Larsen & Toubro Ltd. share price target

Consolidated revenue for 3QFY22 grew 11.1% YoY (+13.8% QoQ) due to improvement in project execution momentum and robust growth in the IT&TS portfolio. Order inflows were down 31% YoY (+20% QoQ)...

Refinanced Hyderabad metro bank rupee loan (Rs130bn) with NCD and commercial paper, resulting in interest cost saving of Rs1bn/quarter. Larsen & Toubro (LT) reported mixed quarterly performance where revenue and EBITDA margins were inline, while there was a miss on PAT due to lower other income and higher tax rate. EBITDA margin declined 57bps YoY to 11.5%, of which commodity inflation impact was ~30-50bps. Order inflow (OI)...

Adjusted PAT declined by 9% YoY to INR20.5b and was in line with our estimate (base year benefitted from bulky Real Estate sales). The company maintained its order inflow/revenue/core margin guidance, though it did highlight some risk of a spillover of order inflows from 4QFY22 into FY23. Adjusted for the HSR order won last year, core E&C order inflows grew 26% YoY to INR380b, with a two-year CAGR of 13%. On the execution front, core E&C domestic revenue grew 13% YoY (two-year at 6%), while international E&C revenue was flat. On the margin front, L&T has done a commendable...

EBITDA margin was up by 70bps QoQ to 11.5% on account of better job mix, tapering of stressed jobs in portfolio and higher site productivity in the construction businesses, and improved delivery utilisation levels...

(+50% YoY), led by order win in Oil & Gas, Metros, Rural Water Supply, Minerals, Metal and Power T&D.; But delay was observed in order finalization. Order book (OB) stands strong at Rs3.3trn (2.2x TTM revenue), of which domestic stands at Rs2.5trn (Central - 10%, State- 33%, PSU 42% and Private 15%). Management indicated tender pipeline remains strong at Rs6.83trn, largely from Infra (Rs5.29trn) and Hydrocarbon (Rs1.2trn). NWC as % to sales improved to 22% from 22.9%/26.2% in Q1FY22/Q2FY21, mainly due to strong focus on collection. Given the strong order backlog and tender pipeline,...

Larsen & Toubro's (L&T;) adj. PAT grew 56% YoY and was 5% ahead of our estimate. Core E&C; EBITDA grew 18% YoY and was 17% above our estimate, led by margin expansion in the Infrastructure segment. Management has maintained its revenue guidance of ~15%, order inflow guidance of 10-15%, and a stable core E&C; margin on a YoY basis. International prospects are looking robust across segments, including hydrocarbon, power T&D;, water, etc., thanks to higher oil prices. Domestic E&C; order inflows were disappointing with 1HFY22 order inflows remaining...

L&T; remains best story to play capex upcycle: L&T;'s core E&C; business remains best placed to benefit from any capex upcycle, supported by its leaner asset-light business model and diversified segments. Therefore, although the Buildings and Power segments were weaker in FY21, this was largely offset by strong orders from the international Power T&D; and Hydrocarbons segments. L&T;'s capability to win large ticket size projects, such as airports and high-speed rail (HSR), has been remarkable and has compensated for its exit from the Roads sector....