Buy Larsen & Toubro Ltd For Target Rs. 4,004 By PL Capital
Healthy Q4; positioned for growth amid strategic wins
Quick Pointers:
* Strong order prospects worth Rs19.0trn for FY26 (vs Rs12.1trn in FY25) are primarily driven by Hydrocarbon, CarbonLite and Green & Clean energy.
* Management guided for a ~10% order intake growth and ~15% revenue growth with P&M margin of ~8.5% in FY26.
Larsen & Toubro (L&T) reported consol. revenue growth of 10.9% YoY, while EBITDA margin improved 24bps YoY to 11.0%. L&T continues to exhibit strong growth prospects across key segments such as Hydrocarbon, Heavy Civil, Transmission & Distribution, and Renewable Energy, both in domestic and international markets. Notably, its recent ultra-mega order from Qatar Energy underscores its growing presence in the Middle East. Furthermore, L&T’s strategic expansion into emerging sectors like semiconductors, data centers, and green hydrogen is expected to drive long-term growth. Operationally, the net working capital (NWC) to sales ratio improved to ~11% in FY25 (vs ~12% in FY24), supported by better gross working capital management and strong collections. While geopolitical instability and supply chain disruptions warrant a measured approach, the management’s FY26 guidance of ~10% order intake growth, ~15% revenue growth, and P&M margins of ~8.5% reflects confidence in the company’s robust execution capabilities and resilient business model.
We believe L&T is well-placed to benefit in the long-run owing to 1) strong international prospects led by Middle East, 2) healthy domestic pipeline on the back of public-driven capex and uptick in private capex, and 3) improving profitability in development projects, and 4) penetration in newer areas such as green energy, electrolyzers, semiconductors, data centers, etc. The stock is currently trading at a P/E of 24.6x/19.7x on FY26/27E earnings. We maintain ‘Buy’ rating and roll forward to Mar’27 with a revised SoTP-derived TP of Rs4,004 (Rs3,920 earlier), valuing the core business at a P/E of 25x Mar’27E (25x Sep’26 earlier).
Healthy execution in both domestic and international business drives growth: Consolidated revenue rose 10.9% YoY to Rs743.9bn (PLe: Rs783.4bn) driven by healthy execution in domestic business (+11.9% YoY to Rs416.3bn), particularly in Energy projects and Hi-Tech Manufacturing. Meanwhile, international revenue inched up by 9.7% YoY to Rs327.6bn. EBITDA grew 13.4% YoY to Rs82.0bn (PLe: Rs84.3bn). EBITDA margin improved by 24bps YoY at 11.0% (PLe: 10.8%; consensus: 10.9%), led by gross margin improvement of 57bps YoY to 34.0%. Adj. PAT rose 16.7% YoY to Rs50.2bn (PLe: Rs48.6bn;) aided by healthy revenue growth, higher other income (up 9.0% YoY to Rs11.4bn) and lower interest costs (down 19.5% YoY to Rs7.5bn).
Strong order book of Rs5.8trn with robust inflows: Consolidated order inflows came in at Rs896.1bn, up 24.2% YoY aided by receipt of ultra-mega order in Hydrocarbon business. Domestic/International order intake mix stood at 30%/70%. Order book stands at ~Rs5.8trn (2.3x TTM revenue), up 21.7% YoY, with domestic/international mix of 30%/70%.
Above views are of the author and not of the website kindly read disclaimer
