Larsen and Toubro's record order book and offshore wind wins support multi-year growth

Investment View and Recommendation

In its July 29, 2026 result update, ICICI Direct Research retained its BUY rating on Larsen and Toubro, describing the Q1FY27 execution headwinds as temporary while highlighting intact multi-year growth drivers. The broker has set a target price of Rs 5,000.

Larsen and Toubro is an engineering and construction company with operations spanning infrastructure, heavy engineering, defence engineering, power, hydrocarbon and services. Infrastructure contributes about 47 per cent of consolidated revenue, followed by services at about 27 per cent and energy projects at 19 per cent. International markets account for 52 per cent of the order backlog.

Q1FY27 Financial Performance

L&T reported Q1FY27 consolidated revenue growth of 7 per cent year-on-year to Rs 67,942 crore. EBITDA declined 3 per cent to Rs 6,116 crore, while the EBITDA margin contracted 90 basis points year-on-year to 9.0 per cent.

Margin pressure reflected Water and Effluent Treatment execution challenges, Solar supply-chain disruption arising from the West Asia conflict, an adverse revenue mix, higher expected credit loss provisions and foreign-exchange headwinds in the Technology business. Reported PAT nevertheless increased 14 per cent year-on-year to Rs 4,123 crore, aided by lower finance costs and higher other income.

Record Order Book and Growth Pipeline

The core positive in ICICI Direct’s thesis is L&T’s record order book and diversified order pipeline. Q1FY27 order inflow rose 14 per cent year-on-year to Rs 1.08 lakh crore, while the order book increased 27 per cent to a record Rs 7.79 lakh crore. This is more than 2.8 times FY26 revenue.

International orders represented 55 per cent of quarterly inflow and international business accounted for 52 per cent of the order book. The Middle East represents 37 per cent of the order book, while the United States and Europe represent 8 per cent.

Management reiterated FY27 order-inflow and revenue-growth guidance of 10 to 12 per cent, supported by an approximately Rs 15 lakh crore opportunity pipeline for the remaining nine months of FY27. Management said Middle East project awards were temporarily deferred in Q1FY27 rather than cancelled and expects award activity to improve from Q2FY27.

Segment Performance

Margin Resilience and Cash Generation

ICICI Direct sees margin resilience from improved cash generation, working-capital discipline and higher-margin businesses. Net working capital improved to 4.9 per cent of sales from 10.1 per cent a year earlier, while collections rose to Rs 65,800 crore, supporting treasury income.

L&T has secured about 8 GW of offshore wind HVDC projects with four-to-five-year execution periods. Management expects these projects to earn better margins than traditional Middle East EPC work.

• FY27 PPM EBITDA-margin guidance was retained at about 7.8 per cent.
• Working-capital guidance was retained at about 10 per cent of revenue.
• Management expects customer negotiations to largely offset logistics-cost escalation related to Middle East disruption.

Forecasts and Valuation

ICICI Direct forecasts revenue and adjusted PAT compound annual growth rates of 13.4 per cent and 15.6 per cent, respectively, over FY26-FY28E. Its FY28E forecasts are as follows:

The Rs 5,000 target price is based on a sum-of-the-parts valuation. The base business contributes Rs 4,027.4 per share, L&T Finance Holdings contributes Rs 284 per share and L&T IT subsidiaries contribute Rs 662 per share. Smaller contributions come from power development, the MHI joint venture and other subsidiaries.

Key Risks

• Delays in order execution.
• A lower-than-expected improvement in return ratios.