Larsen & Toubro shares jumped 12% on Thursday, its biggest gain in five years, after multiple brokerages raised their price target, maintaining a buy on the stock. The country’s largest engineering and construction company’s fourth quarter earnings were ahead of street estimates and expectations of order book rising over 15% in the current financial year. Analysts suggest that the worst may be over.
L&T reported a consolidated net profit of Rs 2,454 crore in the January-March quarter, up 19% year-on-year, while net sales gained 19% to Rs 20,841 crore. Analysts had expected the company to report a net profit of Rs 1,930 crore, according to a Reuters poll.
The company’s order book is expected to rise 15% in 2016-17, versus just 7% growth last fiscal. Even as private sector spending remains sluggish, the company often viewed as the bellwether of the economy, is betting on government spending on infrastructure to drive growth, while overseas it is bidding for projects in Far East and Africa, to counter a slowdown in key West Asia market.
“We believe L&T is at an inflection point post strong fourth quarter results – the next 12 months should see engineering and construction execution recovery and multiple re-rate. We believe 15%+ underperformance in the last 1-2 years captures the near-term concern of distant order flow recovery,” said Jefferies India, which upgraded the stock to “buy” from “hold” and also raised the target price to Rs 1,750 from Rs 1,250 earlier.
CLSA, Prabhudas Lilladher, Emkay, Sharekhan were among many others who raised their price targets on L&T maintaining their buy rating.
“Strong FY17 guidance – 15% sales and order intake – coupled with judicious approach to working capital and project selection, instill renewed confidence in growth estimates,” said Edelweiss Securities, which maintained a “buy” rating and also raised target price to Rs 1,750 from Rs 1,250.
L&T shares were trading up 12.1% at Rs 1,447.45. The wider markets were also on a strong footing, with the Sensex gaining 320 points or 1.2% at 26,200.81 points.