Strong domestic orders, non-core divestments may drive rerating for L&T

L&T reported a miss on revenue for the second quarter of 2025-26 (Q2FY26).

- DEVANGSHU DATTA

Order inflows were higher than consensus with growth guidance for orders upgraded. The growth guidance of 15 per cent year-on-year (Yo-Y) for group revenues, and 8.5 per cent operating profit margin for core business in FY26 was maintained.

The consolidated Q2FY26 net profit was in line, though revenue guidance was missed due to lower-than-expected revenue from core engineering, procurement, and construction (EPC). Order inflows for EPC stood at $96,800 crore, and operating profit margin improved by 20 basis points (bps) Yo-Y. The net working capital and return on equity (RoE) continued to improve.

The order prospect pipeline is up 29 percent Yo-Y at %10.4 trillion for the remaining six months (6MEY26), and the company has a win ratio of 19-20 per cent in Q2FY26 order wins. L&T may easily exceed its previous order inflow growth guidance of 10 percent.

Management has given the guidance of order inflow growth of well over 10 per cent. L&T has an in-principle understanding with the Telangana government to divest stake in Hyderabad Metro. Revival in domestic order inflows and non-core asset divestment could lead to valuation rerating of the stock.