Add Larsen & Toubro ltd For Target Rs. 4,450 By Emkay Global Financial Services Ltd
We downgrade Larsen & Toubro (LT) to ADD from Buy, while cutting our SOTPbased TP by 7.3% to Rs4,450 from Rs4,800, valuing the core business at 27x FY28E earnings. LT’s Q4FY26 performance came below expectations, with revenue/EBITDA growing 11%/5% YoY to Rs828bn/Rs86bn (vs estimate of Rs848bn/Rs91bn). Domestic execution was subdued, while international revenue grew a strong 20% YoY, supporting overall growth. EBITDA margin stood at 10.4%, down by 60bps YoY, with core margins declining by 50bps YoY to 9.4%. PAT decreased 3% YoY to Rs53bn. On a positive note, order inflow at Rs898bn and order book at Rs7.4trn exceeded expectations despite deferrals and along with a notable improvement in net working capital to 4.1% and RoE of 16.6%. Having surpassed its Lakshya 26 targets, the company has outlined its Lakshya 31 roadmap, targeting order inflow/revenue/RoE CAGR of 10– 12%/12-15%/16-17% over FY26-31E. For FY27E, the management gave guidance for order inflow and revenue growth of 10-12% each, with EBITDA margin at ~7.8%, while indicating a relatively softer first half.
Q4FY26 results – Broadly below estimates; order inflow shines
L&T’s core revenue grew 11% YoY at Rs628bn, mainly supported by Energy (+36% YoY) and Hi-tech manufacturing (+45% YoY). Infrastructure was muted, with flat growth during the quarter due to slow execution in a few large projects, impacting overall growth. Domestic execution was subdued, while international revenue grew a strong 20% YoY, supporting overall growth. EBITDA margin came in at 10.4%, declining by 60bps YoY. While Infra margin improved by 80bps YoY to 8.8%, Energy/Hi-tech/Others saw weakness. Order inflow came in at a healthy Rs898bn, supported by a 26% YoY jump in Infra, with a few ultra-mega order wins during the quarter.
Lakshya 31 – A strategic growth plan
L&T’s ‘Lakshya 31’ is a strategic roadmap aimed at scaling up high-margin segments such as services, technology, and international EPC, while maintaining disciplined execution in its core infrastructure business. In line with this vision, the company has laid out an ambitious capex plan across emerging and core segments, including Rs50bn for Industrial and Defense electronics’ manufacturing, Rs30bn for Semiconductor, Rs150bn for Green Hydrogen, Rs100bn on Data Center, Rs44bn for Realty business, and finally Rs50bn for the Hydrocarbon and Shipbuilding business.
View and valuations
Despite the strong order inflow and robust backlog, L&T’s Q4FY26/FY26 performance was impacted by weaker execution and margin pressures. We expect a gradual recovery, as higher share of the international order book amid the ongoing West Asia conflict remains a near-term overhang. Accordingly, we cut FY27E/FY28E EPS by 9%/8%, factoring in the lower revenue growth and EBITDA margin assumptions. We downgrade the stock to ADD, with revised down SOTP-based target price of Rs4,450.
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