L&T share price declines 5% post Q3 results even as brokerages stay positive
- Stock Market Today: Larsen & Toubro share price declined 5% in the morning trades on Wednesday after its Q3 earnings performance that was reported by the company on Tuesday post market hours. Order inflows remained strong but margins came below analysts estimates.
Larsen & Toubro Ltd (L&T) share price declined 5% in the morning trades on Wednesday. Larsen & Toubro had reported its October- December' 2023 (Q3) quarterly earnings performance on Tuesday post the market hours.
L&T had reported a 19% on-year growth in its consolidated revenues to ₹55,128 crore in the December quarter, while profit grew 15% on-year to ₹2,947 crore.
It was the international orders that led to the rise in L&T order book during the quarter though the decline in the domestic order flow disappointed.
L&T’s international order inflows during the Q3 surged 230% over the previous year to ₹50,600 crore, while domestic order inflows almost halved to ₹25,400 crore. The company booked total new orders of just under ₹76,000 crore during the quarter, a 25% increase year-on-year.
Also while the domestic order flow disappointed, the margins too remain below expectations. Margins as per analysts are still below the guidance owing to legacy order execution and new orders still not achieving the margin recognition threshold.
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Margin disappointment
L&T's earnings before interest tax depreciation and amortisation (Ebitda) rose 14% YoY to around ₹575 crore but came in 7% below our estimate due to lower-than-expected margins in the core E&C segment, said analysts at Motilal Oswal Financial Services (MOFSL).
Analysts at Centrum Broking also said that L&T reported marginally weak set of results for 3QFY24 as revenue came in 5% ahead of our expectations while margins were 90 basis points lower and net profit 10% below estimate. Margin recovery in core EPC business remained weak as per Centrum analysts too.
Analysts at Jefferies India Pvt ltd in their post result report also said that core E&C margin was weak and down 70 bps YoY in 3Q at 7.7%. They have lowered their Ebitda estimates by 2-3% in FY24-26 to factor the same. Their revised target price of Rs4,135 (versus Rs4,200) reflects the same. However order flow traction should see the stock moving higher in the next 12 months, as per Jefferies analysts.
Order-flows keep analysts upbeat
Order inflow is a key metric used by analysts for giving an outlook on L&T.
As analysts at Jefferies see upside for the stock price led by order flows, those at MOFSL also said that they expect L&T to continue to benefit from the strong addressable market in both India and international locations. They have revised their estimates to bake in improved inflows and lower margins. MOFSL has increase their target price to ₹4,200 based on the SOTP (sum-of -the-parts) methodology.
Analysts at Centrum Broking too have maintained their estimates and ADD rating on the stock and believe that execution is expected to remain strong with favourable tailwinds from domestic government capex and strong outlook on middle east economy.
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MOFSL analysts said that L&T has been benefiting from strong inflows, particularly from international geographies, and has received orders worth ₹1.8 trillion (1.8 lakh crore) during nine months FY24 for its core E&C (Engineering and Construction) segment. The company has maintained its focus on mega and ultra-mega projects and has been able to improve working capital YoY to 16.6% of sales.
The rising international orders have for now meant that the company’s consolidated order book, at just under ₹4.7 trillion as of 31 December, was 22% higher compared to a year ago. Share of international orders in this increased by more than 12 percentage points over the previous year to 39%.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
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