L&T Set For 25% Upside, Says Jefferies, On Healthy Order Pipeline

Larsen & Toubro Ltd. can potentially rally 25.11% from its previous close, said Jefferies Equity Research as it upped its target price for the stock. The hike comes on the back of L&T's robust order book and better visibility on government infrastructure spending following the Maharashtra elections. The target price has been hiked to Rs 4,600 from Rs 4,160. 

Jefferies highlighted that L&T’s order book stands at 3.2 times its core Engineering and Construction revenue in fiscal 2024, providing strong earnings visibility. The brokerage noted that client collections, including those from government projects, were healthy in the first half of fiscal 2025. This supported working capital improvement to 10% of sales as of Sept. 2024, compared to 14% a year earlier. Jefferies attributed the improvement to L&T’s balanced focus on execution and balance sheet strength.  

The company maintained its fiscal 2025 guidance of 10% year-on-year growth in order flow, with domestic projects, which account for 57% of the pipeline, expected to drive conversions in the second half of the fiscal year. Jefferies also raised L&T’s valuation multiple to 18 times EV/EBITDA fiscal 2027 estimates from 16 times earlier.

L&T's revenue and margins in the first half of fiscal 2025 surpassed expectations, giving Jefferies confidence in a strong second-half performance. Despite a 2% year-on-year decline in order flows during the first half, largely due to a high base effect, the company’s domestic order flow grew by 1%.  

Buoyant equity markets have supported L&T's asset monetisation initiatives, including the sale of its 100% stake in L&T IDPL for Rs 6,000 crore in April 2024. Positive developments in Hyderabad Metro's monetisation plans could further aid the company’s financial position in the next 12–36 months, the note said.  

Additionally, L&T’s green portfolio, accounting for 50% of revenues in fiscal 2024 (up from 37% in fiscal 2023), is a growing focus area. Solar and hydro projects, green buildings, and other sustainable initiatives position the company well to attract ESG-linked investments.

The industrials sector is expected to be shaped by government capex plans in the upcoming fiscal 2026 Union Budget. Jefferies noted that the fiscal 2025 budget maintained a 16% year-on-year growth in government capex. However, actual spending in the first seven months of the fiscal year declined by 15%, necessitating a 32% rise in spending during November–March 2025 to meet targets.  

Jefferies’ top picks in the industrials space include L&T, Siemens Ltd., Thermax Ltd., and Hindustan Aeronautics Ltd.

Siemens is poised to gain from power transmission and distribution spending, along with a potential power division demerger. Thermax is transitioning into a clean energy-focused company, while HAL is supported by robust growth in defence manufacturing.