IGI Logo

Strong revenue on improved execution

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 Q1FY25, L&T revenue grew 15.1% YoY to Rs. 55,120cr, driven by robust executional order book in hand combined with accelerated contributions from international business to 48% vs 40% in Q1FY24.

* Order book stood all-time high at Rs. 4,909bn and the EBITDA margin was stable at 10.2%, as revenue cost mix remained the same.

* L&T delivered resilient quarterly performance in Q1FY25. Further, the recent government budget, increasing demand for international projects and a healthy order book in hand provide a positive outlook. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 4,179 based on sum-of-the-parts (SOTP) valuation.

Infrastructure and energy business drive revenue growth

In Q1FY25, consolidated revenue grew 15.1% YoY to Rs. 55,120cr, driven by strong execution momentum in Infrastructure, Hydrocarbon and Precision Engineering Systems (PES) business within the projection manufacturing portfolio. A robust order execution book in hand delivered 21.4% YoY revenue growth in infrastructure projects. The segmental revenue of energy projects increased 27.1% YoY, driven by executional ramp up of hydrocarbon international projects, offset by subdued order book in CarbonLite Solutions. IT and technology services grew 5.4% YoY on the back of 5.1% growth in LTIMindtree business. EBITDA increased 15.3% YoY to Rs. 5,615cr with flat margins to 10.2%. Total opex surged 15% YoY in pursuit of executional ramp up. As a result, adjusted PAT delivered 11.7% YoY growth in Q1FY25.

Key concall highlights

* Standard & Poor’s and Fitch provided BBB+ rating to the L&T, showcasing a stable outlook on the back of the company’s exceptional credit quality and robust financial health.

* L&T projected consolidated order prospected pipeline of Rs. 9.07tn for rest nine months of FY25 vs Rs. 10.07tn orders booked last year in the same period. 10% YoY decline was due to anticipated weakened hydrocarbon prospects pipeline.

* Management anticipated ROE to be 18% by FY26 vs 14.7% at present, on the back of cool down of losses from Hyderabad metro and other investments, further enriched with leaner balance sheet projected for future.

Order book all time high and strong growth momentum expected

In Q1FY25, order inflow book rose 8.3%. Hi-Tech Manufacturing order book surged 249.9% YoY driven by booking of shipbuilding order in PES. Further, Energy order book boosted 21.4% YoY on the back of being awarded multiple Hydrocarbon domestic offshore orders. Infrastructure delivered flat order inflow growth. At the end of Q1FY25, order book stood at Rs. 4,909bn (+19.0% YoY). International orders remained robust by contributing 37.8% to total order book vs 29.2% in Q1FY24 due to strong order momentum in the Middle East. L&T expects the order book to grow 10% YoY in FY25.

Valuation

L&T’s Lakshya’26 targets seem to be highly achievable on the back of sound company performance. Recent budget announcements augur well for intense capex investment activities in the near term in the country, thus providing a sustainable demand outlook ahead. An increase in international demand, mainly in the Middle East, is also likely to enhance results. Thus, we reiterate our BUY rating on the stock with a revised target price of Rs. 4,179 based on SOTP valuation.

For More Geojit Financial Services Ltd Disclaimer https://www.geojit.com/disclaimer 

SEBI Registration Number: INH200000345