L&T Shares Dip Post Q2 Results Amid Earnings Volatility

Indian engineering and construction giant Larsen & Toubro (L&T) declared its financial results for the second quarter of the fiscal year 2023-24. During this period net profit surged by 45% YoY to reach ₹3,223 crore. L&T's consolidated revenue for Q2FY24 reached ₹Rs 51,024 crore, marking a 19% increase compared to ₹42,763 crore in the same period the previous year.

The growth was primarily driven by successful execution in the infrastructure projects sector and continued momentum in the IT and ITeS portfolio. Its consolidated order book also saw substantial growth, standing at ₹450,734 crore as of September 30, 2023 represents a 13.5% increase from the previous quarter.

Larsen & Toubro reported a surge in its order book during the quarter by announcing orders valued between Rs 24,500 crore ₹44,500 crore. Larsen & Toubro secured a total of ₹89,153 crore in orders at the group level for Q2, marking a 72% growth compared to the same period the previous year when they had received orders worth ₹51,914 crore.

These orders spanned multiple sectors, including public spaces, nuclear power, irrigation, ferrous metal, health, renewables, and refinery, as outlined in a company press release. L&T's operating margin for the second quarter of FY2023-24 was recorded at 11%, in contrast to 11.4% in the year ago quarter and 10.2% in the June quarter.

Segment-Wise Performance

•    Infrastructure Projects Segment: L&T's infrastructure projects segment secured order inflows of ₹27,990 crore in the second quarter, an 11.7% increase from the previous year. Revenues from this segment rose by 27% YoY to ₹24,976.8 crore. However, profit from this segment decreased by 2.9% due to a lower operating profit margin.

•    Energy Projects Segment: Its energy projects segment recorded order inflows of ₹40,141 crore, nearly four times higher than the previous year's 8,441 crore. Revenues from this segment increased by 21.5% YoY to ₹6,794.25 crore, and profits rose by 40.2%.

•    Hi-Tech Manufacturing Segment: This segment secured order inflows of ₹3,395 crore, marking a 35.5% increase from the previous year. Revenues from the segment rose by 28.5% YoY to ₹2,041.14 crore, and profits increased by 5.5%.

•    IT & Technology Services Segment: L&T's IT and technology services segment reported revenues of ₹11,182 crore in the second quarter, 10.2% increase from the previous year. International billing contributed 92% of the total customer revenues, but profit from the segment fell by 0.2%.

Stock Performance

Over the past month, the stock declined nearly 6%. However, when looking at a slightly longer timeframe of six months, stock rose 21%. Taking a broader view over the past year, the stock has surged by 43%. But when we expand our analysis over the last five years, the stock has delivered 113% positive return, effectively doubling the wealth of its investors.

Analyst View

Several leading brokerages are bullish on a construction company's stock.

•    CLSA: Bullish with a ₹3600 target, representing a potential 23% gain from Tuesday’s closing price.

•    Jefferies: Maintains a 'Buy' rating with a revised target of ₹3400. 

•    Citi: Positive outlook with a target of ₹3550.