Shares of Larsen & Toubro (L&T) Ltd. have received their second downgrade in ratings in a month after brokerage firm UBS, on Friday, October 25, downgraded the stock to “neutral” from its earlier rating of “buy”.
UBS also cut its price target on L&T to ₹4,000 from ₹4,400 earlier. The revised price target implies a potential upside of 16% from current levels. Shares of L&T have corrected 13% from their recent peaks.
This downgrade from UBS comes exactly a month after HSBC had downgraded L&T to “hold” from its earlier rating of “buy” and cut its price target down to ₹3,500 from ₹3,900 earlier.
UBS wrote in its note that managing returns and cash flow is the key amidst low appetite to grow orders.
While the competitive scenario is favourable in the middle east, which is a substantial part of L&T’s business, but has raised questions on whether it is sustainable.
The brokerage further wrote that the market has always reward L&T on orders over its core earnings performance.
However, it said that the valuation discount to industrial incumbents at around 30% and a reasonable price-to-earnings growth of 1x compared to 3x for incumbents provides valuation comforts.
Out of the 35 analysts that have coverage on L&T, 28 of them have a “buy” rating on the stock, five of them say “hold”, while two have a “sell” rating on the stock.
Shares of L&T ended 0.2% lower on Thursday at ₹3,449.9.
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