On Thursday, UBS revised its stance on Larsen & Toubro Ltd. (LT:IN) (OTC: LTOUF) shares, shifting the rating from Buy to Neutral. The firm also adjusted the price target to INR 4,000 down from the previous INR 4,330. This change comes amid expectations of a slowdown in the company's order growth.
The downgrade reflects UBS's analysis that Larsen & Toubro's order growth may have reached its peak. Despite this, the firm anticipates that the stock price might not experience a significant decline due to the company's earnings resilience and its broader market reach compared to the past.
UBS has forecasted an order intake compound annual growth rate (CAGR) of about 6% for the fiscal years 2024 to 2027, which is a decrease from the earlier projection of 10%. This new estimate is also lower than the consensus estimate of around 8%.
The firm has reduced its sum-of-the-parts (SoTP)-based price target from INR 4,330 to INR 4,000. This adjustment incorporates a lower core 12-month forward price-to-earnings (PE) ratio of 25 times, compared to the previous 28 times. The revision is meant to account for the anticipated slower order intake.
While the current market conditions do not suggest an immediate increase in competition or manpower availability in the Middle East market, UBS notes that any negative changes in these factors could pose a risk to their assessment of Larsen & Toubro's market position.
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