Brokerage firm JPMorgan on Monday, October 14, initiated an ‘overweight’ rating on Larsen & Toubro and a target price of ₹4,360 apiece.
The price target ascribed by JPMorgan, implies a potential upside of nearly 25% from Friday’s closing levels.
The brokerage said the stock offers an attractive combination of growth at a very reasonable valuation. It said L&T shares are already trading 25x the estimated core earnings per share (EPS) for financial year 2026.
The brokerage is expecting L&T’s EPS to grow at a Compounded Annual Growth Rate (CAGR) of 23% over financial year 2024-2027, along with a core Return on Capital Employed (RoCE) of 20%.
The brokerage said that the fast EPS growth will be driven by healthy core revenue growth of 16% and a 60 bps core margin expansion over FY24-FY27E.
With its vast array of capabilities, large order book, strong balance sheet, and cash flows, JPMorgan said L&T is well-suited to benefit from capex tailwinds in India and the Middle East. It added that the company has also significantly upgraded its skills/capabilities in the Middle East, ermerging as the top contractor in terms of project awards in Saudi Arabia in 2023.
“Multiple data points suggest private capex is likely to improve, picking up some of the slack of government capex consolidation. L&T is ideally placed to navigate the short-term twists and turns of the capex cycle while benefiting from long-term tailwinds of capex growth in India,” JPMorgan said.
The brokerage has also estimated L&T’s order book to record a 12% CAGR over FY24-27E. “Any moderation in government capex should be offset by international prospects and a pickup in private orders in India. We expect L&T’s RoEs to expand and focus on generating free cash flow and enhancing shareholder returns to continue,” it said.
Last week, L&T’s president R Shankar Raman told CNBC-TV18 that he was optimistic of the company guidance of ₹3.33 lakh crore in orders for the year, but acknowledged the challenges posed by the global economic environment. “We’re aiming for a 10% growth, and so far, the trends look promising. However, project orders can fluctuate, so we’ll see how it unfolds,” he added.
He also addressed L&T’s significant international presence, with 40% of its orders coming from abroad, particularly the Middle East. Despite geopolitical tensions in the region, Raman highlighted that Middle Eastern countries are taking a neutral stance, which is beneficial for business.
“The Middle East is smartly leveraging its oil wealth to invest in renewable energy, creating big opportunities for us. The projects there are often much larger than those in India, and we’re prepared to handle that scale,” he said.
L&T shares were trading 1.82% higher at ₹3,545.8 apiece at 9.30 am. The stock has gained 14.29% in the past 12 years.
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