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Prabhudas Lilladher Report
Larsen and Toubro Ltd. reported healthy set of quarterly performance with consolidated revenue growth of ~19.3% YoY, while margins contracted 41 basis points YoY, due to business mix and legacy project reaching completion.
Net working capital to sales improved to 16.7% versus 19.8% in H2 FY23, owing to strong cash collections with FY24 guidance maintained at 16-18%. Tender prospects from Infrastructure stands at Rs 5.06 trillion and hydrocarbon Rs 2.9 trillion for H2 FY24. Hyderabad metro reported profit of Rs 2.4 billion versus loss of Rs 3.3 billion in Q2 FY23, owing to increased ridership and transit-oriented development monetisation.
Management is confident to surpass its earlier guidance on order inflows and revenue growth of 10-12% and 12-15% respectively for FY24. Management revised its core margin guidance to 8.5%-9% from 9% guided earlier, factoring in multiple jobs not reaching margin recognition threshold in FY24.
We believe L&T is well-placed to benefit in long run with-
strong tender prospects,
better order conversion in domestic market,
significant traction in hydrocarbon and
renewable energy orders from international markets like Saudi Arabia and expected uptick in private capex in domestic market.
The stock is currently trading at price-to-earning of 30.3 times/25.7 times/22.1 times FY24/25/26E.
We revise our FY24/25E by 6.1%/5% factoring in improved performance of Hyderabad Metro, strong order book and tender prospects.
We roll forward to September-25E and maintain ‘Buy' rating on stock with revised target price of Rs 3,437(Rs 3,302), valuing core business at PE of 24 times Sep-25E.
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