an unchanged price target of Rs1,860, based on SOTP valuation.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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