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Robust execution; 2H set to see an uptick

Our view

L&T reported a strong set of numbers led by pick?up in execution in its core infra segment and IT&TS business. Segments such as Infrastructure (up 39% YoY) and IT&TS (up 29% YoY) reported strong revenue growth. During 2Q, the company recorded healthy OI of Rs519bn, up 23% YoY led by large order wins from sectors such as Public Spaces, Nuclear Power, Irrigation, Ferrous Metal, Health, Renewables and Refinery. Order Book stands at all?time high of Rs3.7trn (2.1x TTM revenues) providing a strong revenue visibility for next 2?3 years. Management indicated that order pipeline stands healthy at ~Rs6.3trn 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 23.7x/19.2x/17.6x FY23E/FY24E/FY25E earnings. We remain positive on the company’s strong business model, robust bid pipeline, diversified order book and healthy balance sheet. We maintain our ADD rating a revised SOTP?based TP of Rs2,146.

Result Highlights

* Consolidated sales came in at ~Rs427.6bn (up 23% YoY; YSL estimate of ~Rs367.6bn) driven by revenue growth across segments such as Infrastructure (up 39% YoY) and IT&TS (up 29% YoY)  

* Despite a contraction in gross margins, EBITDA came in at Rs49bn, ahead of our estimate (YSLe ~Rs40.6bn) with EBITDA margins coming in at 11.5% (flattish YoY).

* PBT came in at Rs39.4bn, on the back of an increase in interest cost (up ~7% YoY). Depreciation was up 18% YoY while other income grew 39% YoY.

* During the quarter, Adj. PAT grew 23% to Rs22.3bn.

* Order inflows grew by 23% YoY to Rs519bn in 2QFY23 driven by order wins in Public Spaces, Nuclear Power, Irrigation, Ferrous Metal, Health, Renewables and Refinery verticals. International orders constituted 33% of total OI.

* Order book stands strong at ~Rs3.7trn, up 13% YoY as on 2QFY23.

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