Add Larsen & Toubro Ltd For Target Rs.3,444 - Yes Securities
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Our view
L&T’s Q3FY24 print came below our expectations on EBITDA and PAT front even as execution continues to remain strong. While the capex pick up in Middle East (Saudi Arabia in particular) has translated into extraordinary order inflow and order book growth, the core business continues to see subdued margin performance led by low single digit margin in infrastructure segment. The company expects sequential margin improvement led by higher share of newer higher margin orders in the book, however, meaningful recovery in margin could take a few quarters to unfold. Net working capital continues to improve translating into an improving RoE trajectory.
Looking Forward
Management has increased its guidance on both revenue an order inflow for FY24 while lowering its EBITDA margin guidance for Projects & Manufacturing segment. While an orderbook growth of ~22% YoY is expected to translate into strong execution, election related slowdown in both ordering and execution momentum cannot be completely ruled out. We expect margin to gradually inch up starting FY25 with greater share of energy projects in the revenue mix and lower share of legacy projects. We remain positive on the company’s strong business model, robust bid pipeline, diversified order book and healthy balance sheet and increase our FY25 EPS estimates by 3%, roll over to FY26, maintain Neutral factoring in near term execution headwinds and gradual improvement in margin starting FY25 with a revised SOTP? based TP of Rs3,444.
Result Highlights
* Consolidated sales came in at ~Rs551bn (up 19% YoY; YSL estimate of ~Rs559bn) driven by a broad-based revenue growth. Infrastructure (+27% YoY), Energy Projects (+24% YoY) and Hi-Tech Manufacturing (+17% YoY) reported continued strong growth while services business dragged revenue growth. IT Services grew 7% YoY while Financial Services saw a revenue growth of 2% YoY. Development Projects (+10% YoY) and Others Segment (+13% YoY) saw low double digit revenue growth.
* EBITDA came in below our estimates at Rs58bn (YSLe ~Rs65bn) with EBITDA margins contracting 50bps YoY to 10.4% (-60bps QoQ). Infrastructure segment continues to report low single digit EBIT margin. Q3FY24 Infra EBIT margin stood at 4.3% (-160bps YoY, +20bps QoQ). PBT grew 10% YoY to Rs47.7bn with PAT growth of 15% YoY helped by a lower ETR of 25%. Order inflows grew by 25% YoY to ~Rs760bn with order book standing at a record ~Rs4.7trn, up 22% YoY.
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SEBI Registration number is INZ000185632
