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Technical Outlook

• The BSE capital good index extended its uptrend after coming out of 13 years of hibernation in CY21 exhibiting strength. Our preferred pick within the large cap capital goods space is Larsen & Toubro as it has logged a resolute breakout above 12 year’s long rising supply line joining highs since CY10 (| 1043) highlighting acceleration of up move

• Post breakout the uptrend is well defined by stronger rallies and shallow retracements, key ingredient of structural bull phase

• We expect the stock price to head towards | 2520 levels as it is the measuring implication of the recent broad range (| 1990-1460)

Fundamental Outlook

• Larsen & Toubro (L&T) is India’s largest engineering & construction (E&C) company, with interest in EPC projects, hi-tech manufacturing and services. The company primarily operates in infrastructure, heavy engineering, defence engineering, power, hydrocarbon, services business segments

• With a pick-up in capex cycle and diversified segmental exposure, we believe L&T is best capex play in the large cap capital goods segment. The company is optimistic about meeting its 15% growth guidance for revenue and order inflow in FY23. L&T has targeted revenues and order inflow growth at a CAGR of 15% and 14%, respectively, over FY21-26 with a consolidated RoE of 18%

• Focus on asset monetisation to further strengthen the balance sheet and improve return ratios. L&T has strong b/s, controlled working capital and strong cash generation. In the medium term, with order backlog of | 370000 crore coupled with improving margin profile and literally net debt free standalone balance sheet, we expect strong earnings CAGR of 16.2% over FY22-24E. The key concern on L&T metro projects is also in the resolution stage, which will further lighten up the balance sheet and lead to a rerating, going ahead. We value L&T at | 2355 on an SoTP basis

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