1:2 And 1:1 Bonus Issues: Blue Chip Stock L&T Gives 1,200% Returns After 4 Bonuses; Motilal Sets Rs 4,200 TP

Everybody likes to receive incentives that are free of cost, and listed stocks on exchanges have been practising this in the form of bonus issues traditionally. Whether large-caps or midcaps or small-caps, many companies share a portion of their net profit of a respective financial year free as bonuses. One such is also blue-chip company, Larsen & Toubro which has given more than 1,200 returns to investors after four bonuses. Not just hefty returns, but L&T has also multiplied investors' portfolios by 9 times. There is a strong surge ahead, as brokerage Motilal Oswal recommends buying L&T for a target price of Rs 4,200.

On February 26th, L&T's share price ended at Rs 3,469.80 apiece, up by 2.36% on BSE with a market cap of Rs 4,76,969.00 crore.

L&T's stock price is near its 52-week high of Rs 3,738.90 apiece, while currently traded higher by 66.57% from its 52-week low of Rs 2,083.05 apiece.

But L&T's share price has rallied by as much as 1,216.41% in 18 years. Before L&T announced a series of bonus issues, its stock price traded at Rs 263.58 apiece 18 years ago, on February 27, 2006.

L&T's Bonus Issue:

The first bonus reward by L&T was in September 2006 in the ratio of 1:1, which meant 1 bonus issue on existing 1 equity per share. A second bonus issue of a similar ratio was carried out in October 2008. This followed the third bonus issue of 1:2 in July 2013, which meant 1 bonus share on every two existing shares. The last bonus issue as of now announced by L&T was also 1:2 in July 2017.

Since 2006 to date, if you have not modified your portfolio, then your number of shares in L&T has increased by 9 times. For instance, if you held 500 shares of L&T, and then post first ex-bonus, your shares would have doubled to 1,000 shares (500 X 1/1). After the second bonus issue allotment, you will receive another 1,000 shares (1000 X 1/1) on the existing 1000 shares, totalling 2,000 shares.

Further, post allotment of third bonus shares, you will get an extra 1,000 bonus shares (2,000 X 1/2), on the existing 2000 shares, totalling 3000 shares. On the last 1:2 bonus issue, you will receive 1,500 bonus shares (3,000 X 1/2), on existing 3000 shares, totalling your portfolio to 4,500 shares.

Hence, from holding 500 shares to 4,500 shares of L&T, your portfolio multiplied by 9 times.

Assuming you did not sell your or modify your shareholding in L&T. So 500 shares of L&T at Rs 263.58, were valued at Rs 1,31,790 on February 27, 2006. But after four bonus rewards, 4,500 shares of L&T as of February 26, 2024, are now valued at Rs 1.56 crore, that's a multifold rise in your holding of L&T.

L&T Earnings:

In Q3FY24, L&T achieved Consolidated Revenues of Rs 55,128 crore, recording a y-o-y growth of 19%, aided by a ramp-up in the execution of the strong order book in the Projects and Manufacturing portfolio. International revenues during the quarter at Rs 24,300 crore constituted 44% of the total revenue. PAT stood at Rs 2,947 crore, registering a growth of 15% compared to the corresponding quarter of the previous year.

By the end of December 2023, the company achieved orders worth Rs 75,990 crore at the group level, registering a robust growth of 25% on a y-o-y basis. During the quarter, orders were received across various businesses like the Offshore vertical of Hydrocarbon, Solar EPC & Power Transmission, Water Utilities, Buildings & Factories and Minerals & Metals sectors. International orders at Rs 50,562 crore during the quarter comprised 67% of the total order inflow.

Larsen & Toubro is a $23 billion Indian multinational engaged in EPC Projects, Hi-Tech Manufacturing and Services. It operates in over 50 countries worldwide. A strong, customer-focused approach and the constant quest for top-class quality have enabled L&T to attain and sustain leadership in its major lines of business for eight decades.

L&T Share Price Motilal Oswal Target:

Motilal Oswal in its latest research note said, our recent interactions with the management of Larsen and Toubro (LT) make us believe that recent concerns related to its performance are transient, such as 1) low YoY growth in domestic inflows in 9MFY24 was due to a high base of last year, particularly in domestic hydrocarbon; 2) lower-than-expected margins were attributed to legacy projects, which are now closer to completion in the next couple of quarters; and 3) high share of international projects, particularly in Saudi Arabia, where the addressable market is continuously growing.

As per Motilal, the positive factors that will drive growth ahead, in our view, are: 1) the ramp-up of domestic inflows after elections, 2) the completion of low-margin legacy projects in next couple of quarters, 3) the constant reduction in working capital and the resultant RoCE improvement, and 4) low working capital in international projects despite being fixed-price projects. We maintain our estimates and SoTP-based TP of INR4,200, valuing the core business at 28x Mar'26E EPS. Maintain Buy.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.