L&T share price jumps to 52-week high on Street buzz of a likely $4-billion deal win from Saudi Aramco
3 min read 08 Sep 2023, 11:55 AM ISTL&T stock hits 52-week high on reports of multi-billion-dollar contracts from Saudi Aramco; ICICI Securities upgrades the stock to a buy.
PremiumLarsen & Toubro (L&T) share price rose almost 3 per cent to hit its fresh 52-week high of ₹2,927.95 in morning trade on BSE on Friday. The stock opened at ₹2,885.05 against the previous close of ₹2,847.05 and rose 2.8 per cent to its one-year high. The market capitalisation of the stock rose over ₹4 lakh crore mark on the BSE.
The stock has been enjoying bullish sentiment this year, gaining over 36 per cent year-to-date (as of September 7 close). Equity benchmark Sensex has gained nearly 9 per cent this year so far.
The recent traction in the stock can be attributed to the news reports that suggested India's largest capital goods company secured a multi-billion-dollar contract from Saudi Aramco.
According to a report by MEED (formerly Middle East Economic Digest), L&T is one of the three contractors selected by Saudi Aramco "for the five main engineering, procurement and construction (EPC) packages of the estimated $10bn second expansion phase of its Jafurah unconventional gas production project." L&T's total deal win, as per the report, is worth $3.9 billion.
Larsen & Toubro Energy Hydrocarbon has bagged the first package of $2.9 billion for gas processing plant and main process units and the third package of $1 billion for gas compression units.
L&T has not officially confirmed this report so far.
Following the report, brokerage firm ICICI Securities upgraded the stock to a buy from an add, pegging the target price of ₹3,141, implying a 10 per cent upside potential.
"We upgrade the stock to a buy on strong consecutive order inflow for two quarters (Q1, Q2FY24), which could likely result in beat-to-order inflow guidance for FY24, a significant buyback to reward shareholders and consequent improvement in RoE (return n equity)," said ICICI Securities.
The brokerage firm expects L&T's margin to improve in Q4 and FY25E for core business amidst benign raw material prices.
The brokerage firm pointed out MEED's report which suggested L&T is the preferred contractor for a $3.9 billion order for Jafurah Unconventional Gas Field, Saudi Arabia. Also, the brokerage firm added that to date in FY24, L&T has announced orders worth over ₹75,000 crore.
"With this significant accretion in orders, L&T could report more than 20 per cent growth in order inflow in Q2 (excluding services), in our view. L&T has highlighted that order prospects have improved quarter-on-quarter (for the first time on prospects from the Middle East hydrocarbons). However, it has maintained its order inflow growth guidance of 15 per cent YoY for FY24," ICICI Securities said.
"Given the order inflow including the above-mentioned order, we expect L&T to beat its earlier order inflow guidance. Also, we like the renewed focus of L&T to reward minority shareholders with a significant buyback announced in Q1FY24. We believe RoE is likely to improve by 200bps in the medium term. We raise FY25E PAT and also increase the target multiple for the standalone business," the brokerage firm said.
ICICI Securities has increased its FY25E PAT estimates for L&T by 4.7 per cent on account of better margins owing to easing inflationary pressures and higher execution of new orders.
A slowdown in hydrocarbon capital expenditure due to any fluctuation in crude oil prices and the risk of a slowdown in government capex due to the upcoming general elections are the key risks for the stock, said the brokerage firm.
Many global brokerage firms too expressed their positive views on the stock after MEED report.
Morgan Stanley has an overweight rating on L&T with a target price of ₹2,935, CNBC-TV18 reported. Citi, on the other hand, has a buy call on the stock with a target price of ₹3,175 and CLSA, too, has a buy call on the stock with a target price of ₹3,240, reported CNBC-TV18.
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