Kotak Securities Revises Target for Larsen & Toubro, Maintains Sell Rating
Kotak Securities Adjusts Price Target for Larsen & Toubro
Kotak Securities has made a notable adjustment to its price target for Larsen & Toubro Ltd. (LT:IN) (OTC: LTOUF), a well-known Indian multinational operating in technology, engineering, construction, manufacturing, and financial services. The updated price target is now set at INR3,380.00, a rise from the previous INR3,150.00. However, despite this increase, Kotak maintains a Sell rating on the stock.
Factors Influencing the Price Target Change
The revision of the price target incorporates various elements that affect the financial outlook of the company. A significant factor noted by Kotak Securities is the recent decrease in oil prices, which is expected to influence the volume of new orders from Saudi Arabia, thereby impacting Larsen & Toubro's order growth.
Profit Margins and Market Dynamics
Furthermore, the firm anticipates that profit margins for the company will not be able to escape the pressures arising from the rising share of lower-margin renewable EPC contracts, even as there is a favorable trend of declining steel prices in the market.
Sum of the Parts Valuation Adjustment
The analyst from Kotak Securities has raised the Sum of the Parts (SoTP) valuation by 6% to INR3,380 to reflect an estimated 30 basis points improvement in core Engineering & Construction (E&C) margins, which represents a year-over-year increase of 40 basis points.
Considerations for Fair Value
This revised valuation also takes into account an uptick in Fair Value (FV) for LTIMindtree while extending the valuation horizon to September 2025, which showcases a strategic review of the company’s operational segments.
Trading Multiples and Risk Assessment
Despite the upward revision of the price target, Kotak Securities continues to recommend a Sell rating based on the perception of a high trading multiple of 35 times the expected one-year forward core E&C earnings per share. This valuation is seen as steep, particularly when considering Larsen & Toubro's extensive international exposure coupled with the operational risks associated with its diversified business operations.
As investors evaluate their positions, they must weigh these factors carefully. Keeping in mind the operational dynamics and market conditions, the approach outlined by Kotak will likely resonate within the investment community.
Frequently Asked Questions
What is the new price target for Larsen & Toubro set by Kotak Securities?
The new price target for Larsen & Toubro set by Kotak Securities is INR3,380.00.
Why does Kotak maintain a Sell rating despite raising the price target?
Kotak maintains a Sell rating due to concerns over a high trading multiple and the operational risks associated with the company's international business.
What are the factors influencing the change in price target?
The change in price target is influenced by factors such as the recent decline in oil prices and the proportion of lower-margin contracts affecting profit margins.
What is the updated valuation horizon for LTIMindtree?
The updated valuation horizon for LTIMindtree has been extended to September 2025.
How significant is the improvement in the E&C margin?
The improvement in the core Engineering & Construction margin is estimated at 30 basis points, indicating a year-over-year increase of 40 basis points.
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