About the Company

Larsen & Toubro (L&T) is a multinational company that operates in the technology, engineering, building, manufacturing, and financial services industries. L&T serves customers in many nations worldwide by addressing important demands in major sectors such as hydrocarbon, infrastructure, power, process industries, and defense. L&T operates in key, high-impact sectors of the economy, and our integrated skills cover the whole ‘design to deliver’ spectrum. The company excels in technology, engineering, construction, infrastructure projects, and manufacturing, and is a leader in all key business divisions.

Quarterly Results and Commentary

• L&T reported a robust quarter performance with steady revenue growth across all its segments (+17.31% YoY) at Rs. 64667.78 Cr (+5.06% QoQ). with Infrastructure Projects (49% revenue share), IT & Technology Services (19% revenue share) and Energy Projects segments (17% revenue share) leading the revenue chart.
• Consolidated revenue in Q3FY25 grew by a steady rate of 5.06% QoQ (+17.31% YoY) , driven by growth in Project and Manufacturing (P&M) businesses which include Infrastructure Projects , Hi-Tech Manufacturing, Energy Projects and Other segments hiked substantially on a YoY basis (+14.65%, +18.51%, +40.47% and +8.36% respectively). During the quarter, foreign revenues of Rs. 32,764 crore accounted for 51% of overall revenues, indicating better performance in the international P&M portfolio.
• Gross Profit grew 9.84% YoY (+4.02% QoQ) with hiked COGS ~6% QoQ. Gross Profit margin shrunk by 310 bps and stood at around 45.60%.
• EBITDA hiked by ~9.72% YoY to Rs. 7898.55 Cr. with EBITDA margin shrinking slightly by 65 bps YoY at around 12.21% owing to rise in employee cost (+16.18% YoY) while finance costs decreased due to decreasing borrowing levels and rates. EBITDA margins for P&M businesses including Infrastructure Projects, Hi-Tech Manufacturing, Energy Projects and Other segments grew by 5.5%, 18.2%, 8.3% and 27.5% YoY.
• PBT for the P&M businesses such as Infrastructure Projects , Hi-Tech Manufacturing, Energy Projects and Other segments grew by 14.65% (Rs. 32407.98), 18.51% (Rs. 2589.08), 40.47% (Rs. 11055.35), 8.36% (Rs. 1887.41) YoY respectively. Whereas, PBT for the Services & Concessions segment showcased mild figures with IT & Technology Services shrinking ~7% standing at Rs. 1833.8, Financial Services having negligible PBT growth and Development Projects segment growing at 25.64% (Rs. 148.8). Other income YoY growth of ~15.5% reflects investment levels and yields while depreciation increased due to increasing P&M related spending and capitalization of new premises in LTIMindtree.
• L&T’s PAT figures witnessed a hike of ~11% YoY (-3% QoQ) with PAT margins declining ~37 bps, owing to significant increase in share of PAT of joint ventures (+1519.76% YoY, +93.63% QoQ). Reported PAT growth indicates higher activity and enhanced treasury operations.
• The company considerably improved its Net Working Capital (NWC) to Sales ratio, which fell from 16.6% in Q3FY24 to 12.7% in Q3FY25. This improvement was driven by improved customer collections, which increased the Gross Working Capital to Sales ratio. The group’s total collections (excluding Financial Services) increased by 20% YoY to ₹591 billion in Q3 FY’25, up from ₹494 billion in Q3 FY’24.

Orderbook Acceleration

During the quarter ending December 31, 2024, the Company received its highest quarterly orders of Rs. 116,036 crore at the group level, representing a significant 53% YoY growth.

• • Orders were received in several regions and sectors, including Thermal Power, Renewable, Power Transmission, Precision Engineering, Minerals & Metals, Water, Commercial Buildings, and Hydrocarbon Onshore. In the quarter, international orders were Rs. 62,059 crore, accounting for 53% of overall order inflow with Projects & Manufacturing businesses amounting around 52% at Rs. 98659 Cr and the Services segment at Rs. 17377 Cr. (~64%).
  • Simultaneously, the order book expanded around 42% in Q3FY25 and stood around Rs. 564223 Cr. Domestic prospects make up 59% of the healthy order prospects pipeline, which is expected to reach Rs. 5.5 trillion in the near future.

Key Product and Platform Growth

• Revenue growth is driven by strong execution in the Infrastructure (15% YoY), Hydrocarbon (54% YoY), and Precision Engineering & Systems (34% YoY) businesses.
• The increase in MCO expenses is due to increased activity and a higher share of P&M revenue. Employee costs are impacted by resource augmentation and wage increases across enterprises.
• SG&A fluctuation is mostly due to execution ramp-up while the IT&TS segment has weaker operating leverage and an EBITDA margin that reflects revenue mix.

Segmental Growth

Infrastructure Project Segment witnessed a steady net revenue growth of ~15% QoQ standing at Rs. 32,130 Cr. out of which Rs. 13,540 Cr. coming from international revenue while EBITDA margin growing sideways at 5.5%. In Q3 FY’25, the Infrastructure division received orders totalling ₹491 billion, representing a 14% YoY increase, with 74% originating from international markets. Renewables, Power Transmission and Distribution, Water, Buildings & Factories, and Minerals & Metals were among the key industries driving growth. Strong international order momentum fuels order inflow growth while prospected pipeline of Rs. 4.0 trillion in the near term in momentum with healthy execution led by a substantial order book.

The Energy Projects business, which comprises Hydrocarbon and CarbonLite Solutions, received major orders, including two ultra-supercritical thermal power plants for CarbonLite Solutions and a massive international onshore order from Hydrocarbon. The order pipeline totals Rs. 1.44 trillion for Hydrocarbon projects, while the order book is Rs. 1.46 trillion (₹1.19 trillion for Hydrocarbon and Rs. 0.27 trillion for CarbonLite). Hydrocarbon project execution drove a 41% increase in revenue to Rs. 111 billion YoY. However, CarbonLite sales remained lower due to a declining order book. The EBITDA margin fell to 8.3% from 9.7% YoY, owing mostly to the execution stage of Hydrocarbon projects, while CarbonLite Solutions improved due to favourable claim settlements.

The Hi-Tech Manufacturing division, which includes Precision Engineering & Systems and Heavy Engineering, benefited from a repeat order for K9 Vajra in Precision Engineering and several overseas orders for Heavy Engineering. The order book currently stands at Rs. 418 billion while Precision Engineering maintained a solid execution pace, Heavy Engineering revenues were restrained due to early-stage project execution. However, cost savings in Heavy Engineering contributed to boost the segment’s total EBITDA margin.

In Q3 FY’25, the IT & Technology Services business, including LTIMindtree and LTTS, generated Rs. 121 billion in sales, with a moderate 8% increase due to market conditions. Despite macroeconomic problems, both corporations achieved significant transaction wins. However, sector margins fell due to salary increases and FX losses.

Financial Services segment’s income from operations grew at 14% QoQ standing at Rs. 3,880 Cr. owing to healthy credit-calibrated growth in disbursements. Book figures stood at Rs. 95,120 Cr. ( +16% 9M growth) RoA figures rounded to 2.27% despite sectoral headwinds.

The Development Projects segment, which encompasses Nabha Power and Hyderabad Metro, experienced revenue growth of 18% QoQ out of which Nabha Power constitutes majority share of Rs. 1,210 Cr. attributed to an enhanced plant load factor (PLF) and increased energy charges at Nabha Power. The ridership for Hyderabad Metro remained consistent at 4.45 lakh passengers daily in Q3 FY’25, showing a slight decrease from Q2 due to the festive holidays. PAT loss narrowed to Rs. 203 Cr. from Rs. 254 Cr. YoY, primarily due to reduced interest expenses resulting from debt reduction.

In the Others segment (Realty, Construction Equipment, Industrial Machinery, and Smart World & Communications), revenue increased by 9% YoY, fuelled by a rise in real estate handovers and robust sales in industrial machinery. The margins for this segment improved thanks to a more advantageous revenue mix in Industrial Machinery & Products.

Con Call Highlights

Guidance

• L&T initially established a 10% growth target for order inflows but with ₹2,670 billion inflows for 9MFY ’25 (+16% YoY) and a strong ₹5.51 trillion prospects pipeline for Q4, the company is optimistic in surpassing this target with domestic capex environment is projected to improve in Q4, while overseas possibilities remain favourable, enabling additional growth.
• The company had expected a 15% increase in revenue for FY 25, however, with group revenues already up 18% in the 9MFY25, and given the size and quality of the order book, it is possible to exceed this revenue projection by the conclusion of the fiscal year.
• The Projects & Manufacturing division is expected to achieve an EBITDA margin of 8.2% for FY25, as forecast at the start of the fiscal year. To maintain profitability, the company will continue to prioritize effective execution and cost efficiency.
• L&T has consistently generated strong free cash flow in recent years which increased capital allocation to new business areas such as green energy, data centres, and semiconductor design. These strategic investments are projected to boost the company’s long-term growth and returns, with contributions scheduled for the next Lakshya plan (FY ’27-FY ’31).
• The company had previously projected a Net Working Capital (NWC) to Revenue ratio of 15% by March 2025, but with NWC to sales currently at 12.7% by Q3FY25, the business anticipates that it will remain at similar levels, demonstrating increased working capital efficiency driven by high customer collections.

Segmental Outlook

• The Infrastructure segment’s order pipeline for the next three months is ₹4 trillion (₹3.15 trillion domestic and ₹0.85 trillion international), with an order book of ₹3.61 trillion, indicating a three-year execution term.
• The Hi-Tech Manufacturing segment has an order book worth ₹418 billion and a pipeline of ₹65 billion for the next three months. While Precision Engineering maintained a solid execution pace, Heavy Engineering revenues were restrained due to early-stage project execution. However, cost savings in Heavy Engineering contributed to boost the segment’s total EBITDA margin.
• Disbursements at L&T Finance increased steadily as lending costs remained under control, despite challenges in the microfinance sector. By Q3FY25, loan book realization had attained 97%, ahead of the Lakshya ’26 targets. 
• The company received a ₹300 crore incentive under the Production-Linked Incentive (PLI) system for their green hydrogen project, which was won in the last quarter. However, this incentive is conditional on setting up the entire production capacity; if only a portion of the capacity is brought up, the incentive will be reduced. The company’s final decision on the project will be based on market evolution and economic viability.
• The Energy business has order prospects worth ₹1.44 trillion, particularly for thermal power plants in India, hydrocarbon projects in India and West Asia, and gas-to-power opportunities. The company is still bidding on thermal power plant projects, particularly for Boiler Turbine Group (BTG) contracts. While the company is continuously looking for opportunities, it is also being selective based on manufacturing capacity, execution feasibility, and project location to assure efficiency and profit.
• L&T’s current focus is on semiconductor design, particularly the development of intellectual property-led products. These designs will be produced by external fabs prior to any investment in a fabrication plant (fab). The company intends to build a robust semiconductor product portfolio over the next 2-3 years before determining whether or not to establish its own fab, however, near-term plans do not include establishing a semiconductor production facility.
• Hydrocarbon Margin recognition is determined by the project’s stage of completion with some significant projects expected to cross the margin threshold soon, most likely in Q4FY25 OR Q1FY26. The company reported a 7.6% profit for the 9MFY25, which is expected to increase in Q4FY25 to reach the 8.2% full-year projection for the P&M portfolio. The company is on track with its execution strategy, and the temporary margin decrease has already been built into forecasts. As more hydrocarbon projects reach the margin recognition criteria, margins could improve in the next quarters. The company got large orders in FY ’24 and FY ’25, ensuring continuous execution and margin expansion.
• Domestic and international infrastructure developments have comparable margin impacts with overall margin mix is constant, and the company is confident in meeting its 8.2% margin target for the year.
• L&T has acquired a 15% share in E2E Networks for ₹1,080 crores, with an additional 6% stake transfer expected in May 2025. This is a strategic collaboration to integrate AI-powered cloud services into L&T’s data centre architecture. L&T will benefit from E2E’s AI capabilities, while E2E will use L&T’s data centre infrastructure to boost both firms’ market positions.
• The Infrastructure sector has ₹4 trillion in order prospects, with the majority being domestic projects. Growth areas include public and private buildings (including hospitals), hydrogen-related projects, urban infrastructure (road networks, elevated corridors), water-related investments, and the metals sector (part of private sector capex). 75% of the opportunities are government-led (central and state), while 25% driven by the private sector, comprising real estate and data centres.
• L&T is optimistic about defense spending, although short-term order prospects (next three months) are modest. Despite this, the business got a ₹6,500 crore Vajra deal in Q3FY25, increasing total defense orders to ₹12,000 crore over the 9MFY25. Defense projects take longer to complete, so while long-term prospects remain favourable, immediate order inflow is constrained.
• There have been no major delays or payment concerns in Saudi Arabia. Furthermore, several non-priority projects have delayed due to capital reprioritization, but oil and gas, carbon capture, and petrochemicals remain top priorities, with gas development being the UK’s highest priority, and L&T has a large position in this area.
• L&T received ₹900 crore from Telangana Govt for Metro Project, with an expected balance of ₹2,100 crore in the near term. The company plans to monetize Transit-Oriented Development (TOD) to reduce Metro’s present debt of ₹12,600 to ₹9,000 crore and lower interest costs.

Indian and Global Economic Scenario

India’s economic growth has slowed in recent quarters, with urban consumption slowing due to the depletion of pandemic-era excess savings, weaker formal sector pay growth, and tighter consumer credit standards. Rural consumption, on the other hand, has remained solid, thanks to strong agricultural activities. Public investments have also fallen, owing to recent national and state elections, while private investments have been inconsistent. However, recent improvements in high-frequency economic indicators show that the downturn may have bottomed out, with a near-term recovery fueled by higher government spending.

Globally, economic uncertainty exists as a result of armed conflicts, shifting political landscapes in several countries, and ongoing trade battles, all of which have the potential to reignite inflation.  Furthermore, central banks have few policy alternatives to address these difficulties, and governments with high debt-to-GDP ratios struggle to adopt effective fiscal policies.

On the plus side, the ceasefire between Hamas and Israel is likely to restore stability to the Gulf Cooperation Council (GCC) region.  Led by Saudi Arabia, the GCC is improving its physical and digital infrastructure while also monetizing its oil and gas assets.  Furthermore, numerous GCC countries are making great progress toward energy transition.

Larsen & Toubro Ltd secured orders worth ₹1.16 trillion during the quarter, representing a 53% year-on-year growth.  This was fueled by robust demand in the Infrastructure, Hydrocarbon, CarbonLite Solutions, and Precision Engineering & Systems areas.  Despite a slowdown in India’s economic activity in Q3, the company obtained ₹987 billion in orders for its Projects & Manufacturing sector, with domestic and overseas orders accounting for 48% and 52%, respectively.

Valuations

• In present times, the stock of L&T is trading at multiple of 32.4x 101 EPS at the CMP of Rs. 3,276. In book terms, trading 5.05x than its book value of Rs. 649.  As of today, the ROCE and ROE of the company is at 13.4 percent and 14.7 percent, respectively.
• Larsen & Toubro Ltd. announced an equity dividend of Rs. 28.00 per share throughout the last 12 months. The dividend yield of Reliance Industries Ltd. is 0.85% at the current share price of Rs. 3,276.

Investment Rationale

• Larsen & Toubro announced that it has received a significant order from Hindalco to build a greenfield alumina refinery plant in Odisha with a capacity of 850 KTPA. L&T announced in an exchange filing that its Minerals & Metals (M&M) business vertical had obtained the order. According to the company’s definition, a major order is worth between Rs 2,500 crore and Rs 5,000 crore.
• L&T’s Minerals & Metals (M&M) division has won a large contract worth between Rs 5,000 crore and Rs 10,000 crore to build a Pellet Plant and a Direct Reduction of Iron (DRI) Plant for a leading steel company in the Middle East and North Africa. L&T will handle engineering, supply, erection, and construction on the project, which is in line with worldwide decarbonization goals.
• The government’s decision to enable private sector involvement in space research has opened up new opportunities for L&T. The business intends to develop its aerospace branch to take advantage of India’s expanding $44 billion private space market. L&T is cooperating with Hindustan Aeronautics Limited to develop the Polar Satellite Launch Vehicle (PSLV), with the first privately produced PSLV launch planned for early 2025.