L&T share price up 41% in last one year; should you still buy it?

L&T share price has strongly outperformed equity benchmark Sensex in the last one year, rising over 41 per cent. The Sensex has gained just about 11 per cent in the same period.

Experts and brokerage firms are positive about the stock for the long term. Global brokerage firm CLSA, after the soft landing of Chandrayaan 3 on the moon, said this achievement of India should strengthen the ‘Make in India’ theme. CLSA said it would open up global rocket and satellite markets for Indian players such as L&T.

Mint talked to fundamental and technical experts to assess the growth potential of the stock. Here’s what they said:

Fundamental views

Abhishek Jain, Head of Research, Arihant Capital

Jain said Larsen & Toubro shares have surged 20 per cent in the last three months compared to Sensex’s 5 per cent primarily due to a robust order book driven by government infrastructure projects.

“Strengthened infrastructure business contributed to revenue growth, although last quarter showed revenue weakness. L&T’s buyback at ₹3,000 further boosted the stock. The rise seems supported by favourable business conditions, but continued growth depends on sustaining orders and execution efficiency. Investors eyeing a year timeframe should monitor order inflow and execution performance closely,” said Jain.

Deepak Jasani, Head of Retail Research, HDFC Securities

Jasani underscored that Larsen & Toubro is one of the key beneficiaries of the rise in the capex from private as well as Infrastructure push from the government.

The company has delivered robust quarterly results in the last few quarters. The order book of the company has risen substantially on a year-on-year (YoY) basis by 14 per cent crossing the ₹4 lakh crores mark. The infrastructure projects segment secured an order inflow of ₹40,000 crore in the current quarter, up more than 100 per cent on a YoY basis.

There is also an increase in the traction from the international orders (currently constitutes 29 per cent of the total order book) from the Middle East revolving around oil and gas, core industrialisation and energy transition initiatives in that part of the world. The company has a strong ordering pipeline of ₹10 lakh crore for the remaining three-quarters of FY24.

The company has indicated that the margin suppression is to be phased out eventually on account of the legacy low-margin infrastructure projects that are nearing completion.

“We are expecting the margin expansion post FY24. This can provide further momentum to the earnings aided by 12-15 per cent growth in the revenues. The company’s JVs have shown an improvement in the both Ridership of the Hyderabad Metro project and the PLF of the Nabha Power Plant. The daily ridership of the Hyderabad Metro has now crossed the 5 lakh per day mark and the interest expense in JVs can fall on account of debt levels cooling off after receiving the expected aid from the government of ₹3,000 crore in upcoming years,” said Jasani.

Jasani is positive on the stock and has an ‘add’ rating on it with a one-year target price of ₹3,002.

Technical views

Gaurav Bissa, VP, InCred Equities

Bissa said L&T has been one of the strongest large-cap stocks with consistent outperformance seen in the last few months. The stock picked up momentum after witnessing a 12-year rising trendline breakout on the monthly charts.

“The stock is also getting a strong push from rsi which is trading near 75 levels. However, the stock is showing early signs of fatigue. Investors with a one-year horizon are advised to book partial profit and hold for ₹3200 level with a stop loss placed at ₹2,400 level,” said Bissa.

Vaishali Parekh, Vice President – Technical Research, Prabhudas Lilladher Pvt. Ltd

Parekh pointed out that the stock has maintained the support zone of ₹2,170 on the daily chart and moved past the significant 50EMA level of ₹2,332, it rallied to witness a decent rise. Above ₹2,500, it indicated a breakout above the channel resistance barrier and from there on, it has given a decent spurt with favourable indicators supporting the rise.

The stock has indicated a positive bias, having a near near-term support zone at around ₹2,600 level and only a decisive breach below the ₹2,600 level will weaken the overall trend.

“For the longer term timeframe, the stock has further targets of ₹3,700 and ₹5,100 levels as per the Fibonacci Extension tool and one can stay invested as of now,” said Parekh.

“The stock has been maintaining the strong uptrend and looks promising for a long-term investment purpose and would have the initial short-term target of ₹2,950-3,000 levels with a stop loss visible near ₹2,550 and only a decisive breach below that would weaken the trend. The longer-term investment targets would be ₹3,700 and ₹5,100 levels as mentioned earlier, with a major support zone visible near ₹2,350-2,380 zone as per the lower trendline base of the channel pattern,” Parekh said.

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Disclaimer: The views and recommendations above are those of individual analysts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

Updated: 25 Aug 2023, 12:53 PM IST