L&T Stock Gains 6 Percent on Q2 Earnings

The Larsen & Tourbo (L&T) share surged more than 6% on the back of better-than-expected Q2 earnings from the engineering and construction major. The scrip closed at R925 on the BSE after the Mumbai-based company maintained its revenue guidance of 15% for FY14.

L&T reported a 7% y-o-y rise in profit at R978 crore and a 10% y-o-y rise in sales at R14,510 crore on Friday after market hours. The profit posted in the year-ago period was R915 crore, excluding a one-time gain of R222 crore.

The international order book continued to drive L&T’s revenues in Q2. “Order inflow during Q2 grew 26.5%, taking H1FY14 growth to 27.4%. This was primarily driven by growth in international orders, c132% y-o-y in H1FY14, while the domestic orders grew only 8%. Such divergent geographic performance was also evident in the topline performance, where exports grew 32% y-o-y and the domestic revenues grew a modest 4%,” HSBC analysts said in a research note.

Meanwhile, revenues of the company’s power division declined. “Infrastructure and heavy engineering demonstrated the highest topline growth, while as expected, power and metallurgical, material handling (MMH) divisions posted strong declines in revenue,” HSBC analysts added.

The L&T share has gained more than 17% in month-to-date, outperforming sectoral benchmark BSE Capital Goods Index, which has gained 13.5% during this period. However, in the quarter ended September, the stock has plunged 15.76%, while the capital goods index has lost 15.42%.

Brokerages expect the scrip to outperform its peers. “We retain our conviction on L&T as a top pick in industrial space given sustained core business profitability, strong revenue growth visibility and strong balance sheet. We continue to maintain that gradual recovery prospects in domestic execution remain key to stable margins going ahead. We maintain our buy rating for L&T with a revised target price of R1,060,” Edelweiss analysts said in a note.

Year-to-date, L&T shares are down 13.6%, while the capital goods index is 19.2% down.

However, certain market observers don’t expect the stock to see a sharp rally. “Even though L&T remains the best bet if the sector sees a recovery, we expect gains of 8-10% in the medium term. We don’t see a big upside owing to the fundamentals in the infra sector,” said Amar Ambani, head (research), India Infoline Finance.

Source: Financial Express

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