Larsen & Toubro Ltd. share analysis

Stock overview

Ticker	LT
Sector	Engineering & Construction, Heavy Infrastructure
Market Cap	₹ 4,85,000 Cr (Large cap)
CMP (Current Market Price)	₹ 3,564
52-Week High/Low	₹ 3,675/ ₹ 2,874
P/E Ratio	25.3 (vs Industry Avg. of 22.1)
Dividend Yield	1.2%
Beta	1.10 (Moderately volatile compared to NIFTY 50)

About Larsen & Toubro Ltd.

Larsen & Toubro (L&T) is India’s engineering powerhouse, driving innovation in infrastructure, technology, and defence since 1938. From iconic skyscrapers to cutting-edge metro systems, L&T builds the future with excellence and reliability. With a global footprint and a legacy of innovation, it’s more than a company—it’s the force behind India’s progress!

Key drivers of growth:

1. Robust order book:

• L&T’s order book stood at a record ₹4.2 lakh crore as of Q3 FY25, reflecting strong demand across core engineering, procurement, and construction (EPC) segments.
• Domestic orders contribute 72%, showcasing resilience in India’s infrastructure growth story.

2. Diversified business model:

• Business spans across infrastructure, heavy engineering, IT services (Mindtree, LTIMindtree), and financial services.
• L&T’s IT arm, LTIMindtree, is emerging as a significant value driver with consistent double-digit growth.

3. Government push:

• The Union Budget 2025 is expected to provide a significant boost to sectors like renewable energy, urban infrastructure, and railways, all of which align with L&T’s expertise.

Recent Financial Performance (Q3 FY25)

Metric	Q3 FY 25	Q3 FY 24	YoY Growth
Revenue	₹ 64,668 cr	₹55,271 cr	+17%
Net Profit	₹ 3,358 cr	₹ 2,954 cr	+14%
EBITDA Margin	9.7%	10.5%	-0.8% pts
Order inflows	₹ 1.16 lakh cr	₹  0.75 lakh cr	+53%

Highlights:

• Revenue growth was modest due to a slowdown in the execution of some international projects.
• Net profit increased YoY but margins contracted.
• Order inflows remained very healthy, driven by strong domestic demand in the infrastructure sector.

Valuation insights

When we value a company like Larsen & Toubro (L&T), we’re asking two questions:

• Is it cheap or expensive compared to how it’s been in the past—or to other companies?
• How much money could it make in the future, and what does that mean for its stock price now?

From a relative valuation standpoint:

• L&T currently trades at a P/E ratio of 25.3. This means investors are willing to pay ₹25.3 for every ₹1 of the company’s earnings. This ratio is slightly above its historical average of 24.1, indicating that the market has a positive outlook on L&T’s future earnings potential.
• EV/EBITDA: The ratio is at 15.1x. This metric helps investors understand how much they are paying for the company’s operating earnings before accounting for debt and other factors. A higher ratio suggests that L&T is viewed as a market leader with strong cash flows, which is crucial for funding future projects and expansions.

As per Discounted Cash Flow analysis:

It estimates the intrinsic value of L&T based on expected future cash flows:

• Intrinsic Value Estimate: ₹3,800
• Upside Potential: There is a potential upside of 10%, meaning the stock could increase in value from its current price.
• Assumptions:
  • Revenue CAGR: 12% (FY25-FY30)
  • EBITDA Margin: Stable at ~15%
  • WACC: 10.5%
    • This is a blended cost that factors in both borrowings (at 8% post-tax) and the return investors expect on their equity (12%). 

Key risks to watch

1. Execution risks: Delays in large-scale projects could impact profitability.
2. Rising Input costs: Inflationary pressures on raw materials like steel and cement.
3. Global exposure: 28% of the order book is international, subjecting L&T to geopolitical risks.

Technical outlook on L&T share

• Short-Term View: The stock has shown strong momentum, trading above its 50-day moving average of ₹3,400.
• RSI: 65 (Approaching overbought zone).
• Support Levels: ₹3,400
• Resistance Levels: ₹3,500
• Trading Volume: A consistent rise in trading volume over the past month indicates sustained buying interest, adding to the bullish outlook.

Competitor analysis for L&T

Key financial metrics (FY 24 snapshot)

Company	Market Cap (₹ cr)	P/E Ratio	EBITDA Margin	RoE
L&T	4,85,000	25.3	9.7%	16.2%
BHEL	72,000	34.5	8.5%	6.5%
ABB India	1,10,000	55.2	12.4%	13.8%
Siemens India	1,25,000	67.4	13.2%	15.5%

Observations:

• L&T remains the leader in the infrastructure and engineering sector with a market cap significantly larger than its peers.
• Despite a higher P/E ratio, its consistent execution and healthy order book justify the premium valuation.
• Margins are stable compared to competitors, showcasing operational efficiency and disciplined cost management.
• Strong RoE reflects superior returns for shareholders versus peers like BHEL and ABB.

Union Budget 2025: Key expectations

• Infrastructure push: A likely increase in allocations to the PM Gati Shakti initiative, highways, and smart cities will directly benefit L&T.
• Renewable energy transition: Policies supporting green hydrogen, solar infrastructure, and energy storage systems present new avenues for growth.
• Defence sector allocation: With its foray into defence manufacturing, L&T could benefit from higher defence capex.
• Railways & Metro Projects: Increased railway capex and metro expansion across cities are expected to drive incremental orders.

L&T stock recommendation

Current Stance: Buy with a target price of ₹3,800 (12-month horizon).

Rationale:

-Strong order book with consistent execution.

-Budgetary support for infrastructure provides a clear growth runway.

-Diversified business model reduces cyclicality.

Portfolio Fit: Ideal for growth-oriented investors seeking exposure to India’s infrastructure boom.

If you found this helpful and want regular stock trade calls, check out my StockGro profile here: https://stockgro.onelink.me/vNON/6m6ykj0d