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ICICI Securities Report
Larsen and Toubro Ltd. had an excellent quarter and H1 led by:
a substantially higher order inflow;
completion of buyback; and
continued improvement in working capital.
Order inflow for Q2 and H1 (excluding services) was Rs 892 billion, +100% YoY (versus estimate Rs 600 billion) and Rs 1.25 trillion, +90% YoY. The beat was primarily led by a boost from two mega orders received in Q2 from the Middle East.
As a result, it expects a beat in order inflow guidance of 12%. Margins for core business remain sub-par but are expected to improve in H2 with completion of legacy orders.
Net working capital continues to show steady improvement. Completion of buyback will likely improve return on equity FY24E onwards. We roll over to FY26E and reiterate L&T as our preferred pick with target price of Rs 3,600/share (30 times FY26E core profit after tax of Rs 111 billion).
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