L&T shares post worst week since March 2020 as West Asia concerns accelerate sell-off

Shares of Larsen and Toubro (L&T) Ltd. declined nearly 8% on Friday, March 13, as concerns surrounding the ongoing war in West Asia and its exposure to the region has accelerated the selling seen in the stock.

This is the third straight day of losses for the stock. For the week, the stock has declined in four out of the last five trading sessions. For the week, L&T has declined 13% so far, which is turning out to be the worst week it had since March 2020, during which it had declined 17%.

On Thursday, L&T received its second price target cut in as many days after Kotak Institutional Equities cut its price target.

Kotak Institutional Equities has a 'buy' rating on the stock but cut its price target to ₹4,000 per share from ₹4,350 earlier. The revised price target implies an upside of 4% from the stock's previous close. This comes after UBS, on Wednesday, cut its target price on L&T by nearly 8%.

L&T has been on investors and analysts' radar after the Iran-Israel-US war started on February 28 because it has significant exposure to West Asia. Since the start of the war, the stock is down 20%, and has lost over ₹1 lakh crore in market capitalisation.

Kotak said L&T will see the crisis in West Asia test its near-term financials on varied counts that may get partly shared with customers.

The direction of the medium-term impact of the war on spending in West Asia is difficult to assess at present, Kotak said.

Uncertainty on the pace of capex in the Middle East, coupled with the fall in Kotak Institutional Equities' Fair Value of its subsidiaries, does increase the dependence on value incremental investments to create compounding stock returns hereon, it added.

The requirement of scale of investments and / or return on incremental investments is material, Kotak said.

As much as ₹3.6 lakh crore or 49% of the company's consolidated order book was from its international business. Of this, over 80% came from Saudi Arabia, UAE and the gulf region.

L&T's order book exposure to West Asia is 37% and it is 33% to order inflows in the first nine months of the ongoing fiscal, as per brokerage firm JM Financial.

Of the 34 analysts who have coverage on the stock, 28 have a 'buy' rating, four have a 'hold' recommendation and two have a 'sell' rating.

L&T shares declined 7.4% to hit an intraday low of ₹3,424.5 apiece on Friday.

Also Read: The LPG shortage crisis has suddenly put these stocks in the spotlight