Larsen & Toubro Order Inflow Beat and Offshore Wind Wins Support Growth

Investment View and Valuation

Motilal Oswal Financial Services retained its Buy rating on Larsen & Toubro following a better-than-expected 1QFY27 performance. The broker highlighted healthy core E&C order inflow growth, revenue growth and resilient margins despite difficult domestic and international operating conditions.

Motilal Oswal raised its sum-of-the-parts target price to Rs 4,550 from Rs 4,500. The valuation applies 25 times September 2028 estimated earnings to the core business and a 25 per cent holding-company discount to subsidiary values.

1QFY27 Financial Performance

Larsen & Toubro reported consolidated revenue of Rs 679 billion and PAT of Rs 41 billion in 1QFY27, representing year-on-year growth of 7 per cent and 14 per cent, respectively. Revenue and PAT were 6 per cent and 7 per cent above Motilal Oswal estimates.

Core E&C order inflows lifted the closing order book to Rs 7.8 trillion, up 27 per cent year on year. Order wins in residential and commercial buildings, ferrous metals and an ultra-mega offshore wind project drove the inflow beat. Net working capital improved by 520 basis points year on year to 4.9 per cent of revenue, while trailing-12-month RoE was 16.1 per cent.

Order Book and Growth Opportunities

Management said the Rs 7.8 trillion order book comprised 45 per cent infrastructure and utilities, 28 per cent conventional energy and 19 per cent green energy. The book was 48 per cent domestic and 52 per cent international, with the international component weighted towards the Middle East.

The remaining 9MFY27 prospect pipeline stood at Rs 15.1 trillion, including Rs 7.45 trillion of domestic opportunities. Private-sector prospects represented about 45 per cent of domestic prospects, providing support against weaker government ordering.

International inflows rose 28 per cent year on year to about Rs 473 billion, aided by European offshore wind awards, although international revenue declined 2 per cent.

Offshore Wind Expansion

The TenneT North Sea HVDC programme is a key growth driver. Larsen & Toubro has secured cumulative offshore wind projects of about 8GW, worth roughly Rs 570 billion to Rs 600 billion, with execution timelines of four to five years.

Management expects these projects to earn better margins than traditional Middle East EPC work. The company is pursuing further opportunities in Europe, the UK and selected global markets while investing in automation and manufacturing capacity.

Execution and Margin Considerations

Execution remains the principal near-term issue. Management attributed slower growth to geopolitical disruption and supply-chain constraints at select Middle East projects, intermittent logistics disruption at GCC solar projects and weakness in some domestic projects. Execution is expected to improve as alternate logistics routes are implemented, although revenue normalisation depends on the duration of the Middle East conflict.

Group EBITDA margin was also affected by Rs 2.5 billion of higher expected-credit-loss provisions, mainly in water, and adverse foreign-exchange movement in IT services.

About 50 per cent of the order book is fixed price. Management stated that current margins include incurred and estimated completion costs, while non-critical procurement is deferred until customer reimbursement is agreed.

Guidance and Estimates

Larsen & Toubro maintained its FY27 guidance across key operating metrics:

Motilal Oswal made modest estimate changes following the quarter. It forecasts FY26–29 core E&C order inflow, revenue, EBITDA and PAT CAGRs of 10 per cent, 17 per cent, 19 per cent and 19 per cent, respectively.

Key Risks

• Slower order inflows.
• Delays in the completion of mega and ultra-mega projects.
• A sharp increase in commodity prices.
• Higher working capital requirements.
• Increased competition.