Larsen & Toubro Hits Record High on Strong Q2 Performance Driven by Energy and Defence

Larsen & Toubro (L&T) shares touched a new peak of ₹4,062.60 on Thursday, fueled by its strong performance in the September quarter (Q2FY26). Typically, the first half of the fiscal year is slow for the engineering, procurement, and construction (EPC) major, but L&T managed to exceed expectations, primarily driven by its international energy and domestic defence sectors.

Consolidated revenue saw a 10% year-on-year increase, reaching ₹67,984 crore. This figure was slightly below market expectations, mainly due to a 1% decline in the infrastructure segment. This slowdown was attributed to extended monsoons, payment delays in water projects, and a general execution-driven pace.

However, growth is expected to accelerate as the infrastructure segment is now receiving significant new order inflows. Meanwhile, the energy segment exhibited robust growth of 48% year-on-year, bolstered by the execution of international hydrocarbon projects. The high-margin hi-tech manufacturing segment also grew by 33%, supported by the government's continued focus on defence.

Order inflows for Q2 surged by 45% to ₹1.16 trillion, contributing to a substantial order book of ₹6.67 trillion, which provides L&T with nearly three years of revenue visibility. The company's management has reaffirmed its full-year guidance for 15% revenue growth and an 8.5% core EPC Ebitda margin.

New growth drivers like real estate, semiconductors, renewables, and data centres are poised to contribute significantly. L&T's increasing exposure to international projects, with 59% of H1FY26 orders being overseas, has led to an almost 50-50 domestic-international split in its order book. While this diversifies revenue, it also introduces geopolitical and oil price-related risks, particularly with most international orders from the Middle East.

Despite margin pressures in some areas due to cost overruns and competition, L&T's core EPC Ebitda margin expanded by 20 basis points to 7.8%. Consolidated Ebitda margin saw a slight compression of 30 basis points to 10%, mainly due to its IT services arm. Lower interest costs and efficient treasury management contributed to a 16% rise in profit after tax to ₹3,926 crore.

Motilal Oswal Financial Services has set a sum-of-the-parts target price of ₹4,500 for the stock, indicating potential upside.

Impact: This news is highly significant for Indian investors as L&T is a major player in India's infrastructure, manufacturing, and defence sectors. Its strong performance and record share price indicate robust economic activity and investor confidence. The company's growth trajectory, diversification into new sectors, and management's outlook positively influence market sentiment. The diversified order book and revenue visibility suggest continued stability and growth potential.

Impact Rating: 8/10

Heading: Explanation of Difficult Terms EPC: Engineering, Procurement, and Construction. This refers to a type of contract commonly used in many industries, especially construction and energy, where the contractor handles all phases of a project from design to completion. Ebitda: Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company's operating performance. Provisioning: Setting aside funds to cover anticipated future losses or expenses. Treasury Management: The management of a company's cash, investments, and other financial assets to optimize liquidity and returns. Hydrocarbon: Organic compounds primarily composed of hydrogen and carbon, often referring to oil and natural gas. Capex: Capital Expenditure. Funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, and equipment. Sum-of-the-parts: A valuation method where a company is valued by adding up the estimated values of its individual business units or segments. Basis points (bps): A unit of measure used in finance to describe small changes in percentages. 100 basis points equals 1 percent.