Q1FY24 Review: Larsen & Toubro: Back with a bang!

26 Jul 2023 , 02:04 PM

L&T kick started FY24 with robust performance in its core portfolio with 49/45% growth in revenues / PAT and 80% jump in inflows, beating street estimates. Pick-up in the domestic capex cycle and strong rebound in spending from the MENA region promises of a healthier pipeline for the rest of FY24. Even as infra OPMs will be muted in H1FY24, operating leverage and sharp improvement in NWC cycle drive strong cash flows & RoE. L&T has announced share buy-back plan of upto Rs100bn (excl. tax) at Rs3000/sh (33.3m shares, 2.4% equity) in addition to a special dividend (Rs6/sh). Guidance remains unchanged, mindful of potential slowdown in Q4FY24 due to Elections, but has high likelihood of upward revision. Analysts of IIFL Capital Services reiterate BUY (also Top pick) with SOTP based TP of Rs2993. 

Strong execution led beat in Q1: 

Strong order book, thrust on domestic execution and healthy project cash-flows drove robust 49% YoY jump in L&T’s core revenues to Rs327bn (domestic grew 57% YoY, 84% of sales, while Intl grew 13% YoY). Infra, HE and HC backed revenues in Q1. Ebitda margins declined 90 bps YoY, to 7.3% led by 150 bps YoY dip in Infra (5.1%) which continued to reel under pressure from legacy project completion. Volume-backed 34% growth in operating profits and treasury gains aided 45% increase in Core PAT at Rs14.4bn. TTM RoE at 12.8% (+60 bps QoQ) and NWC/ sales of 17% (-360 bps YoY) were better YoY. 

Robust inflows + order pipeline enhance visibility: 

Core inflows were robust at Rs504bn, +79% YoY (in line at Rs 373bn, +33% YoY, ex-MAHSR C3 pkg) led by Infra and HC (68% YoY) and visible rise in government projects. Interestingly order prospects at Rs10.07trn, is higher by 34% YoY/ 4% QoQ driven by major jump in O&G capex (+42% QoQ), especially in the MENA region. Despite robust execution, Order book has maintained pace at Rs4,126bn, +14% YoY, at 3x TTM sales. 

Buyback announced to enhance RoE: 

In line with its long term strategy to return cash to shareholders L&T has announced Rs100bn equity buyback plan (2.4% equity). Further ToD monetisation in Hyderabad metro & improvement in core profitability will help bridge RoE targets of 18% over 2-4 years.