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Descent quarter, outlook stays strong

L&T reported a descent quarter largely in-line with estimates. Order inflow remained strong during Q3 and is on track to achieve revenue and order inflow guidance of 12-15% while Company’s consolidated Revenues/Ebitda/PAT growing at 17%/12%/18% YoY while core sales grew 17% YoY on better execution. Margins witnessed pressure (contracted 60 bps) on account of adverse job mix, cost pressure and closure related cost. Given margin pressure witnessed in core business, management expects some moderation in its margin guidance for FY23 and now expects margin to decline 30-50 bps YoY as against its earlier guidance of 30 bps YoY improvement in FY23. Strong order inflow at ?607bn, +21% y-o-y) while order book stood at ?3,866bn (+14% y-o-y / +4% q-o-q) with a 3.2x TTM core sales. Management has indicated a strong prospect pipeline of ?4.9 tn for 4QFY23 across both domestic (?3.8 tn) and international (?1.05 tn) led by multi-year high private capex providing strong revenue visibility ahead. Award to tender ratio has also improved from 48% in 9MFY22 to 52% in 9MFY23. NWC/ Sales ratio improved to 19% in 9MFY23 vs 22.9% in 9MFY22. It expects to maintain working capital around 19-20% of net sales for the full year.

We expect performance parameters for Hyderbad Metro to look up ahead as Hyderbad Metro ridership too has been improving continuously reducing the loss for L&T Metro. The company received ?1 bn from the state government as interest-free soft loan and expects to receive ?9 bn in coming quarters. Along with this, it is targeting ToD monetization of ?10- 15 bn every year. Thus, timely receipt of state government support and ToD monetization would reduce overall burden of loss funding from L&T. Loss funding till 9MFY23 stood at ?3 bn. Further company’s constant focus to divest its non-core assets should boost its RoE. L&T’s ‘Lakshya 2026 Plan’ is focusing on scaling up new business opportunities which are now in the incubation phase and are expected to bring significant benefits in future. Given record OB with strong order pipeline, revival in private capex and improving health of Hyderbad Metro provides healthy outlook ahead. We have tweaked our estimates given better performance in 9MFY23 and roll forward estimates to FY25 earnings. We maintain BUY with a revised PT of ?2,442.

Q3FY23 Result Summary

L&T revenues increased by 17.3% YoY to ?464 bn led by improved execution in infrastructure segment and continued growth momentum in the IT&TS portfolio. Infrastructure/Energy Projects/Hi-Tech Manufacturing/IT &TS/Financial Services/Development Projects grew by 19%/6%/20%/25%/13%/13% YoY.

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