Goldman Sachs adds L&T to conviction list

MUMBAI: Goldman Sachs has added engineering and construction major Larsen & Toubro to its conviction list as continuing of government’s capital expenditure, low interest rates and the Make in India initiative are expected to boost the private sector capital expenditure cycle.

The investment bank has retained a ‘buy’ rating on Larsen & Toubro with a target price of Rs 2,055. A pick-up in execution, recent order wins and a broad-based recovery on capital expenditure will drive 16 per cent growth in topline over FY20-FY24 period, it said.

“The Union budget increased confidence on the continuity of government capital expenditure and this along with (1) low interest rates, (2) rising capacity utilization for the manufacturing industry and (3) the “Make in India” initiative, should catalyze the start of the private sector capital expenditure cycle, which augurs well for L&T,” said Goldman Sachs.

The stock underperformed the benchmark from January to September of 2020 by 23 per. However, the stock has outperformed the Sensex by over 30 per cent from October.

“We believe there is room for further performance…(the) drivers should reflect into higher orders and revenue and accelerating growth,” said Goldman Sachs.

The investment bank said Sustained high commodity price should help increase visibility on future orders for L&T’s heavy engineering and metals and material handling segments and reduce the concerns over receivables from the hydrocarbon segment.