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Larsen & Toubro Limited (L&T) reported a decent quarter despite challenges largely led by strong execution and better ordering activity providing healthy execution visibility ahead. Strong ordering particularly from international geographies led to the ordering backlog at ?4.7 tn growing ~22% YoY translating into 3x TTM sales. EBITDA rose 14% YoY to ?57.5 bn which remained lower than estimates while margins at 10.4% saw a 50 bps drop owning it as a result of legacy projects job mix exposure in the consol. ex-services portfolio. The company’s strategy stays aligned toward maintaining its bidding mechanism that reflects healthy working capital and better margin, which has positively reflected in lower working capital, as a percentage of sales to the current level of 16.6% from 19.0% in Q3FY23. L&T’s prospect pipeline for Q4FY24 stands at ?6.3 tn, up 29% YoY. The pipeline has been boosted by strong order inflows in the hydrocarbon segment. The infrastructure sector forms 65% of the overall prospects, while the hydrocarbon segment makes up 27%. Stable oil prices auger well for prospects in the hydrocarbon segment and improve overall prospects in the Middle East. Given record OB with strong order pipeline, revival in private capex, healthy outlook ahead we remain positive on L&T earnings growth prospects. We have tweaked the estimates factoring strong execution and order inflow and marginally lowered margins given some delay in core margins recovery. We roll over our estimates to FY26 and maintain ‘BUY’ with a revised SOTP based TP of ?3,865.

Q3FY24 Result Summary
Consolidated sales came in at ~?551 bn (up 19% YoY) driven by a broad-based revenue growth. Infrastructure (+27% YoY), Energy Projects (+24% YoY) and Hi-Tech Manufacturing (+17% YoY) reported continued strong growth while services business dragged revenue growth. IT Services grew 7% YoY while Financial Services saw a revenue growth of 2% YoY. Development Projects (+10% YoY) and Others Segment (+13% YoY) saw low double digit revenue growth. EBITDA came in below our estimates at ?58 bn with EBITDA margins contracting 50 bps YoY to 10.4% (-60 bps QoQ). Infrastructure segment continues to report low single digit EBIT margin. Q3FY24 Infra EBIT margin stood at 4.3% (-160 bps YoY, +20 bps QoQ). PBT grew 10% YoY to ?47.7 bn with PAT growth of 15% YoY helped by a lower effective tax rate of 25%.

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