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L&T reported strong first-quarter results for FY25 driven by robust execution, exceeding revenue estimates while maintaining consistent margins. Consolidated revenue grew by 15.1% YoY, with EBITDA margin remaining stable at 10.2% YoY. Other income was lower by 20% on account of lower treasury income. PAT at ?27.9bn is up 12% YoY. Order inflows increased by 8% YoY to ?709 bn, leading to a substantial order backlog of ?4.9 tn. The bid pipeline moderated to ?9.1 tn (down 10% YoY) for the rest of the year primarily due to reduced hydrocarbon prospects. NWC decreased to 13.9% of revenue from 17% in Q1FY24.

L&T has reaffirmed its guidance of 15% revenue growth and 10% order inflow growth, along with a P&M margin target of 8.25% for FY25. With a robust order backlog and promising pipeline, bolstered by a revival in private sector capital expenditure, the outlook for L&T’s earnings growth remains positive. The company continues to focus on capex-led growth in the domestic market, supported by ongoing infrastructure investments in the Middle East, particularly in energy transition and oil & gas sectors. Maintaining a ‘BUY’ recommendation, we have revised our target price to ?3985 based on a revised SOTP valuation, reflecting L&T’s strong execution capabilities, healthy order inflow prospects, and positive future outlook

Q1FY25 Result Summary

Consolidated revenue increased by 15.1% YoY to ?551.1 bn driven by strong performance in the international segment (+38.0% YoY to ?262.5 bn). Meanwhile, domestic revenue remained unchanged YoY at ?288.7 bn, impacted by labor shortages during elections and unusually high summer temperatures. P&M revenue grew by 17.1% YoY to ?391 bn. EBITDA grew by 15.3% YoY to ?56.2 bn with EBITDA margin holding steady at 10.2% YoY. P&M segment’s EBITDA and EBIT margins stood at 7.6% and 6.2% respectively (compared to 7.4% and 6.1% in Q1FY24), supported by cost savings in execution. PAT increased by 11.7% YoY to ?27.9 bn driven by strong execution despite a decline in other income (-19.6% YoY to ?9.2 bn) and higher depreciation and amortization expenses (+20.2% YoY to ?10.0 bn).

Strong ordering pipeline

In Q1FY25, order inflow amounted to ?709 bn, marking an 8% increase YoY. International orders constituted 46% of the total order inflow. The closing order book reached a record ?4,909 bn, reflecting a robust 19% YoY growth. With a promising pipeline of ?9.07 tn, we anticipate the order book to remain strong throughout FY25.

The prospects pipeline moderated to ?9.1 tn (down 10% YoY), primarily due to reduced hydrocarbon opportunities (?2.7 tn, down 38% YoY) stemming from project cancellations and deferments. However, infrastructure prospects remain healthy at ?6 tn (+6% YoY). The Middle East segment constitutes 35% of L&T’s current order backlog. L&T remains committed to pursuing Hydrocarbon and Renewable Energy projects, while also exploring opportunities in railway and metro projects in the Middle East

Management maintains FY25 Guidance

L&T has maintained its revenue/order inflow growth guidance of 15%/10% YoY for FY25E (+15%/8% YoY in Q125). While prospects pipeline has moderated, L&T remains confident of achieving its order inflow growth guidance for FY25E led by higher win rate. L&T has also maintained its P&M margin guidance of 8.25% (flat YoY) for FY25E. Average ridership declined marginally QoQ from 442k/day in Q4FY24 to 434k/day in Q1FY25 for Hyderabad Metro. Till date, L&T has received support of ?9bn from Telangana government.

Outlook & Valuation

Given record OB with strong order pipeline and gradual revival in private capex provides healthy outlook ahead. Overall strong balance sheet, diversified business portfolio and proven execution capabilities gives L&T an edge in the current volatile and challenging economic environment. Despite lower margin guidance, we expect L&T to benefit from an improving prospect pipeline and improvements in NWC and RoEs. We have tweaked the estimates factoring strong execution, order inflow and the guidance. We maintain ‘BUY’ with a revised SOTP based TP of ?3,985.

Key Risks:

Slowdown in the domestic macro-economic environment or weakness in international capital investment can negatively affect business outlook and earnings growth.

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