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L&T (standalone) continued to witness margin pressures in its infrastructure segment (74 per cent of revenues) in Q2 FY24, with the company reporting an operating margin of around 5.2 per cent against 6.6 per cent reported in Q2 FY23.
The company’s infrastructure segment has been impacted for the last two years due to legacy projects undertaken during the Covid pandemic.
Management is planning to execute maximum portion of such projects this fiscal, and thus, reviving margins in the segment from FY25.
This will continue to remain a monitorable for the company. The hi-tech manufacturing segment, too, saw margins dipping by around 3.6 per cent to 14.9 per cent on account of lower margins in defence manufacturing space.
However, the star of the quarter was the energy segment, which not only posted margin expansion from 8.5 per cent to 9.5 per cent, but also received record order inflows.
In the September ended quarter, 90 per cent year-on-year increase in the order inflows into the company’s core segments ( infrastructure, energy, hi-tech manufacturing) were driven by the energy segment.
Orders in the energy segment jumped 4.7x on account of strong orders in hydrocarbon space. The company received orders worth ₹38,810 crore during the quarter in hydrocarbons. Total order inflows stand at ₹73,144 during the quarter. According to the management, there is a prospective order pipeline of around ₹2.9-lakh crore in the hydrocarbon space which presents significant opportunities for L&T in the near term.
The management had earlier given a guidance of an overall order inflow growth of around 10-12 per cent and revenue growth of around 12-15 per cent for FY24 which the company now expects to exceed due to stronger execution and healthy order pipeline.
However, while prospects look good, the expectations seem to have already built into the stock.
On a YTD basis, the stock has gained nearly 44 per cent on account of the strong order pipeline, expectation of private capex revival and healthy outlook. Its trailing P/E of around 51.8 times is around 28 per cent higher than the historical five-year average P/E of around 40.2 times.
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