Larsen & Toubro and Cyient: Weekly Recommendations

The two stocks recommended by SMC Global Securities’ Research Team this week are Larsen & Toubro and Cyient. These two stocks have shown great potential with positive financial estimates for the next two financial years. So, let’s go through the details of the two stock recommendations for the period between December 30, 2024 and January 3, 2025.

Larsen & Toubro Limited

Larsen & Toubro share price was ₹3,611 (as on December 27, 2024) and its target price is set at ₹4,270 with an upside potential of 18%.

Larsen & Toubro Limited: Investment Rationale

• • Larsen & Toubro is a USD 27 billion Indian multinational engaged in EPC Projects, Hi-Tech Manufacturing, and Services. It operates in over 50 countries worldwide. A strong, customer-focused approach and the constant quest for top-class quality have enabled L&T to attain and sustain leadership in its major lines of business for eight decades.

• In Q2 FY2025, the company received orders worth ₹80,045 crore at the group level registering a YoY growth of 10%. Orders were received across multiple segments like Renewables, Transmission & Distribution, Roads & Runways, Urban Transit, Nuclear Power, Hydel & Tunnel, Minerals & Metals, Factories, Precision Engineering and the Offshore vertical of Hydrocarbon business.
• International orders at ₹32,057 crore during the quarter comprised 52% of the total order inflow. The consolidated order book of the group as on September 30, 2024, is at ₹5,10,402 crore registering growth of 7% over Mar’24, with the share of international orders at 40%.
• In Q2 FY2025, it reported consolidated revenues of ₹61,555 crore for the quarter ended September 30, 2024 registering a YoY growth of 21%, aided by accelerated progress in the various businesses in the Projects & Manufacturing (P&M) portfolio.
• International revenues during the quarter at ₹32,057 crore constituted 52% of the total revenues, largely reflective of a robust international P&M order book.

• Recently, the hydrocarbon business of Larsen & Toubro (L&T) has secured a prestigious order. The project involves the License, Engineering, Procurement, and Construction (L-EPC) of a 1,200 MTPD (DAP basis) NPK fertilizer plant along with associated utilities and off-site facilities for Rashtriya Chemicals and Fertilizers Limited (RCF) at their Thal unit.
• It has secured an order from Uttar Pradesh Metro Rail Corporation Ltd (UPMRCL) for the design and construction of Agra Metro Phase 1, Line-2. The scope of work involves the design and construction of a vital 15.09 km elevated viaduct, 14 stations, and a 2.61 km depot connecting the metro line from Sadar Bazar to PAC Depot. The project is to be completed within a stringent timeline of 30 months.

Larsen & Toubro Limited: Shareholding Pattern

The institutional investor’s shareholding is highest in Larsen & Toubro at 40.05%.

Larsen & Toubro Limited: Valuation

The company retains the focus on the profitable execution of its robust order book in the backdrop of a relatively stable environment. According to the management of the company, the projects & manufacturing businesses of the company continue to perform well.

Its new transformative investments in Green Energy, Data Centers, Digital Platforms, and Semiconductor Design will, besides improving our Digital and Sustainability footprint, complement its current business portfolio as well.

The company remains committed to delivering a sustained performance of growth. It is well positioned to exploit the emerging opportunities across the diversified business portfolio and limit exposure to non-core businesses.

Thus, it is expected that the stock may see a price target of ₹4,270 in 8 to 10 months’ time frame on target P/E of 30.40x and FY26 EPS of ₹140.46.

Larsen & Toubro Limited: Risk

• Economic slowdown
• High commodity prices

Cyient Limited

Cyient share price was ₹1,933 (as on December 27, 2024) and its target price is set at ₹2,198 with an upside potential of 14%.

Cyient Limited: Investment Rationale

• Cyient has been recognized among the global top 10 pure-play engineering services providers in Everest Group’s Engineering Services Top 50 ranking.
• The company maintains leadership across key sectors, including ER&D, digital engineering, aerospace, semiconductors, telecommunications, medical devices, industrial, and Industry 4.0. in Zinnov Zones rankings. Cyient has also been recognized as a Product Challenger in Gen AI globally by ISG.
• During Q2 FY25, net profit rose 24% QoQ to ₹179 crore, while revenue climbed 10% QoQ to ₹1,849 crore. The Digital, Engineering & Technology (DET) segment’s EBIT margin expanded by 75 basis points QoQ, reaching 14.20%. Growth in the DET segment is expected to be fuelled by aerospace expansion led by Airbus, a recovery in sustainability initiatives, stronger traction with top 10 clients, and a ramp-up in connectivity deals.
• The management of the company expects Q3 to be stronger than Q2, with a positive outlook for H2 FY25 and retained guidance for flattish revenue growth for the year and an EBIT margin target of 16% by Q4.

• On the development front, the company is making strong and continued progress towards unlocking the potential of its semiconductor business and setting up a wholly owned subsidiary, CSPL or Cyient Semiconductors Private Limited to drive dedicated focus on turnkey ASIC design and chip sales through a fabless model.
• Towards this initiative, it has reached an agreement to acquire a 27.3% stake in Azimuth AI, a fabless custom ASIC company known for its expertise in energy and industrial applications with a focus across global markets, including the Indian market.
• Further, it is focusing on transformation in the energy sector. In line with that and to expand its global footprint, it has set up a dedicated entity in the United Arab Emirates to cater to the Middle East region.
• To accelerate this initiative, it has reached an agreement to acquire Abu Dhabi & Gulf Computer Establishment, (ADGCE), an Abu Dhabi-based technology consulting and digital services provider primarily catering to the energy sector. It would help the company to access one of the largest markets for the energy business.

Cyient Limited: Shareholding Pattern

In the overall shareholding of Cyient, foreign investors have the highest shareholding of 33.17%.

Cyient Limited: Valuation

The management of the company’s focus on investing in scalable and high-growth areas would accelerate the overall growth profile of the company. Its pipeline for the year remains strong and new growth segments and sustainability delivered growth on a YoY basis.

Moreover, its margin improvement program continues to gain traction and it would translate into improved revenue realization and drive a sharp recovery of growth through the coming quarters.

Thus, it is expected that the stock may see a price target of ₹2,198 in 8 to 10 months’ time frame on an expected P/Ex of 26.60x and FY26 EPS of ₹82.63.

Cyient Limited: Risk

• Economic slowdown
• Technology Disruption

Conclusion

These two stocks, one from the EPC sector and the other from the engineering sector can reach their target price in the coming 8 to 10 months. But it is always better if you do your analysis before investing and set a stop loss target. To keep track of your invested stocks, open demat account with SMC Global Securities and invest on the go.

Reference:
https://www.smctradeonline.com/research/wise-money/241

Author: All Content is verified by SMC Global Securities.