Buy Larsen and Toubro; target of Rs 4200: Motilal Oswal

Motilal Oswal's research report on Larsen and Toubro

LT’s 3QFY24 revenue beat our estimates, but lower-than-expected margins led to a miss in PAT. The company reported 19%/14%/15% YoY growth in revenue/EBITDA/PAT on a consolidated basis. Core E&C revenue and EBITDA grew by 25%/13% YoY in 3QFY24. LT has been benefiting from strong inflows, particularly from international geographies, and has received orders worth INR1.8t during 9MFY24 for its core E&C segment. The company has maintained its focus on mega and ultra-mega projects and has been able to improve working capital YoY to 16.6% of sales. However, margins are still below the guidance owing to legacy order execution and new orders still not achieving the margin recognition threshold. We expect LT to continue to benefit from the strong addressable market in both India and international locations. We revise our estimates to bake in improved inflows and lower margins. We increase our TP to INR4,200 based on the SOTP methodology, valuing the core business at P/E of 28x Mar’26E EPS and a 25% holding company discount for subsidiaries. Our higher multiple takes into account the continuously improving prospect pipeline and improvements in NWC and RoE, despite margins being lower than guidance. We maintain BUY on LT.

Outlook

We increase our TP to INR4,200 based on the SOTP methodology, valuing the core business at P/E of 28x Mar’26 EPS and a 25% holding company discount for subsidiaries. We maintain BUY on LT.