L&T shares fall 6% as brokerages cut target prices after Q4 results. Should you buy or sell?

L&T shares fall 6% as brokerages cut target prices after Q4 results. Should you buy or sell?

Shares of engineering and construction major Larsen and Toubro (L&T) on Thursday fell up to 6% to day’s low at Rs 3,290 as brokerages reduced their target prices following a cut in margin guidance for FY25.

While reporting a 10% year-on-year (YoY) growth in its consolidated net profit at Rs 4,396 crore, L&T reduced its future margin guidance to 8.2-8.3% for FY25 to bake in supply chain disruptions, an uncertain political environment, and ongoing conflicts across several areas.

Brokerage firm CLSA reduced its target price to Rs 4,151 but maintained a buy call on the Nifty stock, Motilal Oswal reduced it to Rs 4,000 while Kotak Institutional Equities gave a sell call with a target price of Rs 3,000.

“We continue to build in a low single-digit growth in overall ordering, as 10% order growth guidance relies on factors difficult for us to take a call on strong resurgence in domestic ordering, after a muted 1H and L&T gaining a share on government bids, incorporating a quality-based cost assessment,” Kotak Equities said.

Bernstein, which has an outperform call with a target price of Rs 3,800, said its margin guidance turned out to be lower than expectations. Citi gave a target price of Rs 4,396 saying it is not unduly concerned by flat margin guidance.

Motilal Oswal analysts noted the positives like the 24% YoY increase in the prospect pipeline to Rs 12 trillion and a sharp reduction in the net working capital cycle to 12% of net sales.

Despite lower margins seen in FY24, the company was able to improve RoE by 270bp YoY to 14.9% as it reduced working capital by 410 bps to 12% of sales. “We expect working capital to remain comfortable at around 15% of sales, as the overall project mix is changing in favor of projects that have low NWC, such as international, and mega & ultra-mega projects,” Motilal said.

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