Larsen & Toubro (L&T) Stock Price Outlook with Buyback Proposal on Board

Larsen & Toubro, an engineering and construction major, is considering a proposal of buyback of share for the first time. As a result, L&T stock price surged more than 6% in trade today.

The proposal will be taken at its meeting on August 23rd, 2018. Last month HCL Technologies had approved a share buyback plan of Rs 4,000 crore  at Rs 1,100 per share.

As per the current regulation, the buyback offer cannot exceed 25 per cent of the company’s paid up capital plus reserves. On a standalone basis, L&T has a net equity worth of Rs. 492 billion at the end of the year. Therefore, buy back could be of approximately Rs 123 billion.

Larsen & Toubro (L&T) Stock Price Chart

In the above weekly chart, the L&T stock price has already moved down towards the small support level at around 1260 and now can move to a level of 1415. Next resistance level for L&T is around 1750. 

Investment Rationale

• During the first quarter, L&T has delivered 36% growth in the net profit to Rs. 1215 crore, beating the analysts’ estimates for a net profit of Rs. 1,186 crore, according to Thomson Reuters. This growth was driven on the back of strong performance in its infrastructure business. Further, the consolidated EBITDA margin expanded by 160 basis points year-on-year to 10.3% in the june quarter, beating the Bloomberg’s average forecast.
• Revenue from operations, rose 19 per cent to Rs 282.83 billion from Rs 239.89 billion in the corresponding quarter a year back.
• The company has strong order book as its consolidated order book stood at Rs 2.71 trillion as of June 2018. In the June quarter, company’s orderbook grew 37% year-on-year to ₹36,142 crore. The company’s domestic orders increased by 45%, on the back of strong demand from the infrastructure and hydrocarbons segment.
• The company expects to receive Rs 40 billion from the sale of its electrical division to Schneider. The company is divesting non core assets from the past few quarters.
• The company for FY 19 expects order flow growth in the range of 10%-12%.

The company has posted strong growth in the first quarter of 2019 (June Quarter). L&T plans to come with its first buy back,which is rewarding for the shareholders. Technically, the stock has reached its immediate support level and now expected to rise. The long term target on the stock is Rs. 1750 with a time horizon of one year.