Buy Larsen & Toubro; target Rs 2,000: Prabhudas Lilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher's research report on Larsen and ToubroL&T’s Q1FY16 reported consolidated PAT of Rs6bn was well below our and street estimate. While sales were in line with estimate at both standalone and consolidated level, profitability was impacted by under utilization in certain segments and cost provisions in Metallurgical & Material Handling (MMH). Order inflow for the quarter was down 21% YoY to Rs263bn. L&T has maintained its sales guidance and order inflow growth of 15% and margin improvement of 100bps in FY16. Strong pipeline of tenders (Rs5trn) gives L&T confidence of achieving its order inflow target despite a de‐growth in inflow in the current quarter. Working capital continued to remain stable (25% sales). L&T continues to be the best play in the Indian infrastructure space, given its strong business model, diverse skill sets, strong execution capabilities and relatively healthy/large balance sheet. We have revised our earnings downward by ~5% for both FY16E and FY17E to factor in weak performance in Q1FY16. We maintain ‘BUY’ with revised TP of Rs 2,000 (previous Rs2,045).Consolidated sales up only 7% YoY: L&T reported consolidated sales of Rs202bn, up 6.7% YoY (PLe: Rs206bn). Strong sales in Infrastructure (up 12% YoY) and Services business (IT&Ts and Financial services, up ~ 20% YoY) was partly negated by degrowth in MMH (down 41% YoY) and Heavy Engineering (down 24% YoY). After several quarters of de‐growth, power segment reported healthy growth of 12% YoY. EBITDA for the quarter was down 9% YoY to Rs22.9bn and EBITDA margin stood at 11.9% (PLe: 11.3%), down 190bps YoY. Under utilization in some segments and loss in MMH segment impacted margins. Adj. PAT was down 15% YoY at Rs6bn (PLe: Rs8.5bn). Q1FY15 had few non‐recurring items like gain from sale of Dhamra port (Rs11.5bn), loss in hydrocarbon business (Rs7bn) and profit from sale of subsidiaries (Rs2bn). Adjusted for this, sales for the quarter was up 14% YoY, EBITDA margins were down 40bps YoY to 11.3% and PAT was up 81% YoY to Rs6bn.

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