LT - Fundamental Analysis: Financial Health & Valuation

Last Updated Time : 20 Dec 25, 11:15 pm

Fundamental Rating: 3.7

📊 Core Financials

• Quarterly PAT fell sharply from ₹3,485 Cr. to ₹1,212 Cr. (-39% variation, showing earnings pressure).
• ROCE at 18.5% and ROE at 17.1% indicate strong operational efficiency and shareholder returns.
• Debt-to-equity ratio at 0.27 reflects a healthy balance sheet with manageable leverage.
• EPS at ₹42.2 supports profitability, though recent earnings volatility is concerning.

💹 Valuation Indicators

• P/E Ratio: 54.7 (well above industry PE of 18.8, suggesting overvaluation).
• P/B Ratio: ~8.2 (CMP ₹4,074 / Book Value ₹494).
• PEG Ratio: 3.22 (high, indicating stretched valuation relative to growth).
• Intrinsic Value: CMP appears above fair value, limited margin of safety.

🏢 Business Model & Competitive Advantage

• Larsen & Toubro (L&T) is India’s leading engineering, construction, and infrastructure conglomerate.
• Competitive advantage lies in diversified operations across EPC, IT services, financial services, and global presence.
• Strong order book in infrastructure and government projects supports long-term growth visibility.

📈 Entry Zone & Long-Term Guidance

• Entry Zone: Attractive near ₹3,600–₹3,800 (close to DMA 200 at ₹3,714 and below CMP).
• Long-Term Holding: Suitable for investors seeking infrastructure exposure, though valuations are expensive at current levels.

✅ Positive

• Strong ROCE (18.5%) and ROE (17.1%) highlight efficiency.
• Healthy balance sheet with low debt-to-equity ratio (0.27).
• FII holdings increased slightly (+0.15%), showing foreign investor confidence.

⚠️ Limitation

• High P/E (54.7) compared to industry average (18.8).
• PEG ratio at 3.22 indicates stretched valuation relative to growth.
• Quarterly PAT declined sharply (-39%), showing earnings weakness.

📉 Company Negative News

• Quarterly profit dropped significantly, raising concerns about near-term earnings stability.
• DII holdings reduced (-0.14%), reflecting cautious domestic sentiment.

📈 Company Positive News

• Strong order book in infrastructure and EPC projects ensures long-term visibility.
• FII holdings increased slightly, showing foreign investor confidence.

🏭 Industry

• Infrastructure and EPC sector benefits from government spending and urbanization.
• Industry PE at 18.8, showing L&T trades at a significant premium to peers.

🔎 Conclusion

Larsen & Toubro demonstrates strong fundamentals with high ROCE, diversified operations, and low debt. However, earnings volatility and stretched valuations limit near-term upside. Entry is advisable near ₹3,600–₹3,800 for better risk-reward. Long-term investors may benefit from infrastructure growth and L&T’s diversified business model, though cautious accumulation is recommended due to premium valuations and recent profit decline.