IGI Logo

Good start to the year

Strong growth in international markets drives revenue/PAT beat LT’s 1QFY25 results were 3% ahead of our estimates on both revenue and PAT. The company reported 15%/15%/12% YoY growth in revenue/EBITDA/PAT on a consolidated basis. In a seasonally weak quarter, core E&C revenues and EBITDA also grew by 18%/21% YoY, with Core E&C margins improving by 10bp to 7.6%. Both Core E&C revenue and margin beat our estimates. Core E&C revenue growth was largely driven by sharp improvement in overseas revenue, while domestic revenue was flat YoY due to elections, labor shortage and heat waves. Order inflows/order book were up by 8%/19% YoY, mainly driven by international geographies. The order prospect pipeline was down by 10% YoY at INR9.1t due to a drop in hydrocarbon prospects. NWC remained low at 13.9% of sales. We maintain our estimates and TP of INR4,150 based on SOTP, valuing core business at 30x P/E on Jun’26E EPS and 25% holding company discount for subsidiaries.

Results better than our estimates

LT reported a better-than-expected core E&C performance with revenue of INR386.2b (est. INR372.5b), up 18% YoY. This was primarily led by a robust performance of the Infrastructure segment, which grew by a healthy 22% YoY to INR269b. Similarly, Energy Projects revenue grew 27% YoY to INR84.9b, led by strong execution of the order book. Core E&C EBITDA margin came in at 7.6%, largely in line with our estimate and up 10bp YoY. For the infrastructure segment, margin improved by ~70bp YoY to 5.8%. Energy Projects margin contracted ~40bp YoY to 8.7%. Thus, core E&C EBITDA grew by 21% YoY. NWC to sales improved YoY to 13.9% of sales and RoE improved to 14.7% of sales. Order inflow grew 8% YoY to INR544.4b, driven by international geographies (+25% YoY). Domestic orders declined 1% YoY, due to general elections during the quarter. The order book remains robust at INR4.9t (+19% YoY). On a consolidated basis, revenue grew 15% YoY to INR551.2b, while EBITDA rose 15% YoY to INR56.2b. Margin was flat YoY at 10.2%, while PAT increased by 12% YoY to INR27.9b (3% beat). For FY25, the management maintained the guidance of order inflow growth of 10%, revenue growth of 15%, NWC to sales of 15%, and a margin of 8.25%.

We see possibility of revenue outperformance vs. guidance in FY25

LT’s 1Q revenue growth of 18% in a seasonally weak quarter was driven by a strong order book and sharp growth in international revenue. Domestic revenue growth was affected by elections and labor issues, and we expect it to revive sharply only during 2HFY25. With strong international order inflows in FY24, we expect execution to remain strong. Hence, we see a possibility of LT’s revenue growth outperforming its guidance of 15% for FY25 despite a guidance of flat margins on a YoY basis.

Prospect pipeline down 10% YoY due to moderation in GCC prospects

LT’s order book grew 19% YoY to INR4.9t (3x TTM revenue). The international segment now forms 38% of the overall order book. Within international, 92% comes from the Middle East. LT’s prospect pipeline for the remaining nine months is down 10% YoY at INR9.1t, owing to a marginal increase in infrastructure prospects (at INR6.02t, up 3% YoY) and a decline in hydrocarbon prospects (at INR2.2t, down 37% YoY). Within the domestic infrastructure pipeline, the company is eyeing large-sized projects in water, urban transportation, bridges, B&F, T&D and renewables. LT expects a hit rate of 20-25% in the domestic prospect pipeline, which will drive growth in domestic order inflows.

Eyeing growth from new areas

The company is eyeing opportunities in new areas such as offshore wind projects, where it has already made its foray with an order win of USD100m. It is also looking for opportunities in green hydrogen and nuclear projects construction. On domestic private capex, LT expects capex from traditional industries, state road projects, water projects and new-age projects from data centers, electronics manufacturing and semiconductor manufacturing. Though Saudi Aramco’s oil-related capex may see a decline in coming years, LT is in active discussions with the client to target gasbased opportunities in overall capex. The Middle East region is already spending on renewable and hydrocarbon and the next leg of spending can come in railways and metro related orders where LT would keep targeting projects.

Maintains its long-term target of 18% RoE LT’s RoE

stands at 14.7% and it has maintained its long-term target of 18% RoE. This RoE target can be achieved via 1) a reduction in losses from Hyderabad metro, which can add 1% to RoE; 2) improvement in margins, which can add 1%; and 3) capital restructuring in terms of rewarding shareholders, which can add 1% to RoE.

Valuation and view

We maintain our estimates and TP of INR4,150 based on SOTP, valuing core business at 30x P/E on Jun’26E EPS and 25% holding company discount for subsidiaries. We reiterate our BUY rating on LT. Our multiple takes into account a strong prospect pipeline and improvements in NWC and RoE, despite margins being still far off from earlier highs.

Key risks and concerns

A slowdown in order inflows, delays in the completion of mega and ultra-mega projects, a sharp rise in commodity prices, increase in working capital, and increased competition are a few downside risks to our estimates.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412