Buy Larsen and Toubro; target of Rs 4071: Prabhudas Lilladher

Prabhudas Lilladher's research report on Larsen and Toubro

We revise our FY24/25/26E EPS estimates by -7.6%/+5.0%/+8.1% factoring in impact of legacy jobs on FY24 profitability and robust order book & tender prospects FY25 onwards. Larsen & Toubro (LT) reported consolidated revenue growth of 18.8% YoY, while EBITDA margin contracted by 49bps YoY due to job mix and execution of legacy projects. NWC to sales improved to 16.6% (vs 19.0% in 9MFY23) owing to better collections, with FY24 guidance revised to 16.6% +/- 30bps (vs 16-18%). Management has revised its order inflow/revenue growth guidance for FY24 to 20%+/high teens respectively (vs 12%/15%) given strong order inflows YTD and robust order prospects. Opportunities lie in healthy domestic infrastructure pipeline and growing GCC capex on hydrocarbon & infrastructure (led by Saudi Vision 2030). Management also revised its core margin guidance to 8.25-8.5% (from 8.5%- 9%), factoring in execution of low-margin legacy jobs and newer projects still in ramp-up stage which may not cross the margin recognition threshold. We believe L&T is well-placed to benefit in long run with 1) strong tender prospects, 2) significant traction in hydrocarbon, 3) renewable energy orders from international markets like Saudi Arabia, and 4) expected uptick in domestic private capex.


The stock is currently trading at a P/E of 29.1x/24.3x FY25/26E. We roll forward to Dec-25 and maintain ‘Buy’ rating with a revised TP of Rs4,071 (Rs3,437 earlier), valuing the core business at a P/E of 26x Dec25E (24x Sep-25E earlier) owing to strong outlook on order book and margins.

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