Buy Larsen and Toubro; target of Rs 4070: LKP Research

LKP Research's research report on Larsen and Toubro

Larsen & Toubro (L&T) reported a 20.9% YoY growth in consolidated revenue, although its EBITDA margin decreased by 70 basis points to 10.3% due to the absence of a one-time gain from the Hyderabad Metro TOD monetization. Order prospects for H2FY25 stand at ₹8.08 trillion, down ~ 8% YoY, primarily due to lower energy prospects at ₹2.49 trillion compared to ₹3.46 trillion YoY. Net working capital to sales improved to 12.2% as a result of lower gross working capital and strong collections. Management has maintained its FY25 guidance of 10% order inflow growth, 15% revenue growth, an 8-8.25% P&M EBITDA margin, and 15% NWC to sales. Additionally, L&T expects to grow revenues from real estate to ₹50 bn in FY2026, up from ₹30 bn YoY, aiming for order inflows at 1.5x revenue. While public state capital expenditure has slightly slowed, significant private investments are expected to boost domestic order intake in H2FY25.

Outlook

Maintaining a ‘BUY’ recommendation, we have revised our target price to ₹4070 based on a revised SOTP valuation, reflecting L&T’s strong execution capabilities, healthy order inflow prospects, and positive future outlook.