L&T is in the limelight today morning, following its better-than-expected numbers for Q2FY14. The stock, which has closed on Friday at Rs.872.35, opened today at Rs.885 and soon zoomed up to the day’s high point at Rs.910 and it currently remains around the same levels. Volumes are pretty robust at almost 3.5 lakh shares being traded this morning. The entire capital goods sector is up in the green and leads the pack in terms of sectoral gains on the bourses.

The stock is strongly in the green on the back of its Q2FY14 performance. The company reported a net profit at Rs.977 crore and this included extraordinary gains of Rs.267 crore. Revenues rose 10% (YoY) at Rs.14,150 crore and this was led purely by its infrastructure segment, the only segment to report a rise in revenue. The rest- power, hydrocarbons, metals and mining reported a fall in revenue.

More than the numbers, the market is enthused with the guidance and order inflow. Its order inflow in Q2 was up 27% (YoY) at Rs.26,533 crore and this translates into an order inflow of Rs.51,692 crore for H1FY14. International orders remained the savior this time around too and it contributed 43%  to the total order inflow. Its current order backlog remains at Rs.1,76,000 crore, which is almost three times its topline. And w.r.t the guidance, the management has maintained that it will be able to meet the target of 20% order inflow and 15% revenue guidance for FY14.

Following this, many brokerage houses have upped their price target and put a “buy” call on this stock.

One word of caution – the OPM impact cannot be ignored and needs to be watched carefully. Its OPM wad down 100 bps (YoY) at 9.7% and this was on account of muted domestic market growth and increased expenses on staff costs due to higher incentives and higher deputations in international markets. The company has itself said that it expects margins to contract by around 50 bps though marketmen and analysts believe that it could go down by around 80-100 bps. The big capital projects are contributing very less to the profitability and this too will continue to haunt.