ICICI Securities has maintained a BUY rating on Larsen & Toubro (L&T), assigning a target price of Rs 4955, implying an upside potential of approximately 26% from the current market price of Rs 3930. Larsen & Toubro continues to reinforce its stature as India’s premier engineering and construction powerhouse, supported by a record-breaking order book and robust execution capabilities. While near-term headwinds—particularly in energy projects and global supply chain disruptions—have tempered margins and short-term growth visibility, the company’s long-term trajectory remains compelling. With a diversified portfolio spanning infrastructure, energy transition, and advanced manufacturing, L&T is strategically aligned with structural growth themes. Backed by strong order inflows, disciplined capital allocation, and its Lakshya’31 roadmap, the company is poised to deliver sustained earnings growth and superior shareholder value over the medium to long term.

Q4FY26 Performance: Solid Execution with Margin Moderation

L&T delivered a resilient operational performance in Q4FY26, underpinned by steady execution across key verticals. Consolidated revenue rose 11% year-on-year to Rs 82,762 crore, reflecting continued traction in infrastructure, energy, and manufacturing segments. EBITDA increased 5% YoY to Rs 8,610 crore, although margins remained contained at 10.4%, indicating cost pressures in select businesses.

Profitability showed mixed trends. Recurring PAT grew 5% YoY to Rs 5,289 crore, while reported PAT declined marginally by 3% due to a high base effect from prior exceptional gains.

Order inflows remained robust. At Rs 89,772 crore for the quarter—with 67% contribution from international markets—L&T continues to strengthen its global footprint.

Order Book Strength: Multi-Year Revenue Visibility Secured

The cornerstone of L&T’s investment case lies in its record order book. The company reported an order backlog of Rs 7.40 lakh crore, marking a 28% YoY increase. This translates into a book-to-bill ratio of approximately 2.6x, ensuring strong execution visibility over the next several years.

International diversification remains a key growth lever. Over 52% of the order book is sourced from global markets, enhancing resilience against domestic cyclicality and enabling participation in large-scale global EPC opportunities.

Segmental Deep Dive: Diverging Trends Across Businesses

Infrastructure: Stable but Gradual Growth
Revenue growth remained modest at 3% YoY, impacted by delays in domestic water projects. However, margin expansion to 6.9% signals improved cost efficiencies.

Energy: High Growth, Margin Pressure
The standout performer in terms of growth, the energy segment recorded a 35% rise in FY26 revenue. However, EBITDA margins declined to 6.8%, reflecting cost overruns in legacy hydrocarbon projects.

Hi-Tech Manufacturing: Execution-Led Surge
This segment delivered a strong 46% YoY revenue growth, though order inflows declined sharply due to a high base effect and deferred orders.

Development Projects: Temporary Weakness
Revenue and EBIT declined due to lower plant utilization and absence of asset monetization. Strategic exits are expected to improve long-term efficiency.

Strategic Vision: Lakshya’31 to Drive Structural Transformation

L&T’s Lakshya’31 roadmap underscores its transition into a future-ready conglomerate. The company is targeting:

Revenue CAGR of 12–15%
Order inflow growth of 10–12%
Return on Equity (RoE) of 16–17%

Investments in next-generation sectors are central to this strategy. Planned capital allocation includes:

Rs 150 billion in green hydrogen
Rs 100 billion in data centers
Rs 50 billion in industrial electronics
Rs 30 billion in semiconductor design

These investments, while near-term dilutive to returns, are expected to significantly enhance long-term growth potential.

Financial Outlook: Earnings Growth Remains Robust

ICICI Securities projects strong earnings momentum. Revenues and PAT are expected to grow at a CAGR of 15.4% and 15.2%, respectively, over FY26–FY28.

Below is a snapshot of key financial projections:

Margin stability is expected. EBITDA margins are projected to remain in the range of 8.2%–8.5%, supported by scale efficiencies and cost optimization initiatives.

Valuation Framework: Sum-of-the-Parts Upside Intact

The target price of Rs 4955 is derived using a Sum-of-the-Parts (SoTP) methodology. The base business contributes nearly 81% of valuation, with additional value unlocked from subsidiaries such as L&T Finance Holdings and IT services.

Valuation multiples remain attractive. The stock is trading at a forward P/E of ~38.3x FY27E and 31.4x FY28E, which appears reasonable given its growth visibility and return profile.

Near-Term Outlook: Temporary Headwinds Expected

The management has guided for a relatively subdued H1FY27. This is attributed to:

Supply chain disruptions
Geopolitical uncertainties in international markets
Execution delays in certain segments

However, a strong rebound is anticipated in H2FY27, driven by improved project execution and order conversions.

Key Risks to Monitor

Investors should remain mindful of the following risks:

Delays in project execution impacting revenue realization
Slower-than-expected improvement in return ratios
Margin pressures in legacy energy contracts
Volatility in global macroeconomic conditions

Investment View: Long-Term Compounding Story Remains Intact

Larsen & Toubro stands at the intersection of India’s infrastructure push and global energy transition. Despite near-term operational challenges, the company’s strong order book, diversified business model, and strategic investments in future growth engines position it as a structural long-term compounder.

With a clear visibility on earnings growth, improving capital efficiency, and global expansion, the stock offers an attractive risk-reward proposition for long-term investors.

Investment Call: BUY
Target Price: Rs 4955
Current Price: Rs 3930
Upside Potential: ~26%
Time Horizon: 12 months