Whalesbook
Execution Faces Headwinds
Larsen & Toubro's (L&T) core Engineering, Procurement, and Construction (EPC) segment saw 12% year-on-year growth. This pace was affected by delays in major domestic water projects and disruptions from geopolitical issues in the Middle East.
Order Inflows Reach ₹3.6 Trillion
Order inflows, however, provided a strong positive surprise, reaching ₹3.6 trillion for the full fiscal year 2026. This represents a significant 25% increase from the previous year, signaling a robust pipeline and good visibility for future projects.
Margins and Financial Health
L&T maintained its year-on-year margin performance. Key financial metrics remained solid, with Net Working Capital (NWC) at 4.1% and Return on Equity (RoE) at 16.6% for FY26, demonstrating the company's financial strength.
Future Pipeline and Strategy
Despite challenges from the Middle East crisis, L&T's prospect pipeline for FY27 stands at ₹17.8 trillion, a slight decrease from FY26's ₹19 trillion. The company's strategic plan, Lakshya 2031, involves investments in new-age areas for future readiness. Analysts note these investments could reduce short-term returns.
Motilal Oswal Lifts Valuation
Motilal Oswal adjusted its estimates to include the planned divestment of Hyderabad Metro and Nabha Power by Q1 FY27, along with forecasts for FY27 order inflows and execution. The firm anticipates a stronger Middle East market recovery by FY28, driven by reconstruction needs. Rolling its valuation forward to June 2028, Motilal Oswal raised its price target to ₹4,550 from ₹4,200. This target is based on a 25x earnings multiple for the core business and a 25% holding company discount. Currently, L&T's core E&C business trades at 31x and 23x P/E for FY27E and FY28E earnings, respectively.