Buy Larsen & Toubro; target of Rs 1740: Emkay

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26 Aug, 2025 12:21

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Emkay's research report on Larsen and Toubro (L&T)

The stock price has corrected on back of fall in the crude prices by 30% over the last six weeks raised concerns of slowdown in the infrastructure capex in the GCC region, 22% of the order intake came from GCC countries during FY13-YTDFY15E of which 24% came from the hydrocarbon segment

Management does not anticipate risk to execution timelines or profitability of these international projects (except for the onerous contracts in hydrocarbon segment worth Rs40bn) due to the impact of decline in crude prices

However we believe that strong pick-up in domestic ordering has become all the more vital for the stock performance. We also believe that if order tendering edges lower from the GCC region it may compel L&T to bid aggressively in the domestic orders. Maintain Buy with the target price of Rs 1740/share

Key risks to our call will be lower-than-expected domestic order inflows on weaker reforms coupled with sharp overseas ordering slowdown, leading to overall order inflow disappointment. Near term correction should be used as an opportunity to buy the stock

"Given the revival in the capex will be the agenda for the new government, getting stuck projects in the highway, railways, would be the starting point and then we will see traction emerging towards the fresh tendering from the NHAI (Road projects ), Railways including metro & dedicated freight corridor projects and industrial segment. L&T’s diversified presence across infrastructure segments puts it in a sweet spot against weakened peers, allowing it to take advantage of the trend reversal. L&T expects US$25bn consolidated order inflow in FY15 + 20% YoY (we expect order inflow of 17%/16%/16% in FY15E/16E/17E ex services order) which will be driven by infrastructure/ Power and Hydrocarbon segments. We expect order inflow CAGR in the infrastructure/Power/Hydrocarbon segment of 10%/90%/65% over FY14-FY17E. Defence is not part of the stated guidance of US$25bn order inflow and could be a wild card however we don’t expect any major orders from the defence segment in FY15E as 97% of the budget allocation is pertaining for meeting liabilities for the old/existing orders given", says Emkay Global Financial Services research.

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