L&T Q2 Results Review - Growth Outlook Buoyant But Valuations Have Little Room To Re-Rate: Centrum Broking

While growth outlook remains buoyant, E&C business valuations at 19.7x/16.4x FY24E/25E EPS do not leave much room for upside.

<div class="paragraphs"><p>A man waits at a bus-stop with an advertisement of L&amp;T outside the company's manufacturing unit in Mumbai. (Photo: Danish Siddiqui/Reuters)</p></div>
A man waits at a bus-stop with an advertisement of L&T outside the company's manufacturing unit in Mumbai. (Photo: Danish Siddiqui/Reuters)

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Centrum Broking Report

Larsen and Toubro Ltd.’s Q2 FY23 profit after tax grew 22.5% YoY to Rs 22.3 billion (our estimate: Rs 21.7 billion) led by strong execution. Consolidated revenue/ Ebitda grew by 23%/22.6% YoY to Rs 428 billion/Rs 49 billion (our estimate: Rs 394 billion/Rs 47 billion) with Ebitda margin flat YoY at 11.5% (our estimate: 12%).

Engineering and construction revenue/Ebitda grew by 23.6%/10.2% YoY to Rs 281 billion/Rs 23 billion with Ebitda margin down 100 bps YoY at 8.2% impacted by job mix, cost pressures and closure costs in few orders.

L&T's order inflows surprised positively and grew 23% YoY to Rs 519 billion with order backlog at Rs 3.7 trillion (up 12.7% YoY, 3.2 times E&C revenue).

Net working capital improved to 20.2% from 20.9% in June-22. FY23 guidance maintained at 12-15% revenue/order inflow growth with bias for higher end of the range. Earlier E&C margin guidance of 9.5% at risk due to weak margins in H1 and FY22 margin of 9.2% looks more feasible in our view.

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Centrum Larsen Toubro - Q2FY23 Result Update.pdf


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