L&T cross Rs 4 lakh crore m-cap; analysts see more upside post $4 bn Saudi Aramco’s order win

The Rs 10,000 crore buyback plan, equivalent to around 2.4% of outstanding shares at a maximum price of Rs 3,000 per share, boosts confidence in L&T. It remains Citi’s top choice for the medium term.

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Engineering major Larsen & Toubro’s market capitalisation on September 7 topped Rs 4 lakh crore after the surge in share price on the company bagging an order for Saudi Aramco’s Jafurah unconventional gas development project, likely valued at nearly $4 billion.

Other companies with a market capitalisation in excess of Rs 4 lakh crore market cap are Reliance Industries Ltd, TCS, HDFC Bank, Infosys, ICICI Bank, HUL, ITC, LIC, SBI, Bharti Airtel, Bajaj FInance, Adani Energy Solutions, Adani Green Energy, Adani Enterprises, Kotak Mahindra Bank and Adani Total Gas has achieved this milestone. The stock on September 7 hit a fresh record high of Rs 2854.95 a share.

Many brokerages have maintained their bullish ratings while increasing the price target for the stock. Citi has maintained its buy rating and increased its target price to Rs 3,175 from Rs 2,889.48, CLSA has maintained buy rating on the stock and raised target price to Rs 3,240 while Morgan Stanley has kept overweight rating and target price stood at Rs 2,935 a share.

According to news reports,  L&T has been tasked with setting up a gas processing plant and its main process units, and will construct gas compression units, as part of the Jafurah unconventional gas production project.

According to Morgan Stanley, this order would account for 13 percent of its annual guidance (F24e growth of 10-12 percent) and 17 percent of core order inflows. It expects potential Upside Risks for L&T Include heightened government expenditure, easing in steel and other material costs and acceleration in economic growth, resulting in greater-than-expected private capital expenditures.

Few analysts suggest that L&T’s primary FY24 growth opportunity is the Middle East hydrocarbon sector, helping alleviate concerns about a potential slowdown in government orders before the upcoming elections in the fourth quarter of FY24.

“By the time orders are placed and EPS gets visible, we expect the stock to re-rate. Hence, we raise our E&C multiple to 25x vs 24x”, said CLSA in its latest note.

In the first quarter, L&T’s hydrocarbon prospect list amounted to Rs 3.47 lakh crore, a notable increase from Rs 2.44 lakh crore in the fourth quarter of FY23 and Rs 1.02 lakh crore in the first quarter of FY23. A significant portion of this prospect list, approximately 70 percent, is attributed to the Middle East region.

Brokerage firm Citi has observed that L&T expanded its FY24E growth potential following the first-quarter results, primarily driven by an increase in hydrocarbon prospects. Additionally, L&T’s financial health has improved, with a parent-level surplus of Rs 250 billion, significantly enhanced working capital, and a sustained upward trajectory in consolidated Return on Equity (RoE).

The announced buyback of up to Rs 10,000 crore, which represents approximately 2.4 percent of outstanding shares, at a maximum price of Rs 3,000 per share, reinforces its confidence in L&T. From a medium-term perspective, L&T continues to be our top choice, Citi said in its latest note.