Larsen & Toubro Ltd is scheduled to release its earnings for the December quarter later today, and analysts remain optimistic of a strong show by the engineering behemoth.

Strong execution in the mainstay infrastructure segment, healthy order inflows, and lower input costs are likely to drive a robust double-digit growth in earnings of L&T, which is viewed as a proxy to India’s infrastructure story.

L&T has been one of the best performing stocks in the last one year as the strong government-led capex drive in the infrastructure segment has bolstered growth prospects.

The company’s outlook for the domestic market as well as international market, particularly Middle East, will be closely eyed by investors.

Core Earnings

L&T is seen reporting a 39% year-on-year (YoY) growth in consolidated net profit for the quarter to Rs 3,362 crore, according to the average of estimates given by seven brokerages. This growth will be led by a 17% increase in the consolidated revenue to Rs 54,255 crore and a 21% rise in operating profit to Rs 6,137 crore.

Order Inflows

Analysts expect order inflows to be robust at around Rs 610-650 billion, and given the strong momentum, some even see the company raising its order inflow growth guidance for the current financial year ending March. In the six months ended September, L&T bagged orders worth Rs 1.55 lakh crore, up 65% YoY, of which, international orders stood at Rs 87,333 crore.

Infrastructure Show

Kotak Institutional Equities expects a 17% YoY improvement in core EPC revenues on improved construction activity across projects during the quarter. It expects core E&C business operating margins to improve 10 bps YoY to 8.6%, driven by lower commodity prices.

Infrastructure segment constitutes nearly 50% of L&T’s consolidated revenue, and this saw a strong 27% YoY growth in revenue in the September quarter.

International Business

L&T derives more than 40% of its revenue from international business, and the Middle East is a critical market for the company.

So far, order tendering in the Middle East region has been strong post the Israel-Hamas conflict, and there has been no negative news flow on any disruption in execution in these regions.

The recent Red Sea conflict had raised some concerns over its potential impact on business as ocean freight costs had risen sharply, but BNP Paribas does not see this as a major threat for L&T.

“L&T’s core businesses do not have any material exposure to either Israel or Yemen and, thus, there are no exposures to direct conflict zones,” the brokerage firm said.

Nevertheless, analysts will eye management commentary on the outlook for international operations.

Working Capital

The other favourable factor for L&T is on the working capital side as the net working capital to sales (ex-finance) is seen moderating, driven by receipt of customer advances from large international projects secured in the first half of FY24.

L&T’s long-term debt to working capital ratio as of September end improved to 1.27 times from 1.30 times a year ago.

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