L&T's Strong Order Momentum Meets Execution Hurdles in FY26
Larsen & Toubro's impressive order-winning streak has emerged as the standout positive from its December quarter results, providing much-needed comfort to investors amid broader market uncertainties. The engineering and construction behemoth witnessed its stock climb approximately 4% on Thursday following the announcement, reflecting renewed market confidence in the company's growth trajectory.
Record Order Inflows and Upward Guidance
The company's core projects and manufacturing business demonstrated remarkable resilience, achieving an 18% year-on-year increase in order inflows during Q3FY26. This growth is particularly noteworthy considering the challenging high base from the previous year. The total order inflow reached an impressive ₹1.16 trillion, with the infrastructure segment leading this expansion through securing high-value contracts in international markets, especially in power transmission & distribution and renewable energy sectors.
L&T's management has expressed growing confidence in surpassing its initial 10% year-on-year order inflow growth guidance for the full fiscal year. This optimism stems from a robust prospect pipeline that has expanded by 7% year-on-year to ₹5.9 trillion, spanning multiple strategic segments including infrastructure, hydrocarbon, carbon, and Hi-tech businesses.
Middle East Exposure and Geopolitical Considerations
Currently, 37% of L&T's substantial order backlog originates from the Middle East region, creating both opportunities and vulnerabilities. The company maintains that ordering prospects in this crucial market remain secure as long as oil prices stay within the $60–65 per barrel range. Management has also indicated that cancelled Kuwait projects, where L&T was the lowest bidder for contracts valued at over $4.5 billion, are expected to be refloated sometime in calendar year 2026.
However, analysts at BofA Securities have sounded a note of caution regarding this geographical concentration. They highlight that volatile crude prices and ongoing geopolitical uncertainties in the region could potentially limit stock re-rating despite strong earnings performance. This Middle East exposure represents a significant risk factor that investors must carefully monitor.
Execution Challenges and Revenue Growth Concerns
While the order book has reached an all-time high of ₹7.3 trillion, representing a substantial 30% year-on-year increase, execution remains the critical bottleneck. L&T faces the challenging task of accelerating project delivery to meet its ambitious 15% revenue growth guidance for the fiscal year.
The December quarter revealed persistent weaknesses in execution, with consolidated revenue at ₹71,400 crore and core revenue at ₹52,300 crore both falling short of analyst expectations. This underperformance was primarily attributed to slower progress in domestic infrastructure projects, particularly in water infrastructure, where extended monsoon conditions until October and payment-related issues contributed to delays.
Margin Stability and Future Outlook
L&T has reaffirmed its margin guidance at 8.5%, with core operating margins improving to 8.1% during the quarter. Management attributes margin pressure in specific segments like infrastructure and energy to legacy projects executed at lower profitability levels, which are expected to conclude over the coming quarters.
Despite fixed-price contracts comprising 55% of the order book, the company maintains that it remains adequately hedged against commodity price fluctuations and currency volatility. Research from Nuvama suggests that core operating margins have likely bottomed around 8.2% and should stabilize between 8.3–8.5% alongside projected 15% revenue growth through FY27-28.
Strategic Developments and Market Performance
L&T's stock has delivered a 13% return over the past year, outperforming the broader Nifty50 index. The company's upcoming five-year strategic plan, Project Lakshya, scheduled for unveiling alongside annual results in May, could serve as a significant catalyst for the stock. This comprehensive plan is expected to provide updates on several strategic initiatives including semiconductor investments and potential divestment of non-core assets like the Hyderabad Metro project.
With nine-month order inflows reaching ₹3.46 trillion, representing a 30% year-on-year increase, JM Financial Institutional Securities estimates that full-year order inflow growth could reach 24%. As the monsoon season concludes, management anticipates improved execution in the traditionally strong fourth quarter, which will be crucial for achieving both revenue and margin targets.
The company's ability to translate its record order book into consistent revenue growth while managing geopolitical risks and execution challenges will determine its performance trajectory through the remainder of FY26 and beyond.
