Larsen & Toubro Q1FY23 review: Strong show across board

What's Buzzing:

Larsen & Toubro (L&T) reported strong execution with equally strong order inflows for the quarter

Context:

L&T's adj. standalone revenues (Ex- E&A) for the quarter grew by 21.7% YoY to Rs 20211.7 crore (vs. our estimate of Rs 20586.7 crore). On a consolidated basis, adj. revenues grew by 22% to Rs 35853 crore YoY basis with strong execution witnessed in the Infrastructure segment and riding on the sustaining growth momentum in the IT&TS portfolio. For Q1FY23, L&T registered strong order inflows at group level worth Rs 41805 crore, which grew by 57% YoY. International orders for Q1FY23 came in at Rs 17842 crore contributing 43% to order inflows. L&T’s order backlog as on Q1FY23 stood at Rs 363448 crore with international orders contributing 28%. During the quarter, Standalone EBITDA margins declined by 68bps to 7.6% (Vs. our estimates of 7.7%) on YoY basis owing to job mix and cost control initiatives. On a consolidated basis, EBITDA margins came in at 11%. Consequently, for Q1FY23, standalone Adj. PAT (Ex-E&A) came in at Rs 911.2 crore, de-grew by 9.7% on YoY (Vs. our estimates of Rs 1392.9 crore) due to lower other income. Other income came in at Rs 567.9 crore de-grew by 19.5% on YoY while, interest expense increased by 6.3% to Rs 504.5 crore. The consolidated adj. PAT for Q1FY23 came in at Rs 1702.07 crore (Vs Rs 1174.4 crore in Q1FY22).

Our Perspective:

L&T registered strong order inflows at group level worth Rs 41805 crore, which grew by 57% YoY. With strong order book of Rs 363448 crore suggest good revenue visibility in coming years for the company. L&T is well on track to achieve its guidance of 12-15% revenues and order inflow growth for FY23E. The margins guidance has been pegged at 9.5% given the volatile commodity outlook. On the working capital to sales ratio the company had guided for a range of 20-22% in the beginning of FY23 but now the company is quite confident to end at the lower end of the guidance given pick up in execution and normalisations of debtor’s cycle. Focus on monetisation of non-core assets, enhancing ROE’s and reducing debt makes it an attractive portfolio bet to ride the infrastructure and manufacturing cycle revival theme.