Brokerage Call: L&T (Buy) – The Hindu BusinessLine

Target: ₹3,141

CMP: ₹2,902

According to a media report, L&T has received a letter of intent for two packages in the Middle East worth a total of USD 4 billion. Aramco is the developer of the Jafurah field, Saudi Arabia’s first unconventional gas field with reserves of 2 trillion cubic feet. It has awarded the Phase 1 contract worth ₹10 billion. The estimated total cost of the field is ₹100 billion over the life of the field.

L&T had announced an order intake of ₹66,000 crore for Q1-FY24. 15,000 crore has also been announced for the second quarter so far. Including the orders mentioned above, we expect second quarter order intake to be in a similar range or overall order intake growth to exceed 20 percent. As a result, we expect full year order intake of ₹2.2 lakh crore, representing growth of over 15 percent.

We upgrade the stock to BUY due to strong order intake recorded in two consecutive quarters (Q1, Q2, FY24). This could likely result in beating FY24 order intake guidance, a significant buyback to reward shareholders and a consequent improvement in RoE. We expect margin improvement for the core business in Q4 and FY25 with favorable RM prices. We upgrade the stock to Buy with a SOTP-based target price of ₹3,141 (allocating 30x FY25E to the EPC business).