Shares of Larsen & Toubro (L&T) moved greater by 4 per cent to Rs 1,664.75 on the BSE in intra-day commerce on Friday after brokerage agency Motilal Oswal Financial Services elevated the target price of the stock to Rs 1,950, largely pushed by mark-to-market (MTM) of listed data expertise (IT) subsidiaries. The stock of the engineering & development (E&C) company had hit a report excessive of Rs 1,676.70 on August 16, 2021.

“In the past month, L&T Infotech has rallied 18 per cent, MindTree 28 per cent, and L&T Technology Services 11 per cent. Factoring in the current market prices of the listed subsidiaries (after applying an unchanged holding company discount of 20 per cent), our target price for L&T now stands at Rs 1,950,” Motilal Oswal mentioned in a stock replace.

Adjusted for the valuation of subsidiaries, the core business is on the market at FY23E PE of 13.5x v/s the long-term one-year ahead common PE a number of of 22x, the brokerage added. It has a Buy ranking on the stock. L&T is our prime choose within the wider Capital Goods sector as a proxy to play India’s capex story, the brokerage agency additional famous.

“L&T’s core E&C business remains best placed to benefit from any capex upcycle, supported by its leaner asset-light business model and diversified segments. Therefore, even as the Buildings and Power segments were weaker in FY21, this was largely offset by strong orders from the international Power Transmission & Distribution (T&D) and Hydrocarbons segments. L&T’s capability to win large ticket size projects, such as airports and high-speed rail (HSR), has been remarkable and has compensated for its exit from the roads sector,” Motilal Oswal added.

Over the following two years, the brokerage sees a number of catalysts rising for L&T, together with asset monetization for Hyderabad Metro and Nabha Power, free money technology (FCF) technology of USD1.5–2.0 billion each year within the core business, an enchancment so as inflows prior to the elections, and improved execution, aided by a greater working capital cycle – as the federal government focuses on capex in the direction of financial progress and job creation. If the macro improves, the robust FCF technology ought to allow L&T to hike dividend payouts as there may be hardly any capex requirement past the upkeep capex, the brokerage agency mentioned.

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