Larsen and Toubro Upgrade to Buy: LKP Research Pegs Target Price at Rs 4620

Larsen & Toubro Ltd Sees Subdued Q4FY26 Performance Amid Execution Challenges

Larsen & Toubro Ltd (L&T) has reported a relatively subdued operating performance in the fourth quarter of fiscal year 2026 (Q4FY26), as execution challenges and cost pressures weighed on profitability despite healthy revenue growth. The company's consolidated revenue increased 11.3% year-over-year (YoY) to ₹828 billion, falling short of L&T's earlier expectation of around 15% growth.

The operating performance was impacted by a decline in the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin for the quarter, which contracted 62 basis points (bps) YoY to 10.4%. This decline was primarily due to an unfavourable execution mix and higher operating costs. Within the core Engineering and Construction (E&C) segment, the EBITDA margin contracted 50 bps YoY to 9.4%, primarily due to elevated logistics and insurance expenses along with a changing revenue mix. On a fiscal year 2026 (FY26) basis, the core EBITDA margin stood at 8.3%, slightly below management's guidance of 8.5%.

Management also indicated that geopolitical disruptions in the Middle East impacted execution during March, typically a peak execution month, resulting in an estimated revenue loss of around ₹50 billion in Q4FY26. However, the management clarified that no projects have been cancelled and payment cycles remain intact.

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Maintaining BUY Rating and Revised Target Price

Despite the subdued Q4FY26 performance, L&T's strong order backlog, improving capital efficiency, and long-term growth visibility across core and emerging businesses support the company's outlook. As a result, we maintain our BUY rating on the company with a revised target price of ₹4,620, valuing the core business at 23x fiscal year 2028 estimated earnings per share (EPS).