NSE: LT· IndustrialsCore · Aug 26Large cap

Larsen & Toubro

Executor of the capex cycle at a cyclical multiple

Last close
₹3,749.10
29 Sept 2026 · reference
1D · 1M
−0.5% · −7.3%
price-only
Weight
2.4%
31 Jul 2026 · Aug rank 16
Thesis review
8 Sep 2026
Why We Own, p52
Coverage owner: Research (per book); latest results Q Jun-26Screener ↗Tijori ↗NSE ↗
Thesis map

Executor of the capex cycle at a cyclical multiple — what has to happen, what we believe, what breaks it

Catalysts
  • Completion of the Rs 1,461 cr Hyderabad Metro stake sale to Hyderabad Metro Rail Ltd (deadline extended to 30-Sep-2026) and release of associated guarantees.
  • H2FY27 order-inflow and margin recovery that management guided for (H1 soft, H2 stronger) - Q2FY27 results in late Oct/early Nov 2026.
  • Conversion of the Rs 15 trn prospect pipeline, especially large Middle East hydrocarbon and offshore-wind awards, and any further non-core divestments.
Thesis pillars
  • Record order book of Rs 7.78 trn at Jun-2026 (+27% YoY, ~2.7x FY26 revenue) gives multi-year revenue visibility; Q1FY27 inflows of Rs 1.08 trn (+14%) and a Rs 15 trn prospect pipeline for the remaining nine months of FY27 support the 10-12% inflow-growth guidance.
  • Balance-sheet discipline: net working capital fell to 4.9% of revenue in Q1FY27 (from 10.1%), cash and investments of Rs 85,100 cr, and non-core exits (Nabha Power, Hyderabad Metro for Rs 1,461 cr with debt refinanced by the buyer) free capital and guarantees.
  • Consolidated ROE of 16.1% (Q1FY27 slides) with FY26 net profit up 7% to Rs 18,954 cr; dividend payout of 33% and a 3-year ROE of 16% versus 14% five-year average show an improving return profile.
  • Direct play on India's FY27 central capex of Rs 12.2 lakh crore (up from Rs 10.97 lakh crore FY26 RE) and Middle East energy/renewables spending (42% of Q1 inflows), giving a diversified order pipeline that pure-domestic peers lack.
  • Valuation of ~31x TTM / 28x FY28e (Buoyant) is below the 60-100x multiples of Siemens, ABB and BHEL for a company with a comparable ROE, and the 'Lakshya 31' pivot to data centres, semiconductors and green hydrogen adds optionality.
Position
  • Core · Large cap
    2.4% of PMS · rank 16
Risks
  • Geopolitical/execution risk in the Middle East (37% of order book): West Asia disruptions already cut green-energy revenue 11% YoY in Q1FY27 and cost ~Rs 5,000 cr of Q4FY26 revenue.
  • Margin compression: EBITDA margin fell to 9.0% in Q1FY27 from 9.9%, FY26 core margin (8.3%) and revenue growth (12%) both missed guidance, and FY26 order inflows fell 3% YoY.
  • Capital-intensive diversification under Lakshya 31 (Rs 15,000 cr green hydrogen, Rs 10,000 cr data centres, Rs 3,000 cr semiconductors) could dilute ROE if returns lag the core EPC business.
Structured investment memo

Thesis and position rationale

Investment case
Executor of the capex cycle at a cyclical multiple
Why this business

India's largest engineering, procurement and construction (EPC) conglomerate, executing infrastructure, hydrocarbon, power, renewable/green energy, defence and heavy engineering projects, alongside listed IT/technology subsidiaries (LTIMindtree, L&T Technology Services) and L&T Finance. Order book of Rs 7.78 trillion at Jun-2026 is the largest of any Indian contractor; 52% of the order book and 51% of revenue are now international, dominated by Middle East hydrocarbon and renewables work.

What we believe
  1. 01Record order book of Rs 7.78 trn at Jun-2026 (+27% YoY, ~2.7x FY26 revenue) gives multi-year revenue visibility; Q1FY27 inflows of Rs 1.08 trn (+14%) and a Rs 15 trn prospect pipeline for the remaining nine months of FY27 support the 10-12% inflow-growth guidance.
  2. 02Balance-sheet discipline: net working capital fell to 4.9% of revenue in Q1FY27 (from 10.1%), cash and investments of Rs 85,100 cr, and non-core exits (Nabha Power, Hyderabad Metro for Rs 1,461 cr with debt refinanced by the buyer) free capital and guarantees.
  3. 03Consolidated ROE of 16.1% (Q1FY27 slides) with FY26 net profit up 7% to Rs 18,954 cr; dividend payout of 33% and a 3-year ROE of 16% versus 14% five-year average show an improving return profile.
  4. 04Direct play on India's FY27 central capex of Rs 12.2 lakh crore (up from Rs 10.97 lakh crore FY26 RE) and Middle East energy/renewables spending (42% of Q1 inflows), giving a diversified order pipeline that pure-domestic peers lack.
  5. 05Valuation of ~31x TTM / 28x FY28e (Buoyant) is below the 60-100x multiples of Siemens, ABB and BHEL for a company with a comparable ROE, and the 'Lakshya 31' pivot to data centres, semiconductors and green hydrogen adds optionality.
Why now

TTM P/E 31.2x on screener (7-Sep-2026); 5-year average P/E not sourced - not verified. EV/EBITDA n.m.; dividend yield 0.9%.

Market disagreement
  • Siemens: Siemens trades at ~93x P/E (screener, 7-Sep-2026) on Rs 24,846 cr revenue versus L&T at ~31x on Rs 2.86 lakh crore revenue; similar ROE (19.2% vs 15.9%) but three times the multiple.
  • ABB India: ABB is at ~102x P/E with 22.4% ROE; superior returns but priced for perfection, and its Rs 13,203 cr revenue base gives no exposure to the Middle East/energy EPC cycle L&T is winning.
  • BHEL: BHEL trades at ~60x P/E with 6.2% ROE and Rs 1,600 cr FY26 profit; L&T earns 12x the profit at half the multiple with far stronger execution and working-capital metrics.
Position sizing

Core Large cap  2.4% of the PMS on $31 Jul 2026 (August rank 16). Core positions are owned through the cycle for leadership and cash-flow quality.

Catalysts
  • Completion of the Rs 1,461 cr Hyderabad Metro stake sale to Hyderabad Metro Rail Ltd (deadline extended to 30-Sep-2026) and release of associated guarantees.
  • H2FY27 order-inflow and margin recovery that management guided for (H1 soft, H2 stronger) - Q2FY27 results in late Oct/early Nov 2026.
  • Conversion of the Rs 15 trn prospect pipeline, especially large Middle East hydrocarbon and offshore-wind awards, and any further non-core divestments.
Risks and response
  • Geopolitical/execution risk in the Middle East (37% of order book): West Asia disruptions already cut green-energy revenue 11% YoY in Q1FY27 and cost ~Rs 5,000 cr of Q4FY26 revenue.
  • Margin compression: EBITDA margin fell to 9.0% in Q1FY27 from 9.9%, FY26 core margin (8.3%) and revenue growth (12%) both missed guidance, and FY26 order inflows fell 3% YoY.
  • Capital-intensive diversification under Lakshya 31 (Rs 15,000 cr green hydrogen, Rs 10,000 cr data centres, Rs 3,000 cr semiconductors) could dilute ROE if returns lag the core EPC business.
Thesis-break conditions
Not stated separately on this page; the risk list carries the monitoring triggers.
Review history
  • 8 Sep 2026 · Yash Palod · one-pager in "Why We Own What We Own" (p52) · portfolio as of $31 Jul 2026
  • 31 Aug 2026 · Classification in the August top-30: Core

Source: Buoyant_Why_We_Own_What_We_Own_Sep2026.pdf (portfolio as of 31 July 2026), p52. Internal; external publication of these fields is controlled by audience policy.

Decision log

Internal actions

  • HoldPosition carried into August at rank 16.
  • ReviewNext scheduled: post 2QFY27 results (Oct–Nov 2026).

Add/trim/exit decisions require transactions data; none supplied. Recording a decision needs a persistence adapter (not configured).

Evidence

Sector datapoints

  • Union Budget 2026-27 pegged central capex at Rs 12.2 lakh crore versus Rs 10.97 lakh crore FY26 revised estimate (~11% growth), with the fiscal deficit targeted at 4.3% of GDP (Budget, 1-Feb-2026).
  • RBI projected private corporate capex to rise 21.5% to Rs 2.67 lakh crore in FY26 from Rs 2.20 lakh crore in FY25, led by power/infrastructure (RBI article, Aug-2025)…
  • L&T's Q1FY27 order inflows of Rs 1.08 trn were 56% international; Middle East was 42% of inflows and 37% of the order book, while West Asia conflict disruptions cost ~Rs 5,000 cr of Q4FY26 revenue (BusinessToday, May-2026).
  • Order inflow mix in Q1FY27: infrastructure 41%, renewable energy 31% (Business Standard, 28-Jul-2026).