L&T – Establishing a stronger India

Larsen & Toubro Ltd (L&T) is a multinational coalescence which is mainly engaged in providing engineering, procurement and construction (EPC) solutions in key sectors such as Infrastructure, Hydrocarbon, Power, Process Industries and Defence, Information Technology and Financial Services in domestic and international markets.

Company Highlights with Earnings Growth

Larsen & Toubro reported their net profit at Rs 2785 crore for the quarter which ended on 30 September 2022 which is a massive 24% growth from Rs 2232 reported in the same quarter of the previous fiscal year.

L&T reported a 23 percent growth in consolidated revenue for Q2 FY23 at Rs 42763 crore, which was at Rs 34772 crore logged in the same quarter of the previous fiscal year.

Sales growth were way bigger than the expectation which were supported by strong surge in performance for the infrastructure projects and healthy growth thrusts in the IT & TS portfolio.

The infrastructure segment which is the largest (contributes to revenues by around 45 percent), reported a fantastic growth of 40 percent through strong execution, a healthy order book and improved customer collections. IT & technology services business (24 percent of revenues) reported sturdy growth of 30 percent YoY.

Energy projects (13 percent of revenues) declined on a YoY basis due to challenges in supply-chain for the hydrocarbon segment and lower power revenues which resulted into the order book being diminished.

Order accretion

L&T gained orders which are worth Rs 51,914 crore at the group level during Q2, concluding a 24 percent growth over the same quarter of the previous year.

The company has announced in a press release that orders were secured across multiple segments, which includes public spaces, nuclear power, health, ferrous metal, irrigation, renewables and refinery sectors.

International orders were reported at Rs 17,341 crore during the quarter which consisted of 33 percent of the total order inflow.

The consolidated order book of the L&T group was at Rs 372,400 crore till the end of September, with international orders having a piece of 28 percent.

Long-term panorama

The Indian economy is doing relatively well and is the force of growth is expected to thrive. Through the triumph of production-linked incentive (PLI) scheme, the government is likely to expand it to additional sectors. This is helpful for infra companies like L&T. Vigorous tax collections will allow the government to bolster the high-budgeted investment programs. Persistence of domestic consumption demand is soothing for new investments.

The global economic outlook has downside risks, due to the Russia-Ukraine conflict. The war has been overwhelming food and energy supply chain, gradual polarization and possibility of breeding inflation. The persistence of geo-political and global economic disruption can slow down large private sector investments of Indian companies.

Technical Analysis

L&T Weekly Candlestick Chart on Sharekhan’s TradeTiger

L&T stock price is trading at a perfect double top. Short-term trades can be initiated in the short direction with proper risk management as a double top is often a great opportunity to short. The price has overextended away from the 200-day exponential moving average and MFI is at 77 points which indicates that the stock price is highly expensive and due for a correction.

L&T has rebounded vigorously from the lows of about Rs 1500 in June this year to the current share price of Rs 2052. The rigid comeback in the company’s subsidiaries and India’s capex cycle has supported the stock, particularly in the light of the low valuations. In the upcycle (capex cycle), L&T could soar to higher highs which is yet to be seen, long term investors should accumulate L&T on corrections.

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