We have generated a Detailed Research Report on Larsen & Toubro and Price targets for 2025.
L&T is an Indian multinational engaged in technology, engineering, construction, manufacturing, and financial services and is one of the largest players in India’s private sector.
To make India a USD5 trillion economy by FY2025 and to continue growing at an escalated trajectory until 2030, it is estimated that the government would need to spend USD 4.5 trillion on infrastructure. To achieve this goal, the government drew up the National Infrastructure Pipeline (NIP) through a bottom-up approach, the total capital expenditure in infrastructure sectors in India during FY2020-FY2025 is projected at ~Rs. 111 lakh crore.
Management expects strong growth momentum to continue with a focus on growth in both revenue and order inflows for FY2024/ FY2025.
Bulging order book, capex upcycle to drive performance.
L&T’s order book stands at a record level of Rs. 5.1 lakh crore (up 13% ), translating to 2.2x its TTM consolidated revenue. The company’s H1FY2025 order inflows declined by ~2% to Rs. 1.5 lakh crore. The share of international orders in the P&M business was at 62% in Q2FY2025. 40% of the order book as of H1FY2025 is now international, of which 85% comes from the Middle East. Order prospects stand at Rs. 8.07 lakh crore (down 8% y-o-y). Out of the domestic orders prospects of Rs. 3.06 trillion, the share of private orders is 22%. Hence, we believe L&T’s quality and well-diversified order book would help the company in timely execution in the coming years. L&T, being the largest engineering and construction player, stands to be a key beneficiary of public capex spend comprising the centre, states, and PSUs.
Opportunities in sunrise sectors such as green hydrogen and defence would aid long-term growth.
L&T has a long-term plan to expand its presence in sunrise sectors such as green hydrogen development, electrolyser and battery manufacturing, data centres including scaling up of its digital and e-commerce businesses. L&T is eyeing a total investment of Rs. 1,500 crore for electrolysers for which a pilot green hydrogen plant has already been commissioned for an initial capacity of 150MW and is set to expand to 1GW over the long term. L&T plans to pursue opportunities in the EPC of green hydrogen plants in the Middle East as well. In battery storage, the company plans an investment of Rs. 2,500 crore for battery storage and Rs. 1,800-2,000 crore for data centre over the next few years. Further, the company sees substantial opportunities in the defence in shipbuilding segments in the coming years and aims to double its order book in defence in the next two to three years. Lately, the company has sealed a contract worth Rs. 7,628 crore with MoD for the procurement of K9 Vajra artillery guns for the Indian Army.
Domestic and international capex trends are supportive of L&T.
After a slow start to capital expenditure by both states and the centre during the ongoing financial year 20242025, which can primarily be attributed to the general elections earlier this year, a pickup in the second half of the fiscal is predicated on increased government spending. Due to the general elections in H1FY2025, the central government’s capex was down 19% y-o-y until August 2024. Similarly, capex of state governments fell ~13% y-o-y. We think the central government’s capex is likely to pick up in H2 as the government will likely try to meet its full-year capex targets and, as a result, central capex growth could be quite high (as high as ~40% y-o-y for the remaining FY2025E if budget estimates are met). Apart from domestic markets, L&T is seeing a strong pipeline in the Middle East, where it primarily works on hydrocarbon and solar projects. Capex in the Middle East, which was USD48bn in FY2024, is estimated to rise to USD60bn in FY2025 – providing order visibility for L&T. Any moderation in government capex should be offset by international prospects and a pickup in private orders in India.
Maintain BUY
L&T reported higher execution in its projects and manufacturing vertical along with stable consolidated OPM despite higher execution of international orders during Q1FY2025. The company’s lifetime higher-order book provides a healthy revenue visibility over the next two years. Order prospects in the domestic and international markets remain healthy at Rs. 8.07 lakh crore. Domestic orders are expected to see pick-up in H2FY2025. L&T remains at the forefront to reap benefits from the AtmaNirbhar Bharat scheme with its diversified businesses across sectors such as defence, infrastructure, heavy engineering, and IT and is the best proxy for domestic capex. We maintain BUY with a SOTP-based price target Price of 4,550, rolling forward our valuation to H1FY2027E earnings and considering its strong order prospects.
Key Risks
The slowdown in the domestic macroeconomic environment and geopolitical conflicts on the international front can adversely impact its order prospects.
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