Q3FY23 Review: Larsen & Toubro: Strong inflows, but recouping OPM to be gradual

31 Jan 2023 , 11:26 AM

L&T reported strong beat in Q3FY23 inflows (Rs457bn, +20% YoY) driven by large domestic order wins while core earnings are inline with IIFLe (revenue/PAT YoY of 15%/21% with 8.5% OPM). Cash-flow driven execution approach aided 20% YTD growth in P&M revenues while keeping NWC cycle lean at 20% of sales (-3pps YoY). 

With large order wins in Infra, Steel and Hydrocarbon segments and robust 54% growth in tendering activities in Q3FY23, L&T is bullish on the growth outlook. New order prospects for Q4 is 24% higher YoY, at Rs4.86Trn. Strong order book of Rs3.86Trn, +14% YoY (3.2x TTM sales) and healthy cash flow from customers will drive 15-8% revenue Cagr in FY23-25. Revenue growth of 15% is assured while inflows are likely to exceed 15% YoY, despite slippages of a few large projects. Analysts at IIFL Capital Services cut consol EPS by 5/4% for FY23/24 and core EPS by 2% for FY23.

Strong cash conversion & lean NWC cycle is improving FCF. L&T has stepped its project capex to Rs20-30bn and is investing in green energy solutions. Improving ridership patterns and receipt of 1st tranche of the state government grant for Hyderabad Metro (Rs10bn in 2HFY23), L&T is now at ease and targets to reduce external debt in HM to Rs70-80bn by FY25.

Analysts at IIFL Capital Services maintain Buy with target price of Rs 2390.