Street Calls of the Week
Investing.com - CLSA has reiterated an Outperform rating on Larsen & Toubro Ltd. (NS:LART) with a price target of INR4,320.00, citing the company’s progress toward its 18% return on equity (ROE) goal by FY26.
The engineering and construction conglomerate’s plan to exit the loss-making Hyderabad Metro Rail (HMRL) concession supports CLSA’s investment thesis. The state of Telangana has agreed to purchase HMRL at an enterprise value of Rs150 billion, which should release Rs20 billion of L&T’s equity.
L&T has already improved its ROE from 9.8% in FY21 to 16% in FY25, and the HMRL exit is expected to add another 60 basis points to ROE. The divestment will eliminate an operation that reduced the company’s FY25 profit after tax by 4.3%.
CLSA believes L&T is positioned to issue a special dividend to distribute surplus cash to shareholders, helping achieve its 18% ROE target in FY26.
The research firm views L&T as a key beneficiary of capital expenditure cycles in India and the Middle East, noting the stock trades at a 14%-245% FY26 price-to-earnings discount compared to industry peers.
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