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L&T’s 1QFY25 PAT at INR 27.9bn (up 12% YoY) was below JMFe of INR 29bn (consensus: INR 29.5bn) led by lower other income and higher depreciation. P&M business revenue/ EBITDA grew by 18%/20% YoY to INR 386bn/INR 29.4bn (in-line) with P&M EBITDA margin at 7.6% (in-line). Consolidated order inflows grew by 8% YoY to INR 709bn with order backlog at INR 4.9tn (3x TTM P&M revenue). NWC remained low at 13.9% of revenue (17% in 1Q24). Bid pipeline moderated to INR 9.1tn (down 10% YoY) for remainder of the year due to reduction in hydrocarbon prospects. L&T has maintained its 15%/10% revenue/order inflow growth and P&M margin guidance of 8.25% for FY25E. We have marginally tweaked our EPS estimates (cut by 2.3%/1.5% in FY25/26). EPS growth for P&M business remains strong at 27% CAGR over FY24-26E. Lower asset intensity along with push from recent buyback should drive ROE expansion (14.8% in FY24 to 18.3% in FY26E). Maintain BUY with revised price target of INR 3,890 (P&M business valued at 30x Mar-26E EPS).

* Robust execution led by strong backlog; P&M business performance inline:

Consolidated revenue grew by 15% YoY to INR 551bn (JMFe: INR 544bn) led by strong execution momentum in Infrastructure (+22% YoY) and Hydrocarbon (+34% YoY) segments. P&M business revenue/EBITDA grew by 18%/20% YoY to INR 386bn/INR 29.4bn (in-line) with P&M EBITDA margin at 7.6% (in-line). Infrastructure segment margins improved by 70bps YoY to 5.8% (JMFe: 5.3%) led by execution cost savings.

* Order backlog grows by 19% YoY; Prospects pipeline moderates: L&T’s consolidated order inflows stood at INR 709bn (+8% YoY) with P&M inflows of INR 544bn (+8% YoY) in 1Q25. Order backlog remains strong at INR 4.9tn (3x TTM P&M revenue). Prospects pipeline moderated to INR 9.1tn (down 10% YoY) due to reduction in hydrocarbon prospects (INR 2.7tn, down 38% YoY) as some projects were shelved while some were deferred. Infrastructure prospects remain healthy at INR 6tn (+6% YoY). Middle East accounts for 35% of L&T’s current order backlog. L&T will continue to focus on Hydrocarbon and RE projects and is also open for railway and metro projects in ME.

* Maintains FY25 guidance on all fronts: L&T has maintained its revenue/order inflow growth guidance of 15%/10% YoY for FY25E (+15%/8% YoY in 1Q25). While prospects pipeline has moderated, L&T remains confident of achieving its order inflow growth guidance for FY25E led by higher win rate. L&T has also maintained its P&M margin guidance of 8.25% (flat YoY) for FY25E. Average ridership declined marginally QoQ from 442k/day in 4Q24 to 434k/day in 1Q25 for Hyderabad Metro. Till date, L&T has received support of INR 9bn from Telangana government and INR 21bn is pending.

* Expect 27% CAGR in P&M earnings over FY24-26E; supports valuations: We expect EPS CAGR of 27% over FY24-26E for L&T’s P&M business led by robust order backlog and margin expansion in FY26E. Strong growth, reducing asset intensity (lower NWC & asset sales) and push from buyback should drive ROE expansion to 18.3% by FY26 (14.8% in FY24). Valuations at 26x FY26E P&M business EPS remain well supported. Maintain BUY with revised price target of INR 3,890 (P&M business valued at 30x Mar-26E EPS).

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SEBI Registration Number is INM000010361