Prabhudas Lilladher's research report on Larsen and Toubro
Larsen & Toubro (LT) reported healthy quarterly performance with consolidated revenue growth of ~23% YoY to ~Rs4276.bn, aided by accelerated execution in infrastructure segment, while EBITDA margin came in flat YoY at 11.5% with impact witnessed in infrastructure segment (6.6% in Q2FY23 vs 7.8% in Q2FY22) and Adj. PAT growth of 27.4%. Order inflows came in at Rs519bn up 23.2% YoY, driven by pick up in domestic order finalization during the quarter. Order book (OB) stands healthy at Rs3.7trn (2.2x TTM revenue), comprising exports OB of 28%. Tender prospects for H2FY23 stand at Rs6.3trn, including Infrastructure at Rs4.54trn and Hydrocarbon at Rs1.13trn. Net working capital (NWC) to sales improved at 20.2% as on Q2FY23 vs 22% in Q2FY22 and 20.9% in Q1FY23, owing to better collections. Management maintained its revenue & order inflows growth guidance of 12-15% and NWC to sales of ~20%. while it took a cautious stance on EBITDA margin guidance of 9.5% for FY23. We believe that L&T is well-placed to benefit from overall diversified tender prospects with 1) better order conversion in domestic market, 2) significant traction in capex from oil exporting countries mainly in hydrocarbon segment and 3) expected uptick in private capex. Given healthy OB, tender prospects, diversification into new business (hydrogen, green EPC), improving operational performance of Hyderabad Metro and continued execution momentum, we expect L&T to report revenue and PAT CAGR of 10.2% and 18.2% from FY22 to FY25.
Outlook
The stock is currently trading at PE of 26.7x/23.1x/ 19.8x FY23/24/25E. We roll forward our TP to FY25E EPS with revised TP of Rs2,384 (Rs 2030 earlier). Maintain ‘BUY’ rating.
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