Larsen & Toubro Upgraded to 'Hold' Rating by MarketsMOJO, Technical Improvement and Attractive Valuation Factors

Larsen & Toubro, a leading capital goods company, has recently been upgraded to a 'Hold' rating by MarketsMOJO. This upgrade comes as the stock has shown a technical improvement, moving from a Mildly Bearish trend to a Mildly Bullish one on November 6, 2024. One key technical factor contributing to this change is the Bullish Bollinger Band since the same date.
In terms of valuation, Larsen & Toubro has an attractive ROCE of 16.8 and a low Enterprise value to Capital Employed ratio of 3.6. Additionally, the stock is currently trading at a discount compared to its historical valuations. However, its profits have only risen by 10.6% in the past year, resulting in a PEG ratio of 2.9.

The company also has a high institutional holding of 62.53%, indicating that these investors have the resources and capability to analyze the company's fundamentals. With a market cap of Rs 4,89,429 crore, Larsen & Toubro is the largest company in the capital goods sector, constituting 36.96% of the entire sector. Its annual sales of Rs 238,880.90 are also significant, accounting for 57.51% of the industry.

However, the company does have some concerns, such as a high Debt to EBITDA ratio of 3.71 times, indicating a low ability to service debt. Additionally, its long-term growth has been poor, with an annual operating profit growth rate of only 5.66% over the last 5 years. In the latest quarter, the company's operating cash flow was also at its lowest at Rs 18,266.28 crore.

Despite these challenges, Larsen & Toubro has still managed to generate a return of 22.57% in the last year. However, this is lower than the market (BSE 500) returns of 33.50%. With these factors in mind, MarketsMOJO has upgraded the stock to a 'Hold' rating, suggesting a neutral stance for investors.