Drop In Commodity Prices To Boost Margin In FY23, Say Analysts

A drop in commodity prices, especially steel, will boost Larsen & Toubro Ltd.’s operating margin in the remaining quarters of the ongoing fiscal, according to analysts.

While improved project executions aided Q1 growth, the trend of higher project awards as a ratio of projects tendered post-Covid will be an additional trigger in the coming quarters, the analysts said in their research reports.

India’s largest engineering-to-construction company reported a 22% year-on-year increase in revenue to Rs 35,853 crore in the three months ended June, in line with consensus analysts’ estimate.

L&T Q1 FY23 Highlights (YoY)

• Net profit rose 49.7% to Rs 2,293 crore.

• Operating profit dropped 2% to Rs 3,120.6 crore.

• Operating margin stood at 8.7% against 10.8% a year ago.

Shares of L&T rose as much as 3.6%, the most in more than two weeks, as of 10:50 a.m. on Wednesday. The stock had closed 1.76% lower before the results were announced on Tuesday.

The trading volume was quadruple the 30-day average. The stock has moved above the 200-day simple moving average, indicating potential upward price momentum. Of the 41 analysts tracking the company, 40 recommend a ‘buy’ and one suggests a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 10.8%.