Jefferies, a prominent brokerage firm, has expressed a positive outlook on KFin Technologies and Larsen & Toubro (L&T), assigning a ‘Buy’ rating to both companies. This optimistic stance comes as KFin embarks on an acquisition spree aimed at enhancing its international presence, while L&T demonstrates resilience in the face of fluctuating crude oil prices and uncertainties surrounding Middle Eastern contracts.

Why Jefferies is Positive on KFin Technologies

Jefferies has set a target price of Rs 1,310 for KFin Technologies, signaling a potential upside of 24%. This bullish forecast is attributed to the company’s strategic global expansion and favorable deal valuations.

• Acquisition of Ascent Fund Services: KFin has acquired a 51% stake in Ascent Fund Services for $68 million, with plans to attain full ownership by 2030. This move is pivotal for KFin’s growth trajectory into international markets.
• Enhanced Fund Administration: The acquisition enhances KFin’s fund administration capabilities, allowing for an accelerated global footprint.

The brokerage highlighted that Ascent’s current margins are lower compared to KFin’s, with KFin aiming to elevate these margins to its own level of 45% by the third quarter. Furthermore, Ascent’s revenues are projected to soar from $18 million in FY25 to $70 million by FY31, with EBITDA margins expected to rise from 25% to 35% during the same timeframe.

Jefferies on Larsen & Toubro

Turning to Larsen & Toubro, Jefferies has revised its target price to Rs 3,930 from an earlier Rs 4,500, reflecting a lower valuation multiple of 16x compared to 18x. This adjustment still implies a 21% upside, despite concerns regarding the impact of low crude oil prices on the company’s Middle Eastern operations.

• Impact of Crude Oil Prices: The brokerage believes that fears regarding the effects of declining crude prices on L&T’s business are exaggerated. Historical analysis indicates that the real impact on order flows tends to manifest after a two-year lag.
• Stock Performance Outlook: Jefferies pointed out that L&T’s share price typically underperforms the Nifty index by 3% to 20% during years of weak crude prices. Currently, L&T is already underperforming by 15%.

Looking forward, Jefferies anticipates that guidance for FY26 will be crucial in driving stock performance. The firm expects a robust 15% year-over-year increase in order inflows for FY25, with even modest growth of 5% to 10% in FY26 being considered a positive indicator.

In summary, Jefferies believes that the recent underperformance of L&T’s stock largely incorporates negative factors, making it a potentially attractive investment. The brokerage also noted that, despite fluctuations in crude oil prices, L&T has maintained stable revenue and improved working capital management.

This combination of strategic acquisitions and resilient performance in challenging markets makes both KFin Technologies and L&T compelling options for investors looking to capitalize on future growth.