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ICICI Securities Report
Given the uncertainty in execution triggered by the US-Iran war, ICICI Securities has downgraded Larsen and Toubro Ltd.'s shares to Add from Buy and had trimmed traget price to Rs 4,300 from earlier Rs 5,000.
The brokerage values the stock at 25 times FY28E core PAT of ~Rs 14,700 crore (vs 30 times FY28E core PAT of Rs ~15,700 crore earlier).
L&T reported subdued Q4 FY26 revenues, largely attributable to the geopolitical disruptions in the Middle East. Also, the expected margins improvement has not materialised on account of:
- a miss in revenues; and
- higher raw material cost.
However, order inflow continued to surprise, growing +0.2%/22% YoY in Q4/FY26 (vs guidance of 10% growth for FY26).
As L&T steps into the next fiscal, the geopolitical situation continues to plague its execution and order inflow. Thus, L&T's guidance was naturally cautious with:
- revenue growth of 10–12%;
- flattish margin for core business; and
- order inflow growth of 10–12%.
This guidance envisages the situation potentially normalising in a few weeks. On balance, ICICI Securities downgrades to ADD (from Buy) at a target price of Rs 4,300 per share (vs Rs 5,000 earlier).
The stock is trading at 23x FY28E core earnings.
Key risks:
- Slowdown in hydrocarbon capital expenditure due to any fluctuation in crude oil prices; and
- higher-than-expected materialisation of manpower availability crisis.
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