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Robust execution; healthy order inflows

Our view

L&T reported a strong set of numbers despite a seasonally weak quarter led by pick? up in execution in its core infra segment and IT&TS business. Segments such as Infrastructure (up 36% YoY) and IT&TS (up 30% YoY) reported strong revenue growth. During 1Q, the company recorded healthy OI of Rs418bn, up 57% YoY led by large order wins in Hydrocarbon segment in the export market while in India it bagged orders from sectors such as Public Spaces, Metros, Water Management & Waste Water, Minerals and Metal, Factories, Data Centers, Defence, Power Transmission and Distribution and Hydrocarbon. Order Book stands at all?time high of Rs3.6trn (2.2x TTM revenues) providing a strong revenue visibility for next 2?3 years. Management indicated that order pipeline stands healthy at ~Rs7.6trn with good traction witnessed in sectors such as Metros/RRTS/HSR, Roads and Expressways, Water, Renewables, Non?Ferrous Metals and Power T&D. On the international front, with pickup in economic activity in GCC led by high crude prices management is witnessing good traction in order inflows.

We believe that L&T is well?placed to emerge stronger given its financial, technical & managerial capability for sustaining and gaining market share. At CMP, the stock is trading at 22.5/18.5x FY23E/FY24E earnings. We remain positive on the company’s strong business model, robust bid pipeline, diversified order book and healthy balance sheet; however, owing to the recent run up in the price we downgrade our rating to ADD from BUY with a revised SOTP?based TP of Rs1,918. TP has been reduced mainly on account of downward revision of Target Mcap of its subsidiaries

Result Highlights

* Consolidated sales came in at ~Rs358.5bn (up 22% YoY; YSL estimate of ~Rs350bn) driven by revenue growth across segments such as Infrastructure (up 36% YoY) and IT&TS (up 30% YoY)  

* EBITDA came in at Rs39.6bn, ahead of our estimate (YSLe ~Rs37.8bn) with EBITDA margins coming in at 11.0% (up ~20bps YoY).

* PBT came in at Rs29.3bn, mainly led by decline in interest cost (down ~9% YoY). Depreciation was up 34% YoY while other income grew 7% YoY.

* During the quarter, Adj. PAT grew 45% to Rs17bn.

* Order inflows grew by 57% YoY to Rs418bn in 1QFY23 driven by order wins in Public Spaces, Metros, Water Management & Waste Water, Minerals and Metal, Factories, Data Centers, Defence, Power Transmission and Distribution and Hydrocarbon Offshore verticals. International orders constituted 43% of total OI.

* Order book stands strong at ~Rs3.6trn, up 12.3% YoY as on 1QFY23.

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