Motilal Oswal Financial Services has issued a resolute BUY call on Larsen & Toubro (L&T), setting a target price of Rs 4,100, which implies a 13% upside from current levels. The research underscores L&T’s robust growth trajectory, driven by a strong international order pipeline, a diversified business mix, and prudent capital allocation. Despite near-term headwinds from geopolitical tensions and oil price volatility, the company’s healthy order book, improving return ratios, and disciplined working capital management position it for sustained outperformance. Investors are advised to capitalize on L&T’s strategic momentum, with clear levels and targets outlined for both short-term and long-term horizons.

Research Report Quick Takes

Motilal Oswal’s latest research reiterates a BUY on L&T, citing its impressive international order inflows, disciplined capital allocation, and a sharp focus on improving return metrics. The company’s FY26 prospect pipeline has surged 57% year-on-year to Rs 19 trillion, predominantly from international geographies. Despite a 90 basis point margin contraction over FY22-25, L&T’s return on equity (RoE) has improved markedly, reflecting operational efficiency and a shift towards higher-value projects. The report highlights manageable risks from geopolitical disruptions and commodity price swings, but maintains a bullish stance given L&T’s execution track record and sector leadership. The revised target price of Rs 4,100 is based on 28x Jun’27E core earnings, factoring in a 25% holding company discount for subsidiaries.

BUY Call: Motilal Oswal’s Conviction

Motilal Oswal Financial Services recommends a BUY on L&T, with a target price of Rs 4,100, representing a 13% upside from the current market price of Rs 3,621.

The valuation is anchored on 28x Jun’27E earnings for the core business, with a 25% holding company discount applied to subsidiaries.

The BUY call is underpinned by L&T’s ability to sustain healthy order inflows, maintain robust working capital, and deliver superior return ratios even amid a shifting business landscape.

Key Investment Levels and Targets

Stock Levels and Target for Investors:

Current Market Price (CMP): Rs 3,621

Target Price (TP): Rs 4,100 (+13%)

Support Zone: Rs 3,400–3,500 (short-term support)

Upside Resistance: Rs 3,900–4,100 (target zone for medium-term investors)

Stop-Loss Recommendation: Rs 3,350 (for risk-averse investors)

Growth Catalysts: Order Book and Revenue Diversification

L&T’s order inflows have doubled in FY25 to Rs 2.8 trillion, with international projects now comprising 57% of total inflows and 44% of revenues.

The core EPC revenue has surged 1.7x since FY22, with the company targeting mid-teen growth over the next five years.

The FY26 prospect pipeline stands at Rs 19 trillion, up 57% YoY, with a historical win rate of 20–25%—a figure expected to improve as L&T deepens its international presence.

Key international markets include Saudi Arabia, Qatar, Kuwait, UAE, and CIS countries, with infrastructure and energy projects driving the pipeline.

Return Profile: Margin Management and Capital Efficiency

Despite a 90bp margin contraction over FY22-25, L&T’s RoE has improved from 11% in FY22 to 16.3% in FY25, reflecting efficient working capital management and a strategic business mix shift.

The NWC-to-sales ratio has declined steadily, supporting better return ratios.

The company expects to maintain core EPC margins in the 8.5–8.8% range for FY26–FY28.

Free cash flow generation has been robust, with significant payouts to shareholders and selective equity infusion into subsidiaries.

Financial Outlook: Robust Earnings Trajectory

L&T is projected to deliver a 15% CAGR in core EPC revenue and an 18–21% CAGR in core EBITDA/PAT over FY25–28.

The company’s consolidated financials reflect a healthy growth trajectory across sales, EBITDA, and PAT.

Return ratios are expected to improve further, with RoE forecasted to reach 18.6% and RoCE at 10.8% by FY28.

Financial Highlights Table

Strategic Initiatives and Subsidiary Performance

L&T continues to allocate capital prudently, with focused investments in subsidiaries and new growth areas such as semiconductors and green energy.

The Hyderabad Metro project is progressing with phased monetization of land assets and operational retail malls.

Power equipment joint ventures remain challenged, but new tendering activity is expected to support a turnaround.

L&T Realty is witnessing an uptrend, with a development pipeline of 70 million sq. ft. across key Indian metros.

Risks and Mitigating Factors

Key risks include a slowdown in order inflows, geopolitical disruptions in the Middle East, commodity price volatility, and execution delays in mega projects.

L&T’s diversified order book, strong balance sheet, and proven execution capabilities mitigate these risks.

The company’s focus on improving return ratios and maintaining healthy net working capital provides resilience against external shocks.

ESG and Sustainability Leadership

L&T’s sustainability initiatives have yielded tangible results, with a 16% reduction in energy consumption intensity, 20% lower GHG emission intensity, and 53% of revenue now derived from green business segments.

The company has been rated ‘Strong’ by Crisil ESG and ranked third in ENR’s ‘Top 200 Environmental Firms’ for 2024.

Investment Thesis and Recommendation

Motilal Oswal’s BUY recommendation on L&T is anchored in the company’s ability to capitalize on a burgeoning international prospect pipeline, maintain operational excellence, and deliver superior shareholder returns. With a revised target price of Rs 4,100, investors are advised to accumulate the stock, leveraging both short-term support levels and long-term growth prospects. L&T’s disciplined capital allocation, improving return profile, and sector leadership make it a compelling pick in the capital goods space.