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Broad based growth, robust order book

Larsen & Toubro Ltd (L&T) is an engineering & construction (E&C) conglomerate with presence in IT and financial services sectors and operations in more than 30 countries. 

* In Q4FY24, consolidated revenue grew 15.0% YoY to Rs. 67,079cr, led by broad based growth across segments. 

* EBITDA margin shrank 90bps YoY owing to higher cost of materials. 

* Healthy order book, strong execution capabilities, higher traction in hydrocarbon segment and increased capex spends by the government auger well for the company’s future performance. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 3,806 based on sum-of-the-parts (SOTP) valuation.

Topline growth driven by infrastructure projects

In Q4FY24, L&T’s consolidated revenue grew 15.0% YoY to Rs. 67,079cr, driven by robust growth in infrastructure projects. Revenue from infrastructure projects increased 21.6% YoY to Rs. 38,369cr, thanks to capex by the government, continued investment buoyancy in the Middle East and robust execution momentum of diversified order book portfolio. The hi-tech manufacturing segment rose 10.8% YoY to Rs. 2,571cr, led by improved execution of orders in both defence and heavy engineering businesses. IT and technology services (IT&TS) reported sluggish growth of 3.3% YoY to Rs. 11,383cr with prevailing macro concerns impacting customer spends in IT&TS sector. The financial services segment witnessed 15.5% YoY growth to Rs. 3,598cr, aided by higher retail disbursements across verticals in rural and urban finance. The energy projects segment grew 3.6% YoY to Rs. 8,216cr. EBITDA rose 5.9% YoY to Rs. 7,234cr but EBITDA margin shrank 90bps YoY owing to higher cost of construction materials. Adjusted PAT increased 10.3% YoY to Rs. 4,396cr, aided by higher other income.

Key concall highlights

As of Mar-24, order prospects pipeline was Rs. 12.5trn (vs. Rs. 9.7trn a year ago). Broad break-up being: infrastructure – Rs. 7.25trn, hydrocarbon – Rs. 3.87trn, Power – Rs. 0.5trn, heavy engineering – Rs. 0.35trn and green energy – Rs. 0.1trn. 

The average ridership for Hyderabad metro was 4.41 lakh/day (vs. 4.44 lakh/day in Q3FY24), slightly lower due to the implementation of Mahalakshmi scheme by the state government, which offers free bus entitlement to ladies.

Large order book

L&T received orders worth Rs. 72,150cr (down 5.2% YoY) from the infrastructure, hydrocarbon and defense engineering businesses. As of Mar-24, consolidated order book was Rs. 475,809cr, with international orders accounting for ~35%. The infrastructure segment secured orders of Rs. 31,340cr, a degrowth of 23.9% YoY due to receipt of high value orders last year. The energy segment received orders worth Rs. 13,120cr (up 47.5% YoY), with multiple international orders in the hydrocarbon business. The hi-tech manufacturing received orders worth Rs. 8,790cr (up 2.5% YoY).

Valuation

L&T reported strong performance in Q4FY24, driven by robust execution of infrastructure projects and strong order inflows in infrastructure and hydrocarbon businesses. Management expects revenue to increase ~15.0% YoY in FY25, order inflow to grow 10.0% YoY and net working capital to be 15.0% of revenue. L&T’s robust order book, strong execution capabilities, proven track record, strategic positioning and higher capex by the government auger well for its future performance. Therefore, we reiterate our BUY rating on the stock with a revised target price of Rs. 3,806 based on SOTP valuation.

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