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  • 31 Oct 2024
  • ICICI Securities

L&T REPORTED STRONG OPERATIONAL PERFORMANCE FOR Q2FY25

News: L&T reported strong operational performance for Q2FY25 across all parameters. The company reported a robust order inflow of ₹80,045 crore up 13% QoQ mainly led by International markets which constituted 63% of total order inflow and down 10% YoY on a higher base, Q2FY24 had the benefit of receipt of two ultra mega orders in the hydrocarbon business. The current order backlog stands at ₹510,402 crore up 13% YoY and 7% since Q4FY24. Strong execution in the Energy Projects (revenues up 31% YoY) and Infrastructure segment (revenues up 30% YoY) led to consolidated revenue growing by 21% YoY at ₹61,555 crore for Q2FY25. Consolidated EBITDA Margins came in at 10.3% down 70bps YoY. Positive surprise also came in from expansion of 60bps YoY in the core project and manufacturing segment at 6%. In terms of business prospects, for H2FY25E the company has bid pipeline of ₹8.1 trillion, which has declined 10% on account of project deferrals in the international hydrocarbon space, despite this the company is quite confident of meeting it's 10% YoY inflow growth guidance. The company also retained it's Revenue growth and margin guidance for FY25E. The NWC ratio to sales stood at 12.2% for H1FY25 vs 16.7% for H1FY24 and 13.9% for Q1FY25, despite 11% decline in other income in H1FY25. The ROE of the company improved 140bps QoQ and 80bps YoY to 16.1% on account of lower equity capital post buyback and improved cashflow. 

Views: Securing order inflows near the guidance range in the tough first half of FY25 speaks of the diversity of the company's operations. We believe given the backlog growth and pickup in execution in remaining H2FY25, there remains a strong probability of a beat in revenue growth guidance. With continued focus and improvement in overall return ratios, aspiration of 18% ROE by FY26 looks a realistic one. Hence we believe L&T will remain our best capex play in large cap capital goods space.

Impact: Positive