On Monday, UBS reiterated its Buy rating on Larsen & Toubro Ltd. (LT:IN) (OTC: LTOUF), with a stock price target of INR4,180.00. The firm emphasized five crucial factors influencing the company's stock performance that are particularly important to investors.
The analysis indicated that for financial year 2025, Larsen & Toubro would need domestic orders amounting to Rs1.7 trillion, which would represent a 30% year-over-year growth and an increase in market share within its key domestic sectors.
The firm's order book relative to its core net worth is currently considered to be quite stretched. This situation may lead the company to prioritize project execution while becoming more selective about new orders.
UBS anticipates that the core profit and loss statement for Larsen & Toubro will show an improvement compared to the financial year 2024, driven by a healthy execution rate and potential outperformance of the company's guidance for core margins in FY25.
Despite a significant portion of orders being sourced from the Middle East, the stretched ratio of order book to net worth suggests that the growth in order inflow likely reached its peak in the financial year 2024 at 38%. The firm's recent market underperformance, coupled with its earnings and macroeconomic factors, supports a healthy return on capital employed (RoCE) trajectory.
These elements underpin UBS's decision to maintain a Buy rating on Larsen & Toubro. Still, it is noted that with the peak in order intake growth, the company's focus may shift towards execution and managing project-level risks.
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