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Motilal Oswal Report
Larsen and Toubro Ltd.'s Q3 FY24 revenue beat our estimates, but lower-than-expected margins led to a miss in profit after tax. The company reported 19%/14%/15% YoY growth in revenue/Ebitda/profit after tax on a consolidated basis. Core engineering and construction revenue and Ebitda grew by 25%/13% YoY in Q3 FY24.
L&T has been benefiting from strong inflows, particularly from international geographies, and has received orders worth Rs 1.8 trillion during 9M FY24 for its core E&C segment. The company has maintained its focus on mega and ultra-mega projects and has been able to improve working capital YoY to 16.6% of sales.
However, margins are still below the guidance owing to legacy order execution and new orders still not achieving the margin recognition threshold.
We expect L&T to continue to benefit from the strong addressable market in both India and international locations. We revise our estimates to bake in improved inflows and lower margins.
We increase our target price to Rs 4,200 based on the SOTP methodology, valuing the core business at price/earning of 28 times March-26E earnings per share and a 25% holding company discount for subsidiaries.
Our higher multiple takes into account the continuously improving prospect pipeline and improvements in net working capital and return on equity, despite margins being lower than guidance. We maintain 'Buy' on L&T.
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