On a standalone basis, L&T’s revenue stood at ₹26,930 crore in Q1 FY24, implying a 33 per cent jump on y-o-y basis. While growth was broad based, infrastructure projects (67 per cent of company’s standalone revenue), posted a healthy growth of around 55 per cent, driven by strong execution.

The infrastructure projects division comprises EPC projects relating to buildings and factories, transport infrastructure, heavy civil infrastructure, power transmission and distribution, water treatment and minerals and metals. Other core segments which are part of its standalone statements include energy projects, hi-tech manufacturing and other EPC related projects.

However, the company’s EBITDA margins at the standalone level contracted from around 7.65 per cent to around 6.96 per cent on a y-o-y basis, largely on account of margin pressure in the infrastructure projects segment. This segment  delivered EBITDA margin of around 5.1 per cent in Q1 FY24 against 6.5 per cent in Q1 FY23. On the contrary, margins in segments such as energy projects and hi-tech improved.

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The margins in infrastructure projects segment used to hover around 11-12 per cent till FY20. This came down to around 7 per cent in FY23 and further decreased to around 5 per cent in Q1 FY24. According to the management, the margin pressure has been on account of execution of legacy projects taken prior to Covid which have been facing cost pressures.

According to the management, the margin pressure might remain till H1 FY24, while recovery shall be seen in the margins in H2 FY24 on account of completion of these projects,

Favourable outlook

While standalone margins require a watch, there are tailwinds for order flows.

L&T has witnessed a growth of around 80 per cent year-on-year in the order inflows of core segments, driven by infrastructure and energy projects.

Orders in the infrastructure segment came from renewables, rural water supply, transmission distribution minerals and metals as well as commercial and residential real estate.

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Within the energy space, while the power division saw muted order inflows, the hydrocarbon space is gaining strong traction. According to the management, the hydrocarbon space offers immense opportunities due to prospective industry pipeline of around ₹3.47-lakh crore and the company is well placed to tap the opportunities in the segment.

Overall, the company has an order book of around ₹3,99,500 crore which is around 3.4 times its trailing twelve months revenue, implying strong revenue visibility. Further, the management has projected 12-15 per cent y-o-y growth in revenue in FY24.

The stock of L&T trades at a trailing P/E (consolidated) of around 33.2 times (standalone trailing P/E is 42.8 times) compared to historical three-year average (period includes Covid year) of around 38.1 times. The stock is currently trading at an all-time high level and has gained nearly 48 per cent in the last one year. This is on on account of strong order pipeline, expectation of private capex revival and healthy outlook.