Target: ₹3,141

CMP : ₹2,902

A media report indicated that L&T has been issued a letter of intent in the Middle East for two packages worth total USD 4bn. Aramco is the developer of Jafurah field, which is the first unconventional gas field of Saudi Arabia with 2trn cubic feet of reserves. It has awarded the contract for phase 1 worth ₹10 bilion. The total estimated cost of the field is ₹100 billion over the life of the field.

L&T had announced an order inflow of ₹66,000 crore in Q1-FY24. It has further announced ₹15,000 crore till date in Q2. Including the above mentioned orders, we expect order inflow for Q2 to be in a similar range or overall order inflow growth print to be over 20 per cent. As a result, we expect full year order inflow at ₹2.2 lakh croe , over 15 per cent growth.

We upgrade the stock to BUY on strong consecutive order inflow for two quarters (Q1, Q2FY24), which could likely result in beat to order inflow guidance for FY24, a significant buyback to reward shareholders and consequent improvement in RoE. We expect margin improvement in Q4 and FY25 for core business amidst benign RM prices. We upgrade the stock to Buy with SOTP based target price of ₹3,141 (assigning 30x FY25E to EPC business).

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