Larsen & Toubro order book hits record despite Q1 execution headwinds

Investment View and Recommendation

Prabhudas Lilladher retained its BUY rating on Larsen & Toubro (L&T) after the July 29, 2026 Q1FY27 result update, despite near-term execution and margin headwinds. The broker believes L&T is well positioned for long-term growth, supported by strong international opportunities, particularly in the Middle East; a healthy domestic pipeline driven by public and private capex; liquidation of loss-making development projects; and expansion into green energy, electrolyzers, semiconductors, data centres and electronics manufacturing services.

The target price was reduced to Rs4,425 from Rs4,632 using a sum-of-the-parts valuation. PL values the core business at 22.5 times March 2028E EPS, compared with 22 times previously, and applies a 15 per cent holding-company discount to listed subsidiaries including L&T Finance, LTI Mindtree and L&T Technology Services.

Q1FY27 Financial Performance

L&T reported Q1FY27 consolidated revenue of Rs67,941.7 crore, up 6.7 per cent year on year but 0.7 per cent below PL's estimate. EBITDA declined 3.2 per cent year on year to Rs6,116.5 crore, 6.3 per cent below the broker's estimate, while EBITDA margin contracted 92 basis points to 9.0 per cent versus PL's 9.5 per cent estimate.

Margin pressure reflected slower execution in the Projects, Products & Manufacturing portfolio, supply-chain disruption associated with the Middle East conflict, higher expected credit loss provisions and foreign-exchange headwinds in technology services. Other expenditure rose 45.4 per cent year on year. Adjusted PAT increased 14 per cent year on year to Rs4,122.9 crore, 7.8 per cent above PL's estimate, aided by a 75 per cent year-on-year increase in other income to Rs2,376.7 crore.

Order Book and Growth Pipeline

Order inflow remained the key positive. Consolidated inflows rose 14 per cent year on year to approximately Rs1.08 lakh crore, led by international wins, including ultra-mega European offshore-wind orders exceeding Rs15,000 crore, as well as domestic private-sector orders.

The order book reached a record approximately Rs7.8 lakh crore, up 27.1 per cent year on year and equivalent to 2.7 times trailing-12-month revenue. The order book was 48 per cent domestic and 52 per cent international, while Q1 order intake was 44 per cent domestic and 56 per cent international.

Management cited an opportunity pipeline of approximately Rs15 lakh crore, evenly split between domestic and international opportunities. Around 45 per cent of the domestic pipeline is from private-sector customers.

Segment Performance

Segment performance was mixed during the quarter.

• Infrastructure & Utilities: Revenue declined 2.4 per cent year on year to Rs22,143.5 crore as recently won work remained in early execution and the Water & Effluent Treatment business faced execution challenges. EBIT margin fell 28 basis points to 3.6 per cent, affected by business mix and ECL provisions.
• Energy Conventional: Revenue grew 14.3 per cent to Rs14,246.3 crore, supported by Hydrocarbon and CarbonLite Solutions execution. Order inflows fell to Rs3,100 crore because of deferred awards and a high base.
• Energy Green: Revenue fell 11.5 per cent to Rs5,607.1 crore as GCC solar execution was disrupted by supply-chain constraints. The segment secured approximately Rs33,000 crore of orders, primarily in offshore wind.
• Manufacturing & Products: Revenue rose 8.7 per cent to Rs4,647.6 crore, supported by Precision Engineering & Systems and construction equipment.
• Other businesses: Financial Services, IT & Technology Services and Realty reported revenue growth of 27.0 per cent, 15.6 per cent and 112.0 per cent, respectively. Development Projects revenue declined 14.1 per cent.

Management Guidance and Execution Outlook

Management maintained FY27 guidance of 10-12 per cent growth in both order inflow and revenue, with Projects, Products & Manufacturing EBITDA margin of approximately 7.8 per cent. It expects execution to improve from Q2FY27 and into H2FY27, while noting ongoing logistics constraints in the GCC.

Management indicated that there were no material project cancellations. Slow-moving orders were below 1 per cent of the order book, and deletions during the quarter were limited to Rs250 crore.

Earnings Estimates and Valuation

PL reduced its FY27E and FY28E EPS estimates by 2.2 per cent and 0.3 per cent, respectively, primarily to reflect margin pressure from execution challenges.

Key Risks

• Continued geopolitical and supply-chain disruption in the Middle East, including ongoing logistics constraints in the GCC.
• Slower project execution and adverse revenue mix.
• Higher ECL provisions related to ageing Water & Effluent Treatment and legacy infrastructure receivables.
• Deferred project awards and technology-services foreign-exchange losses.