Mandirs, missiles, and mega bridges: Why L&T deserves a second look
It’s building bridges, ships, missiles, and even semiconductors—but L&T remains a sleeping giant in the stock market’s eyes. For how long?
India’s longest sea bridge—the Atal Setu connecting Mumbai to Navi Mumbai—and the majestic Sri Ram Janmabhoomi Mandir in Ayodhya, inaugurated in January 2024, have one thing in common: both were built by engineering powerhouse Larsen & Toubro (L&T).
Despite decades of competition, L&T continues to dominate the high-value, critical EPC (engineering, procurement, and construction) space—not just in India, but across Middle Eastern markets as well. Its track record of executing complex, large-scale projects remains unparalleled.
Recently, the company bagged a landmark ultra-mega order from Qatar Energy—L&T’s largest-ever contract, according to its management.
Also read: Can L&T's order wins pave way for re-rating?
Meanwhile, its hydrocarbon business order book has crossed the ₹1 trillion mark, reaffirming its global credibility in the sector.
L&T's footprint extends far beyond infrastructure. Its financial services arm ranks among the largest in its peer group, and on the green energy front, L&T Electrolysers emerged as a winner in the first tranche of the government’s PLI scheme.
The company also launched a 1.4 MW pilot data centre in Panvel, further diversifying its presence in future-ready sectors.
In semiconductors, too, L&T is stepping up. Its design division is fast becoming a key player in India's chipmaking ambitions.
Missing the spotlight
Despite being active in several key areas—like LNG, semiconductors, defence, and green energy—L&T didn’t benefit much from the strong stock market rally in 2024.
Investors were worried about the company’s ability to deliver on its massive order book and maintain profit margins. In contrast, many smaller, less-proven companies saw their stock prices soar, even with very high valuations.
The start of FY25 wasn’t great either. With the government spending less during the election period, new domestic orders were slow to come in.
Still, L&T’s strong presence across industries and steady performance could help the company regain investor confidence—especially if it shows it can handle big projects efficiently and market focus shifts back to solid, reliable businesses.
In the second half of FY25, concerns grew over weak order inflows from the Middle East, largely due to falling crude oil prices.
Despite these headwinds, L&T has stuck to its operating margin guidance for the year. However, there’s a catch—large order wins, while impressive, can sometimes be margin-dilutive. This makes it important for the company to strike the right balance between high-margin gas/LNG contracts and lower-margin renewable energy projects.
Also read: L&T’s orders soothe, but margin worries remain
Timely execution remains critical. As of December 2024, L&T had a massive order backlog of ₹5.6 trillion.
While execution challenges are common in sectors like defence due to complex supply chains, L&T has managed these well so far.
At its sprawling 45-acre defence facility in Pune, assembly lines run at full tilt. Teams of engineers and technical experts build advanced systems for both naval and land defence—such as the BrahMos and Pinaka missile launchers. These homegrown systems are India’s answer to America’s HIMARS (High Mobility Artillery Rocket System).
L&T's deep roots in defence go back to the 1980s. Over the decades, it has worked closely with the Indian government and armed forces to design and produce a wide range of equipment—from armoured vehicles and artillery guns to radars, communication systems, and naval ships.
The company also provides long-term maintenance and support for its defence products. It has invested heavily in R&D and developed over 100 defence products on its own or through partnerships with DRDO.
This strong research focus and close collaboration with both Indian and international defence agencies have helped L&T build a leadership position in the private defence sector.
Yet, L&T hasn’t always received the spotlight like its public sector counterparts. Delayed government payments and rigid procurement systems slowed down its earlier push into exports. That’s now changing. In 2022, Pinaka missile components were exported to Armenia, and two South American countries are currently exploring similar deals.
Going forward, L&T looks set to make major strides across green energy, defence, semiconductors, and data centres. These efforts could help strengthen its subsidiaries and prepare the company to weather any market cycles.
Still, investors may need to be patient. While L&T remains a fundamentally strong business, this “forgotten bluechip" might take time to get the market valuation it truly deserves.
Happy investing!
Also read: Workforce crisis hits construction & infra firms like L&T, KEC, HCC
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
topics
