Larsen and Toubro: Prabhudas Lilladher Maintains 'Buy' Recommendation, Targets Rs 4632

Larsen & Toubro Reports Mixed Q4FY26 Performance

Larsen & Toubro (L&T) has reported a mixed fourth quarter (Q4) performance for the fiscal year 2026 (FY26). The company's revenue growth stood at 11.3% year-over-year (YoY), while the earnings before interest, taxes, depreciation, and amortization (EBITDA) margin contracted by 62 basis points (bps) YoY to 10.4%. This contraction is attributed to project mix and cost pressures.

The management has maintained a cautious near-term outlook due to the ongoing Middle East conflict, guiding for approximately 10-12% growth in revenue and order inflows for FY27. Additionally, the company expects flat power, propulsion, and marine (PP&M) margins of around 7.8% in FY27, indicating limited margin expansion for the year. Larsen & Toubro's Lakshya 31 guidance implies steady growth, with order inflow and revenue compound annual growth rate (CAGR) targets of 10-12% and 12-15%, respectively, over FY26-31. However, the return on equity (ROE) guidance of 16-17% for the same period remains underwhelming, compared to the 16.6% ROE in FY26.

The company's order pipeline stands at approximately INR17.8 trillion, with an order book of INR7.4 trillion. The order book has a high exposure to the Middle East, accounting for around 78% of the international order book, which totals INR3.28 trillion. However, execution is expected to remain soft in the first half of FY27 (H1FY27) due to supply chain constraints and delays in domestic projects amid geopolitical uncertainties. A recovery is likely in the second half of FY27 (H2FY27).

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The Energy segment faced margin pressure due to legacy projects that are now largely concluded, while Infrastructure execution remains uneven. The company is likely to benefit from segment restructuring and non-core asset divestment, including the Hyderabad Metro and Nabha Power, which will improve focus on core businesses and result in better capital allocation in the mid-term. Additionally, Larsen & Toubro's foray into new businesses such as defense, electronics, data centers, and green energy is expected to open new avenues for growth in the long term.

We have revised our earnings per share (EPS) estimates for FY27 and FY28 by -8.0% and -10.4%, respectively, factoring in supply chain constraints and execution challenges.

Outlook

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We maintain a 'Buy' rating and roll forward to March 2028 (Mar'28) with a revised stock price target (TP) of INR4,632 (INR4,806 earlier), valuing the core business at a price-to-earnings (P/E) ratio of 22x for March 2028 earnings estimates (22x September 2027 earlier).