Larsen and Toubro (L&T), India’s premier infrastructure conglomerate, has reported a robust increase in core order inflow for the June quarter, surpassing market expectations. Core order inflows, excluding services and development sectors, surged by 8% to Rs54,400 crore, driven predominantly by advancements in the energy and hi-tech manufacturing segments.
This uptick could bolster L&T’s efforts to meet its fiscal year 2025 (FY25) order inflow guidance of 10%, despite an overall decrease in order prospects by 10% to Rs9.1 lakh crore. The decline in overall order prospects is largely attributed to a substantial 38% drop in hydrocarbon projects. As of June’s end, the order prospects were distributed across Rs6 lakh crore in infrastructure, Rs2.2 lakh crore in hydrocarbon, Rs0.4 lakh crore in power projects, and the remainder in hi-tech manufacturing. Despite these challenges, L&T’s total order inflow, including IT, financial services, and development projects, reached Rs70,900 crore for the first quarter of the current fiscal year, pushing the total outstanding order book to Rs4.9 lakh crore. Notably, the share of overseas orders has increased to 46% from 42% a year ago.
To achieve its full-year target, L&T must secure Rs2.1 lakh crore in core orders, equating to an order win-prospect ratio of 22%. This ratio is slightly lower than the previous year’s 24.6%, indicating that the FY25 target is attainable. The company needs to maintain a quarterly order run-rate of approximately Rs68,000 crore for the remainder of the fiscal year. For FY24, L&T’s core order inflow was Rs2.4 lakh crore. L&T’s strategy includes a continued focus on overseas projects, particularly in hydrocarbon, solar EPC, transmission and distribution, and metro projects. However, new city development contracts in Saudi Arabia are excluded from current prospects due to their uncertain nature. Analysts project core order inflows of Rs2.6 lakh crore and Rs2.9 lakh crore for FY25 and FY26, respectively, reflecting year-on-year growth rates of 8% and 10%.
On the profitability front, L&T has worked to stabilise margins after missing guidance for three consecutive years. The core operating margin before depreciation and amortisation (EBITDA margin) improved by 16 basis points to 7.5% in the June quarter, driven by a 70 basis points improvement in the infrastructure division. Despite these positive developments, L&T’s stock has underperformed the benchmark indices by 12% over the past three months and trades at a multiple of 33 times one-year forward earnings, compared to its long-term average of 26 times. The company’s strong order intake and improving margins, however, could potentially reverse this trend and enhance its market performance.
