Can L&T's order wins pave way for re-rating?

Financial year 2026 (FY26) has kicked off on a strong note for Larsen & Toubro Ltd (L&T), with the company announcing on Tuesday that its power transmission and distribution vertical has secured several new orders in India, as well as in the United Arab Emirates (UAE), Qatar, and Oman. While the value of these contracts has not been disclosed, the influx of these new orders signals a strong momentum in global investments aimed at enhancing grid infrastructure, providing a positive outlook for L&T’s revenue visibility.

This announcement follows last week’s news of L&T securing a landmark ultra-mega order from QatarEnergy, a global leader in LNG. According to L&T’s management, this is the largest single contract the company has ever received. The offshore contract pertains to the North Field Production Sustainability Offshore Compression Project and is expected to boost sentiment toward L&T’s stock, as it strengthens the company’s global energy portfolio.

Read this | L&T’s orders soothe, but margin worries remain

Note that L&T's stock struggled in FY25, falling 7% and underperforming the benchmark Nifty50 index, which rose 5%. The first half of FY25 was muted for the engineering company as subdued government spending in an election year weighed on domestic order prospects. In the second half of FY25, there were concerns of muted order inflows from the Middle East market due to declining crude oil prices.

While L&T has not disclosed the specific value of its QatarEnergy order, it categorizes contracts over ₹15,000 crore as ultra-mega orders.

“Media reports indicate that the order value is around $4.5 billion (around ₹38,600 crore). With this order win, L&T’s Q4FY25 order inflow announcements stand strong at about ₹66,400 crore (average of the range),” said a JM Financial Institutional Securities Ltd report dated 26 March.

The brokerage had factored order inflows of ₹52,300 crore for L&T's core Projects & Manufacturing (P&M) business in Q4FY25 and ₹2.68 trillion for FY25. With this latest order win, L&T has exceeded its FY25 order inflow growth target of 10% year-on-year. The company has also set a revenue growth target of 15% for FY25.

Given its huge order backlog which stood at ₹5.64 trillion as of end of December, timely execution has always been vital for L&T. Even so, this ultra-mega order win allays a crucial concern about the company's order inflow trajectory. Notably, order inflows for L&T have exceeded the Street's estimates in the past four quarters.

“We believe the recent narrative of L&T’s order inflows shrinking in FY26 (due to a possible drop in crude oil prices) is misplaced,” said a BNP Paribas report dated 26 March. “With Saudi Aramco targeting $52-58 billion in capex for CY25-26, we expect contracting to remain robust. CY25 has already seen awarding momentum in Qatar, with L&T well-placed for $4 billion of contracts,” added the BNP report.

Read this | Afcons eyes Middle East construction boom, shifts strategy with local partnerships

Against this backdrop, the brokerage house sees potential for L&T's stock to be re-rated due to its earnings growth prospects.

In terms of margins, L&T has maintained its P&M margin guidance for FY25 at 8.2-8.5%, which is flat compared to the previous year. However, large order wins, which are often margin-dilutive, pose a concern. Here, L&T will need to strike a balance between higher-margin gas/LNG contracts and lower-margin renewable projects.

Also read | Workforce crisis hits construction & infra firms like L&T, KEC, HCC

However, as things stand, a weaker-than-expected core Ebitda (earnings before interest, tax, depreciation and amortization) margin performance could be a key downside risk for the L&T stock. A potential upside, among others, for L&T could be reducing its exposure to non-core assets, such as the Hyderabad metro project.