Buy This Large Cap Construction Stock, Shares Likely To Give 11% Returns: Edelweiss Wealth Research

Edelweiss Wealth Research has picked Larsen & Toubro Limited (L&T) in its Fundamental Research Pick of the week report published on 18 November 2022. The brokerage has given a buy call to the stock with a target price of Rs 2,247 per share to get 11% potential upside. L&T is a large-cap construction sector company of L&T group company (having a market cap - Rs 2,84,464 cr).

Business Overview

Larsen & Toubro (L&T), headquartered in Mumbai, is a technology-driven engineering and construction company, and one of the largest players in India's private sector. It has additional interests in manufacturing, services and IT. A strong customer-focused approach and constant quest for top-class quality has enabled the company attain and sustain leadership in major lines of businesses over seven decades. L&T has international presence with a global spread of offices. With factories and offices located around the country, further supplemented by a wide marketing and distribution network, L&T's image and equity extend to virtually every district of India. The company's recent focus on export market will help optimise its growth potential, especially in hydrocarbons and infrastructure.

Stock Outlook & Returns

The current market price (CMP) of L&T stood at Rs 2,024.45 per share, 0.25% down as compared to its previous close of Rs 2,029.55 per share. On January 18, 2022, the stock hit its 52-week high level at Rs 2,078.55, whereas, on June 20, 2022, it hit its 52-week low level at Rs 1,456.35.

 
The stock in 1 month gave 5.54%, and in 3 months gave 6.86% positive returns, respectively. Over a year, the stock gave 6.72% positive return. In 3 years, it gave 48.37% positive returns and in 5 years it gave 65.56% positive returns. 

Key highlights & Risks

L&T has a dominant position and market share in most operating verticals, be it transportation, oil & gas, factories & building, process projects and industrial structures. This imparts flexibility to cherry-pick projects, which helps optimise overall business profitability.

Strong projects pipeline in verticals like transportation (railways, metro and roads) and factories and buildings augurs well for L&T.
L&T posted Solid growth in domestic infra orders for Q2/H1 and 9%/7% growth in domestic infra top-line (3Y CAGR) reflecting a better domestic scenario. H2 pipeline is strong at INR 6.3tn with ~20% from private sector (up 10% YoY), versus INR7.6tn in Q1.
Moreover, proven execution record and huge balance sheet equip it to garner a higher share of the expected upcoming infra capex opportunity in near to medium term.
L&T has been amongst the few players to exit from non-core businesses generating huge balance sheet muscle over recent years. Utilisation of these proceeds, including incremental surplus from E&C cash flows to reward stakeholders could generate reasonable stake-holder returns in our view.

According to the brokerage firm, the key risks are Economic Slowdown, Sub-optimal capital allocation, & Slower demand ramp-up.

Disclaimer

The stock has been picked from the brokerage report of Edelweiss Wealth Research. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.