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Larsen and Toubro (CMP: ₹4029, MCap: ₹5.55 Trn; Target: ₹5020, Upside: 25%)

ICICIdirect Research 31 Oct 2025 DISCLAIMER

L&T secured robust order inflows (OI) of ₹115784 crore up 45% YoY and up 23% QoQ, led by energy business which formed 35% of OI. The current order backlog (OB) stands at ₹667,047 crore up 31% YoY (49% international). Strong execution in the Energy Projects and Hi-tech manufacturing (revenues up 48% and 34% YoY) led to consolidated revenue growing by 10% YoY to ₹67984 crore for Q2FY26. Consolidated EBITDA grew 10% YoY to ₹6806 crore and EBITDA Margins came in at 10% down 30 bps YoY due to margin compression in IT & TS segment and energy projects. Consequently, PAT came in at ₹3926 crore up 16% YoY.
L&T will finalise transfer terms of loss-making Hyderabad metro to Government of Telangana by FY26E. This will improve return ratios and free up resources to focus on profitable growth opportunities.
Order prospects for remaining H2FY26E stands at ₹10.4 trn, up 29% YoY (vs ₹8.1 trn same period last year), of which a.) Infra is ₹6.5 trn (₹5.42 trn), b.) Energy projects is ₹2.93 trn (₹2.25 trn), c.) Hi tech manufacturing and PES is ₹0.46 trn (₹0.24 trn) and d) Green & Clean energy is ₹0.18 trn (₹0.01 trn). Domestic prospects constitute 49% of total order prospects.
L&T has reached ROE of ~17.2% and anticipates the same to reach 18% by FY26E as per their strategic plan. The company is working on improvement from 3 catalysts like a) Sale of Hyderabad metro, b) Improvement in P&M segment margins and c) increasing payouts in forms of higher dividends or buybacks.
With ordering prospects of ₹10.4 trn for H2FY26E, L&T expects to clock in order inflow growth of more than 10% YoY in FY26E which will drive healthy revenue and profitability growth over medium term. L&T expects to achieve 15% revenue growth and earn EBITDA Margins of 8.5% in FY26E.
We assign BUY rating to L&T. We value L&T at SOTP-based target price of ₹5020 and consider as the best capex play in large-cap capital goods space.

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