Larsen & Toubro shares: Can this Sensex, Nifty stock deliver after dull 2024?

2024 has been a dull year for Larsen & Toubro Ltd (L&T) shareholders, as the stock delivered a mere 3 per cent return against 8.50 per cent rise in the BSE Sensex and 9.21 per cent jump in the NSE barometer Nifty. The stock performance stayed muted amid a slow start to capital expenditure by both states and the centre in the ongoing financial year 2024-2025, which a couple of analysts said can primarily be attributed to the general elections earlier this year. They see a pickup in the second half of the fiscal and suggested up to 25 per cent upside target on the stock.

L&T’s order book stands at a record level of Rs 5.1 lakh crore, translating to 2.2 times its trailing 12-month consolidated revenues. The H1FY2025 order inflows declined 2 per cent YoY to Rs 1.5 lakh crore.

The share of international orders in the P&M business was at 62 per cent in the September 30. A total of 40 per cent of order book as of H1FY2025 is now international, out of which 85 per cent comes for the Middle East.

Sharekhan said L&T's order prospects stand at Rs 8.07 lakh crore, down 8 per cent YoY. Out of the domestic orders prospects of Rs 3.06 lakh crore, the share of private orders is 22 per cent, it said.

"Hence, we believe L&T’s quality and well-diversified order book would help the company in timely execution in the coming years," it said adding that a focus on sunrise sectors such as green hydrogen, data centres, e-commerce as well as defence would lead to further diversification.

It maintained 'Buy' on L&T with a target price of Rs 4,550, given strong execution and margin tailwinds and improving return rations in the capex upcycle.

ICICI Securities in its 2025 outlook note said 5 per cent earnings yield is fair value for Indian equities, which translates to 20 times forward PE and a Nifty target for 2025-end at 26,300. It has Larsen & Toubro among its top picks in the industrials pack.

Kotak Institutional Equities, which recently met the management of L&T, said the company's endeavors to improve margin may take time to play out. Macro support to margin recovery appears lacking and, thus, the pace and quantum of improvement would be contained.

"We bring out the benefits of existing and incremental diversification in our 23 times earnings multiple for the core E&C business. Earnings cut on execution and margin limits uptick in fair value to Rs 3,650 (Rs 3,600 earlier) post roll-forward to March 2027. We downgrade L&T to REDUCE (from ADD) post the recent rally," it said.

This target suggests a flat return for the stock ahead.

Sharekhan said L&T's lifetime higher order book provides a healthy revenue visibility over the next two years.

"Order prospects in the domestic and international markets remain healthy at Rs. 8.07 lakh crore. Domestic orders are expected to see pick-up in H2FY2025. L&T remains at the forefront to reap benefits from the AtmaNirbhar Bharat scheme with its diversified businesses across sectors such as defence, infrastructure, heavy engineering, and IT and is the best proxy for domestic capex. We maintain BUY with a SOTP-based price target of Rs 4,550, rolling forward our valuation to H1FY2027E earnings and considering its strong order prospects," it said.

This target suggests 25 per cent upside on L&T.