Shares of Larsen & Toubro (L&T) moved higher by 4 per cent to Rs 1,664.75 on the BSE in intra-day trade on Friday after brokerage firm Motilal Oswal Financial Services increased the target price of the stock to Rs 1,950, primarily driven by mark-to-market (MTM) of listed information technology (IT) subsidiaries. The stock of the engineering & construction (E&C) company had hit a record high of Rs 1,676.70 on August 16, 2021.

“In the past month, L&T Infotech has rallied 18 per cent, MindTree 28 per cent, and L&T Technology Services 11 per cent. Factoring in the current market prices of the listed subsidiaries (after applying an unchanged holding company discount of 20 per cent), our target price for L&T now stands at Rs 1,950,” Motilal Oswal said in a stock update.

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Adjusted for the valuation of subsidiaries, the core business is available at FY23E PE of 13.5x v/s the long-term one-year forward average PE multiple of 22x, the brokerage added. It has a Buy rating on the stock. L&T is our top pick on the broader Capital Goods sector as a proxy to play India’s CAPEX story, the brokerage firm further noted.

“L&T’s core E&C business remains best placed to benefit from any CAPEX upcycle, supported by its leaner asset-light business model and diversified segments. Therefore, even as the Buildings and Power segments were weaker in FY21, this was largely offset by strong orders from the international Power Transmission & Distribution (T&D) and Hydrocarbons segments. L&T’s capability to win large ticket size projects, such as airports and high-speed rail (HSR), has been remarkable and has compensated for its exit from the roads sector,” Motilal Oswal added.

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