Reviews

In this edition, we have reviewed Larsen and Toubro Limited and Wipro Limited We suggest our reader-investors to HOLD Larsen and Toubro Limited and Wipro Limited 

We had recommended Larsen and Toubro Ltd. in Volume 36, Issue No. 25 dated November 8-21, 2021 under the ‘Cover Story’ segment. The recommended price for the stock was ₹1,766. We had recommended the stock on the basis of the company being an emerging global player, diversified portfolio and strong order book. Larsen and Toubro is an Indian multinational company engaged in engineering, procurement and construction (EPC) projects, hi-tech manufacturing and services. The company’s quarterly consolidated financials display that its net sales increased by 9.9 per cent in Q3FY22 to ₹52,850.67 crore as compared to ₹48,087.90 crore in Q3FY21. The operating profit declined to ₹8,477.94 crore in Q3FY22 from ₹9,233.69 crore in Q3FY21 i.e. an 8.18 per cent fall. Eventually, the net profit skyrocketed to ₹4,006.66 crore in Q3FY22 from ₹3,536.19 in Q3FY21, gaining 13.3 per cent. Looking at the annual performance, the figures show a different picture. The net sales display returns of 15.11 per cent in FY21 of ₹156,521.23 crore as compared to ₹135,797.03 crore in FY20. The operating profit dropped by 1.15 per cent to ₹26,436.92 crore in FY21 as compared to ₹26,744.49 in FY20. Subsequently, the annual net profit showed a fall of 20.27 per cent in FY21, slipping to ₹10,291.05 crore as opposed to ₹12,906.88 crore in FY20.

One of the major drivers for the company’s business is the government’s capex-driven infrastructure thrust. In this regard, the government has taken various initiatives such as National Infrastructure Pipeline (NIP) and the creation of Development Financial Institution (DFI). In 2021, Larsen and Toubro launched a strategic five-year plan named ‘Lakshya 2026’ to steer its growth ahead. Aligned with this plan, some of the key goals of the company are to achieve value-accretive growth in its current business portfolio and to exit from non-core businesses. Looking forward, the company is targeting group revenues of ₹2.7 lakh crore and an ROE of more than 18 per cent by FY 2025-26. For FY23 the management has planned for order inflow and revenue growth in the range of 11-13 per cent. With the Make in India Initiative, L&T has seized chances to enter into a) In Defence b) production of green hydrogen and c) In solar EPC by the production of grid storage batteries. Hence, we recommend HOLD.  

We had recommended Wipro Ltd. in Volume 36, Issue No. 25 dated November 8-21, 2021 under the ‘Cover Story’ segment. The recommended price for the stock was ₹647.50. We had recommended the stock on the basis of strong fundamentals, healthy dividend pay-out and sustained quarterly performance. Headquartered in Bangalore, Wipro is a provider of information technology, consulting and business process services. IT services, IT products and India State Run Enterprise Segment are the three operating segments in which the company is divided. Analysing the financial performance of the company in the recent quarter, the net profit zoomed by 17.95 per cent from ₹18,252.40 crore in Q1FY23 to ₹21,528.60 crore in Q1FY22.

However, the operating profit dropped by 9.24 per cent in Q1FY23 to ₹4,331.80 crore as compared to Q1FY22, which was ₹4,772.90 crore. Consequently, the net profit also fell, giving a negative return of 21.15 per cent. Net profit stood at ₹2,560.40 crore in Q1FY23 from ₹3,247.30 crore in Q1FY22. The annual performance of the company also showed extraordinary results. Net sales in FY23 showed growth of 27.69 per cent i.e. to ₹79,093.40 crore from ₹61,943 crore in FY22. The operating profit rose to ₹18,745.40 crore in FY23 as compared to operating profit of ₹17,162.10 crore in FY22. The company made a net profit of ₹12,237.70 crore in FY23 as opposed to net profit of ₹10,855 crore in FY22, giving a 12.74 per cent increase. The company has invested significantly in acquisitions either to gain market access or to acquire new capabilities. Over the next few years, the company shall invest USD 1 billion in Wipro Full capex-driven infrastructure thrust. In this regard, the government has taken various initiatives such as National Infrastructure Pipeline (NIP) and the creation of Development Financial Institution (DFI). In 2021, Larsen and Toubro launched a strategic five-year plan named ‘Lakshya 2026’ to steer its growth ahead. Aligned with this plan, some of the key goals of the company are to achieve value-accretive growth in its current business portfolio and to exit from non-core businesses. Looking forward, the company is targeting group revenues of ₹2.7 lakh crore and an ROE of more than 18 per cent by FY 2025-26. For FY23 the management has planned for order inflow and revenue growth in the range of 11-13 per cent. With the Make in India Initiative, L&T has seized chances to enter into a) In Defence b) production of green hydrogen and c) In solar EPC by the production of grid storage batteries. Hence, we recommend HOLD. Stride Cloud Services to drive transformation that accelerates business results for its clients.

Though the IT sector is going through a rough phase due to issues such as higher inflation and consequently higher interest rates, the long-term view remains intact. The management anticipates a 1–3 per cent increase in IT services’ revenue in Q1FY23. It recently disclosed two purchases. One was the purchase of the US-based consultancy and programme management company Convergence Acceleration Solutions (CAS Group) which specialises in the communication sector. Secondly, Wipro’s SAP Cloud Practise and Wipro Full Stride Cloud Services were made possible by the acquisition of Rizing, a global SAP consulting firm. It closed 18 big deals for $1.1 billion in Q1. Higher client mining, penetration in Europe, and traction with digital revenues will all help to further accelerate revenue growth. Hence, we recommend HOLD.