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Published: March 31, 2024
Updated: March 31, 2024

Larsen & Toubro

Record spurt in order inflow

Engineering colossus Larsen & Toubro, a well-diversified conglomerate with a broad range of interests including infrastructure, heavy engineering, defence engineering, power, hydrocarbon, hi-tech manufacturing and services, is being flooded with orders. The consolidated order book as on September 30, 2023 stood at Rs 450,734 crore, up 22% yoy. Of the order book, 35% is international and the balance 65% is domestic. Q2FY24 witnessed the highest-ever order inflows in the history of the company. The order inflow (OI) at the group level in Q2FY24 was higher by 72% YoY to Rs 89,153 crore, of which international orders were Rs 59,687 crore (or 67% of the total order inflow).

Through a Sum-of-the-Parts (SoTP) valuation method, it projects a fair value of Rs 3,560. As a preferred large-cap capital goods pick and representative of India’s capital expenditure narrative, the company anticipates a compound annual growth rate (CAGR) of 18.6% for its revenue over FY23-FY25E. In addition, it also projects a substantial increase in profit after tax (PAT) with a CAGR of 26.5% over the same period.

FOCUS ON SPEED

Mr Ramakrishnan also pointed out that the share of slow-moving orders in the overall order book is at a multi-year low. This has led to a renewed focus on fast-moving orders. A mix of factors such as commodity price fluctuations, robust order inflow and strong sectoral demand have put the capital goods order book in the fast lane, analysts and company executives said. L&T, with its large presence in the capital goods sector, is often seen as the bellwether for trends in this space. For the June 2023 quarter, the company told analysts that the share of slow-moving orders in its total book was less than one per cent. As of June, L&T’s total order book was at Rs 4.12 trillion.

According to Mr Ramakrishnan, order prospects as of Sept 30, 2023 stood at Rs 8.8 trillion for the near term (vs Rs 6.32 trillion at the same time last year), which is up by about 39% YoY. Of the Rs 8.8 trillion order prospects, Infra is Rs 5.06 trn (vs Rs 4.54 trn), hydro carbon Rs 2.91 trn (vs Rs 1.13 trn), power Rs 0.5 trn (vs Rs 0.38 trn), and heavy engineering Rs 0.26 trn (vs Rs 0.26 trn).

ORDER BREAK-UP

Of the infra order prospect of Rs 5.06 trillion, domestic is Rs 3.81 trillion and international is Rs 1.25 trillion. Further, of the Rs 5.06 trillion of infra prospects, about 26% is transportation, 20% water, 18% B&F, heavy civil infra 13%, power T&D 13%, and minerals and metals 10%. Order prospects of the hydrocarbon sector witnessed a sharp improvement. Hydrocarbon order prospects as of June 2023 was Rs 3.47 trillion and Rs 2.91 trillion as of Sept 2023 and this is what is awarded during Q2FY24. So there has been a new set of ultra mega orders coming into the order prospects pipeline from international markets. The Infrastructure order book as of Sept 30, 2023 stood at Rs 3,04,497 crore, of which 23% is international orders. As regards the guidance, he said that the company expects to outperform the year- start OI and Revenue guidance for FY24. At the start of the current fiscal, the company expects 10-12% growth in OI and 12-15% growth in Revenue, thus leaving the OI and Revenue for FY24 openended. Given the strong order book, the company expects execution at a healthy clip in the balance period of the current fiscal.

POLL EFFECT

“We also expect that Q4FY24 will be a little subdued as far as domestic ordering, as the general election announcement will happen at that time,” he said. The H1FY24 Project & Manufacturing margin was on expected lines and for the full year the company expects a P&M margin of 8.5-9% for FY24 against the initial guidance of 9%. Some new orders that were expected to get into the margin recognition threshold have slipped into Q2FY24 and how these pan out in Q3FY24 in terms of internal plans has forced the company to give the P&M in the range of 8.5- 9% compared to the earlier 9%. Currently, executions of legacy jobs are given priority. About 62% of the P&M order book (HC 70%, Infra 60%) is yet to cross the margin recognition threshold. Analysing the performance of the company during Q3FY2024, Mr Ramakrishnan revealed that in the December 2023 quarter, sales grew 19% to Rs 51,024 crore. PAT was up 45% to Rs 3,222.63 crore. For the nine months, sales grew 26% to Rs 98,906.41 crore. PAT was up 45% to Rs 5,715.63 crore.