L&T wins a major MENA contract

Larsen & Toubro is accelerating its global expansion with a major contract to build a pellet and Direct Reduced Iron plant in the MENA region, reinforcing its role in green steel and sustainable industrialization. This move aligns with global decarbonization efforts, strengthening L&T’s position in high-tech infrastructure projects. According to the company's project classification, this project, valued between INR50bn to INR100bn.

India’s largest E&C company

L&T is the largest E&C, with around 88% of its revenue derived from engineering, infrastructure, and industrial projects. The company specializes in transportation, hydrocarbon, power, and energy production, alongside aerospace and defense systems and customized industrial machinery. With a strong global presence across India (50% of 9MFY25 revenue), Middle East (30%), US & Europe (17%), and ROW (3%), L&T is well-positioned to capitalize on rising infrastructure investments and energy transition projects.

L&T’s expanding international footprint, particularly in MENA, provides revenue diversification and resilience, ensuring that it remains well-insulated against domestic slowdowns. With a record-high order book and a growing share of international contracts, L&T is strategically positioned to capitalize on both domestic and global infrastructure opportunities.

A sector poised for growth

The E&C sector is a major force behind economic growth, contributing 9% to GDP and employing over 71 million people. It is witnessing strong demand, fueled by urbanization, government spending, and energy transformation. The government’s INR11.2tr (USD134bn) capital expenditure allocation for FY25, accounting for 3.1% of FY25-26 GDP, underscores the nation's commitment to large-scale infrastructure projects.

Urbanization is a key driver, as over 50% of India’s population is expected to live in urban areas by 2046, increasing the demand for transport networks, energy grids, and industrial corridors. Government-backed megaprojects like the Delhi-Mumbai Industrial Corridor and the Bengaluru-Mumbai Economic Corridor aim to enhance connectivity and boost logistics efficiency. Additionally, renewable energy projects, high-speed rail networks, and digital infrastructure development are shaping the future of the sector. Despite material cost fluctuations and global competition, India's construction boom continues, supported by sustainable infrastructure, private investments, and smart city initiatives, making it one of the fastest-growing infrastructure markets in the world.

L&T’s financial strength

In 9MFY23, L&T continues to outperform expectations, recording INR1,813bn in revenue, up 18% YoY, driven by strong execution across infrastructure, energy, and high-tech manufacturing. The company’s EBITDA stood at INR182bn, maintaining a stable 10% margin, reflecting disciplined cost management despite rising project execution costs. Net profit surged 10% YoY to INR95bn, showcasing the company’s operational efficiency and diversified revenue base.

The highlight of L&T’s financial performance is its record order book of INR5,642bn, reflecting 20% YoY growth, fueled by INR2,670bn in new orders in 9MFY25 alone. 42% of the order book is now international, with Middle East projects contributing 33% of new orders (in 9MFY25). Major wins include hydrocarbon infrastructure projects in Saudi Arabia and the MENA green steel initiative, further strengthening L&T’s global dominance.

L&T’s ROE stands at 16%, with prudent working capital management improving net working capital to 12.7% of revenue, improved 390 bps YoY. This financial strength ensures stability and growth, as L&T continues to expand across high-margin, technology-driven projects in both India and international markets.

Analyst confidence and valuation

Over the past 12 months, the company's stock has declined by approximately 5%, primarily due to a broader market correction. Similarly, its local peer, NBCC, has seen a more substantial decline in returns, amounting to 14% over the same period.

The recent correction in share prices has resulted in L&T trading below its historical average and its local peer NBCC. Currently, L&T is trading at a P/E ratio of 30x, based on the FY25 estimated EPS of INR 110. This is lower than its 3-year historical average P/E ratio of 33x and significantly lower than NBCC's P/E ratio of 39x. Similarly, on an EV/EBITDA basis, L&T is trading at 20x, based on the FY25 estimated EBITDA of INR272.9bn. This is lower than NBCC's EV/EBITDA ratio of 43x, although it is slightly higher than L&T's 3-year historical average of 19.2x.

L&T enjoys a favorable view among analysts, with 30 out of 34 recommending a ‘Buy’ rating and two suggesting a ‘Hold’ rating. The average target price is INR4,100, implying an upside potential of 25%. This positive outlook is further supported by an anticipated EBITDA CAGR of 17% over the period FY24-FY27, reaching INR 380.5bn, with margins of 11% in FY27. Additionally, analysts estimate a net profit CAGR of 20%, reaching INR227.6bn with margins of 7% in FY27, and EPS is expected to increase to INR166 in FY27 from INR94 in FY24. Similarly, analysts estimate an EBITDA CAGR of 17% for NBCC, but they project a significantly higher net profit CAGR of 35% for the company.

Overall, given its strong execution track record, rising international order inflows, and expansion in high-growth infrastructure segments, L&T remains a key player in the EPC and infrastructure sector. As it continues to secure large-scale projects and drive technological innovation, L&T is poised to capitalize on India’s and the world’s next phase of infrastructure development, cementing its place as a global engineering powerhouse. Key risks include economic slowdowns resulting in lower order inflows, project delays and cost overruns, regulatory risks, and foreign exchange risks.