L&T Shares Sink 5% Post Weak Q4 Results; What Should Investors Do Now?

Shares of Larsen & Toubro (L&T) tanked 5 per cent in the opening trade on Thursday reacting to its January-March quarter performance. It was trading at Rs 2,292.70 on the NSE and was down by Rs 71.75 from Wednesday’s closing price.

On Wednesday, L&T reported a 10 per cent year-on-year (YoY) growth in consolidated net profit for the March quarter at Rs 3,987 crore.

Consolidated revenue from operations rose 10.4 per cent YoY to Rs 58,335.15 crore, but this figure too, was lower than the estimated Rs 59,256 crore. For FY23, the topline rose 17 per cent on-year to Rs 1.83 lakh crore, and the bottomline grew 21 per cent to Rs 10,471 crore.

The board has recommended a final dividend of Rs 24 a share for FY23. The quarterly results were announced after market hours.

The stock of the country’s biggest infrastructure company had hit a record high of Rs 2,416 on May 2, 2023. However, despite the stock’s 4 per cent decline from its all-time high level, L&T has outperformed the market by surging 9 per cent thus far in the calendar year 2023. In comparison, the S&P BSE Sensex is up 1.5 per cent during the same period. In the past one year, L&T has rallied 45 per cent, as against nearly 15 per cent gain in the benchmark index.

Should you Invest?

“L&T remains the best way to play the capex recovery theme in India given its strong execution capability, presence across diverse sectors and geographies, which makes its less vulnerable during down cycles. Focus on monetisation of non-core assets, enhancing RoEs and reducing debt makes its an attractive portfolio bet to ride the infrastructure and manufacturing cycle revival theme,” the brokerage firm ICICI Securities said in a note.

L&T reported decent set of quarterly performance with consolidated revenue growth, while margins contracted 74bps YoY due to cost pressure in certain EPC project. Net working capital (NWC) to sales improved to 16.1 per cent in FY23 vs 19.7 per cent in FY22, owing to robust operational cash flows supported by smart execution and customer’s advances, said analysts at Prabhudas Lilladher.

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.

However, it pointed out that the key surprise was mega defence orders which L&T did not announce. Moreover, core a decline in engineering and construction margins was also a disappointment.

Even 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.

Goldman Sachs has a ‘buy’ rating on the EPC major’s shares with a target price of Rs 2,540.

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