Motilal Oswal's research report on Larsen and Toubro
Our recent interactions with the management of Larsen and Toubro (LT) make us believe that recent concerns related to its performance are transient, such as 1) low YoY growth in domestic inflows in 9MFY24 was due to a high base of last year, particularly in domestic hydrocarbon; 2) lower-than-expected margins were attributed to legacy projects, which are now closer to completion in the next couple of quarters; and 3) high share of international projects, particularly in Saudi Arabia, where the addressable market is continuously growing. The positive factors that will drive growth ahead, in our view, are: 1) the ramp-up of domestic inflows after elections, 2) the completion of low-margin legacy projects in next couple of quarters, 3) the constant reduction in working capital and the resultant RoCE improvement, and 4) low working capital in international projects despite being fixed-price projects.
Outlook
We maintain our estimates and SoTP-based TP of INR4,200, valuing the core business at 28x Mar’26E EPS. Maintain Buy.
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