On October 25, Larsen and Toubro (L&T) shares experienced a 2% drop, trading at ₹3,378 following UBS's decision to downgrade the stock from a 'buy' to a 'neutral' rating. This adjustment comes as the international brokerage firm highlighted potential near-term hurdles, affecting the sentiment of those looking to invest in stocks with L&T.
UBS now suggests a price target of ₹4,000, which still offers an approximate 16% upside from the last closing price of ₹3,443. Previously, UBS set the target price at ₹4,400, but it has now revised its outlook due to various headwinds anticipated in the coming months.
UBS anticipates slower growth in new orders
UBS has noted that while L&T's core earnings remain robust, new order growth might face a slowdown, which can impact the company's future valuation. For investors who aim to invest in stocks, UBS's analysis indicates that new order growth has been a critical component in L&T's valuation strategy. With a potential decline in new orders, the market could perceive this as a potential risk, as order growth is a significant metric in evaluating L&T's financial strength.
Decline in L&T stock over the past month
L&T shares have shown a decline of about 11% over the past month, reflecting investor concern over slowing order growth and other external factors. Investors considering options to invest in stocks in the industrial and infrastructure sectors may find these factors relevant. The brokerage's report highlights that while L&T's core earnings provide stability, the anticipated dip in order growth could influence stock performance and investor interest.
Analysts focus on cash flow and returns
The analysts at UBS have expressed that for L&T, managing cash flow and returns is likely to become crucial as the company may reduce its focus on expanding its order book. For investors seeking to invest in stocks in this sector, the shift in focus may represent a recalibration in L&T's strategic priorities. UBS's assessment suggests that effective management of cash flow could mitigate the impact of reduced order growth, although the outlook remains cautious given current headwinds.
Recent achievements in power transmission
In August, L&T's Power Transmission & Distribution (PT&D) vertical secured significant contracts, valued between ₹10,000 crore and ₹15,000 crore, for infrastructure projects aimed at enhancing electricity grids in the Middle East. For investors planning to invest in stocks with a focus on international expansion, this achievement reflects L&T's capability to secure large-scale projects outside of India.
The PT&D vertical's success highlights L&T's international operations, though the UBS downgrade suggests that current challenges could affect future order growth.
Stock performance and trading updates
At approximately 9:40 am on October 25, L&T shares were trading at ₹3,384 on the NSE, reflecting a 2% drop from the previous closing price. Investors interested in investing in stocks of companies with a diversified infrastructure portfolio may find this movement relevant when assessing market performance. UBS's adjustment in L&T's rating and target price reflects the international brokerage's outlook on the company's near-term growth and market challenges.
Potential upside and revised price target
With a revised target price of ₹4,000, UBS's outlook for L&T suggests a potential 16% upside based on the last close of ₹3,443. For those looking to invest in stocks, this figure might indicate the long-term potential for L&T despite the immediate headwinds. UBS's downgrade from a 'buy' to 'neutral' reflects a cautious approach toward L&T's near-term growth trajectory, primarily due to the factors impacting new orders and valuation metrics.
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