Larsen & Toubro Ltd (L&T) investors were elated after the engineering giant reported robust order inflows in the June quarter (Q1FY26), lifting its stock nearly 5% on Wednesday.
Orders in the core Projects & Manufacturing (P&M) business surged 41% year-on-year to ₹76,600 crore, driven by big-ticket boiler-turbine-generator (BTG) contracts in the energy segment from West Asia. The region accounted for 38% of total Q1 inflows, as governments ramp up capital expenditure in hydrocarbons, green energy, and power.
The sharp pick-up in orders has boosted L&T’s earnings visibility. The company’s total order book rose 25% year-on-year to a record ₹6.13 trillion as of June-end, equivalent to 3.1x the trailing 12-month P&M revenue. The prospective pipeline for the remainder of FY26 is also strong, up 63% year-on-year at ₹14.81 trillion.
Adding to the momentum, L&T bagged an ultra-mega order, worth over ₹15,000 crore, in the hydrocarbon segment in West Asia on Tuesday.
For FY26, the company has retained its guidance of 10% year-on-year growth in order inflows, surprising some analysts who expected a flat outlook given the high base of FY25.
Historically, L&T has maintained a hit rate of 20–25% on its prospect pipeline—referring to the proportion of projects won versus those bid for. If it sustains this ratio, the company could exceed its FY26 order inflow target, Motilal Oswal Financial Services said in a 29 July report. “Our assumption of 10% growth in order inflows for FY26 translates into a hit rate of nearly 17% for the year,” the report added.
Revenue for the core P&M, rose around 19% year-on-year toRs 45,800 crorewith Ebitda margin flat at 7.6%, which was a tad disappointing. L&T retained its core Ebitda margin guidance of 8.3-8.5% for FY26, similar to 8.3% in FY25.
Despite L&T’s improving execution capabilities, core margin could see some pressure in case of a spike in commodity prices because of a higher share of fixed-price international orders. “We believe core operating profit margin may bottom out at current levels of 8.2% with FY26/27 providing a path towards 8.5–9% given further projects reach margin recognition milestones by H2FY26/FY27,” said Nuvama Institutional Equities in a 29 July report. A pick-up in core margin is among the factors that is crucial for L&T’s re-rating.
Overall, year-on-year revenue growth guidance for FY26 was also maintained at around 15%. Consolidated revenue rose 16% to ₹63,700 crore, driven by healthy execution across its P&M portfolio. Consolidated Ebitda improved 13% to ₹6,300 crore in Q1FY26, aided by robust execution.
L&T also reported a notable improvement in operational metrics, with net working capital (NWC) as a percentage of sales falling by 380 basis points in Q1FY26, aided by better collections. Importantly, there remains scope for further improvement.
“With rising share of international projects in execution, NWC to sales has fallen to decadal lows at 10.1% (versus 13.9% in 1QFY25) and 12% at FY25 end. We view management guidance of 12% NWC-sales to be conservative. With improving working capital and potential land monetisation at Hyderabad Metro in H2FY26, return on equity (RoE) target (Project Lakshya) of 18% seems achievable,” said JM Financial Institutional Securities report dated 29 July. RoE on a trailing twelve-month basis is currently at 17%.
Still, despite the strong Q1 showing, the L&T stock has declined 2% over the past year, underperforming the Nifty 50 amid margin concerns. It trades at 27.5x its FY26 estimated earnings, according to Bloomberg data.
While the growth outlook is robust, any slowdown in execution or delay in order conversions, especially due to geopolitical tensions, could pose near-term risks to the stock.
