L&T hits fresh 52-wk high, rallies 6%; brokers raise target to upto Rs 1,813

MUMBAI: Shares of infrastructure and engineering major L&T are in demand after the company impressed the street with margins during Jan-March quarter. Most brokerages remain bullish on the stock and have raised their target price by revising EPS guidance upwards.

The company reported 69 per cent rise in net profit at Rs 2,723.48 crore during Jan-March quarter on the back of steep gains in revenue from infrastructure and heavy engineering business. The company reported a profit of Rs 1,609.91 crore in the corresponding quarter a year ago.

Margins were ahead of estimates at 14.4 per cent vs 11.8 per cent in Q4FY13.

Net sales in the quarter increased to Rs 20,079.10 crore from Rs 18,075.60 crore, the company said. Total expenses rose 7.7 per cent to Rs 17,391.97 crore.

L&T expects new orders to grow 20 per cent in the fiscal year that began on April 1, and revenue to expand 15 per cent.

The management is expecting improvement in the sector. "With impetus being on infrastructure, and efforts to boost other sectors, and the possibility of privatisation of defence, we are well positioned to get orders," said Chairman AM Naik.

For the current financial year, L&T has given a guidance of a 20 per cent increase in order inflows and a 15 per cent increase in revenues.

According to analysts, strong growth guidance (parameters changed) hinges less on domestic; more on overseas traction.

"Increasing focus on bidding for large overseas awards (often in a consortium) is leading to this change. L&T sounded very positive and focused on traction in overseas markets, especially the Gulf countries. In its ordering growth guidance, it is factoring improving domestic investment demand from October 2014," said Kotak Institutional Equities report.

"We retain our 'ADD' rating with March 2016E earnings based target price of Rs 1,650 (from Rs 1,570 earlier) as we change our core standalone EPS to Rs 48.3/Rs 61.8/Rs 77.3 from Rs 46/ Rs 58.2/ Rs 74.6 for FY2015/FY2016/FY2017E. We retain ADD as we look forward to benefits from cyclical improvement but watch out for risks related to large overseas orders," the report added.

CIMB has raised its target price to Rs 1,525 and upgraded the stock to Hold, given L&T's better medium-term sales growth, margins, ROIC prospects and no conglomerate discount.

"We prefer L&T for its diverse business model and proactive management, which is likely to emerge stronger in an upturn. Key risk to our call is any disappointment in financials/outlook from the current elevated expectations, which will lead to a sharp correction in share price," the report said.

Morgan Stanley has maintained Equalweight rating on the stock and raised its target price to Rs 1,396 from Rs 1,253. It has also raised L&T's FY14-16 EBITDA margins by 130-140 bps.

The brokerage is of the view that the stock is fully valued due to continuing weakness in revenues and Q4 margin improvement is expected to be unsustainable.

HSBC while maintaining 'Overweight' on the stock has raised its target price to Rs 1,800 from Rs 1,470. According to the brokerage, the manangement's bullish outlook has bolstered business revival thesis. It has raised EPS by 7 per cent for FY16 & forecast 25 per cent EPS CAGR over FY14-17.

Barclays has increased earnings estimates by 10-12 per cent for FY15-16 and raised target price to Rs 1,813 from Rs 1,600.

At 11:30 a.m.; the stock was at Rs 1641, up 5.95 per cent, on the BSE. It touched 52-week high of Rs 1,650 and a low of Rs 1,603 in trade today.