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Decent Q2 despite infra drag; guidance intact

Quick Pointers:

* Strong order prospects worth Rs10.4trn for remaining H2FY26 (vs Rs8.1trn YoY) are primarily driven by infrastructure and hydrocarbon.

* Management retained its guidance of ~10% order intake growth and ~15% revenue growth with P&M margin of 8.5% in FY26.

Larsen & Toubro (L&T) reported consolidated revenue growth of 10.4% YoY, while EBITDA margin contracted by 32 bps YoY to 10.0%. Execution challenges in the Water projects and prolonged monsoons weighed on progress in Infrastructure projects, whereas robust execution across Energy Projects and Hi-Tech Manufacturing supported overall growth. Order prospects remain strong at Rs10.4trn for H2FY26, driven primarily by Infrastructure and Hydrocarbon opportunities. L&T’s potential strategic entry into electronic manufacturing services (EMS) and its partnership with BEL for India’s fifthgeneration AMCA program underscore the company’s focus on diversification and leveraging emerging growth avenues. Furthermore, sale of loss-making Hyderabad Metro is anticipated to improve L&T’s balance sheet and profitability. During the quarter, the award of two ultra-mega orders in the onshore and offshore Hydrocarbon business further strengthened its position and reinforced management’s confidence in achieving its guidance of ~10% YoY order inflow growth along with ~15% revenue growth and Project & Manufacturing (P&M) margins of ~8.5% in FY26. We roll forward to Sep’27E and maintain our ‘Buy’ rating valuing the core business at a PE of 22x Sep’27E (25x Mar’27E earlier) arriving at a SoTP-derived TP of Rs4,766 (Rs4,144 earlier).

Long-term view:

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) liquidation of loss-making development project, and 4) penetration in newer areas such as green energy, electrolyzers, semiconductors, data centers, EMS etc. The stock is currently trading at a P/E of 30.1x/23.4x on FY26/27E earnings.

Healthy execution in P&M businesses drive strong topline growth:

Consolidated revenue rose 10.4% YoY to Rs679.8bn (PLe: Rs715.8bn) driven by healthy execution across Energy Projects and Hi-Tech Manufacturing. Infrastructure revenue was flattish at Rs321.5bn, Energy revenue was up 47.4% YoY to Rs130.9bn, Hi-Tech Manufacturing revenue was up 30.1% YoY to Rs28.3bn, Financial Services grew 8.6% YoY to Rs41.7bn, IT & Technology Services grew 11.6% YoY to Rs133.5bn and Development Projects were up 10.9% YoY to Rs15.3bn. Meanwhile, Others segment was down 10.1% YoY to Rs16.1bn. EBITDA grew 7.0% YoY to Rs68.1bn (PLe: Rs73.8bn). EBITDA margin declined by 32bps YoY to 10.0% (PLe: 10.3%). Adj. PAT rose 15.6% YoY to Rs39.3bn (PLe: Rs43.1bn) aided by higher other income (up 25.7% YoY to Rs13.8bn) and lower interest costs (down 13.7% YoY to Rs7.6bn).

Strong order book of Rs6.67trn with robust inflows: Consolidated order inflows came in at Rs1.2trn, up 44.6% YoY. Order book stands at ~Rs6.67trn (2.5x TTM revenue), up 30.7% YoY.

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