Kotak Securities adjusted its price target for Larsen & Toubro Ltd. (LT:IN) (OTC: LTOUF), a major Indian multinational engaged in technology, engineering, construction, manufacturing, and financial services. The new price target is set at INR3,380.00, marking an increase from the previous INR3,150.00. Despite this adjustment, the firm maintains a Sell rating on the stock.
The revision in the price target reflects several factors influencing the company's financial outlook. Kotak Securities notes the recent decrease in oil prices as a significant variable that could affect the rate of new orders from Saudi Arabia, which in turn has implications for Larsen & Toubro's order growth.
Moreover, the firm anticipates that the company's profit margins will soon show the combined impact of an increased proportion of lower-margin renewable EPC contracts and the advantage of declining steel prices.
The analyst from Kotak Securities has increased the Sum of the Parts (SoTP) valuation by 6% to INR3,380 to accommodate what they estimate to be a 30 basis points improvement in the core Engineering & Construction (E&C) margin, which is a 40 basis points increase year-over-year.
The revised valuation also factors in a higher Fair Value (FV) for LTIMindtree (NS:LTIM) and extends the valuation timeline to September 2025.
Despite the rise in the price target, the Sell rating is sustained due to the perceived high trading multiple of 35 times the one-year forward core E&C earnings per share. This valuation is deemed steep, especially considering Larsen & Toubro's significant international exposure and the operational risks inherent to its business.
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