Larsen & Toubro gains 2% on hopes of contract win for bullet train project

Shares of Larsen & Toubro (L&T) gained 2 per cent at Rs 922 on the BSE on Tuesday on report that the company has emerged as the lowest bidder in the financial bids for the design and construction of civil works for 47 per cent of the alignment of the Mumbai-Ahmedabad High-Speed Rail corridor.

Three bidders, involving seven major infrastructural companies, had participated in competitive bidding. The bidders, other than L&T, were the Afcons Infrastructure-IRCON International-JMC Projects India consortium, and the Tata Projects-NCC-J Kumar Infra Projects-HSR consortium, according to the Business Standard report.

Awarding of such mega projects will significantly strengthen L&T's order book and further enhance its revenue visibility for coming years in times of a challenging economic environment. Also, L&T is well placed in terms of its capabilities to execute such complex and mega projects. Working capital and cash flow situation continues to remain key monitorables, ICICI Securities said in a note.

India's capex cycle peaked in FY08-09 and has been choppy since. L&T has seen its profits rise at 11 per cent CAGR in this period, as it gained share in the E&C business and improved cost efficiencies. De-rating in the last 18 months is driven by the Mindtree acquisition - divestment of funds into non-core business, apart from the COVID-19 impact.

Analysts at Jefferies believe that as investors regain confidence in L&T's capital allocation strategy, share of low ROCE DPL and Finance continue to reduce and E&C normalises, the stock should re-rate at least to 2019 levels.

Regarding the media reports, Jefferies said the train project could eventually mean a positive surprise on FY21E order flow expectations if the Letter of Award (LOA) comes to fruition. The brokerage has 'BUY' rating on the stock with target price of Rs 1,280.

Larsen & Toubro Limited