Is L&T Undervalued Post Correction? Key Metrics to Watch

About the Company

Larsen & Toubro (L&T) is a major multinational conglomerate with a well-diversified portfolio spanning Engineering, Procurement, and Construction (EPC) projects, hi-tech manufacturing, and a variety of technology and financial services.

The company leverages its deep expertise to deliver large-scale, complex projects and products across India and international markets.

L&T's revenue is well diversified across geographies, balancing strong domestic execution in India with a rapidly expanding international footprint, particularly in the Middle East and the Americas.

The Middle East accounts for the largest share of L&T's international revenue.

The 30.6% Middle East Exposure

The Middle East accounted for around 30.6% of L&T's total consolidated group revenue in FY25, about Rs 2.5 trillion (tn), and 61.4% of its total international revenue (Rs 1.3 tn).

The reliance on the Middle East has accelerated in FY26. The region contributed 34% of the total group revenue in 9M FY26.

L&T's order book highlights an even heavier tilt toward the Middle East for future execution. As of December 2025, L&T's order book stands at Rs 7.3 tn, of which 37% is from the Middle East.

Out of L&T's total international order book of Rs 3.6 tn, 75% originates from the Middle East. The region constituted 33% of the group's total order inflows in 9M FY26.

The Middle East is a critical market for several of L&T's core EPC and Energy businesses. It executes ultra-mega onshore and offshore contracts in the region, particularly for Saudi Aramco and QatarEnergy LNG.

The Middle East is a primary operating region for establishing grid infrastructure, gigawatt-scale solar PV plants, and green hydrogen facilities, aligning with the GCC's ambitious 2030 renewable energy plans.

L&T is also seeing strong traction in the Middle East for large-scale desalination plants and smart water transmission networks to address regional water scarcity.

The region's push to diversify its economy beyond oil has made it an attractive investment destination for process plants serving the iron, steel, aluminum, and transition metals sectors.

However, this also amplifies sensitivity to regional evens. This has already started to reflect in sentiment amid the recent US-Israel-Iran conflict.

Crude Oil Supply Weighs on Middle East Outlook

L&T management had highlighted that crude oil prices trading sustainably below the US$ 55 per barrel mark could trigger substantial growth headwinds across the GCC. Such a scenario would have a direct bearing on order inflows, project financing, and regional revenue streams.

While crude has breached the US$ 100 per barrel threshold, supply chain bottlenecks and the temporary shutdown of several oil and gas facilities are expected to dampen near-term sentiment until operational stability is restored.

This creates a disconnect: strong pricing but weak execution visibility. These factors are expected to pressure near-term order inflows and project execution cycles.

Consequently, its share price is down about 21% during the last month ending 20 March 2026. During the Q3 FY26 conference call, L&T maintained an optimistic outlook regarding its financial and operational performance.

After achieving a 30% year-on-year growth in order inflows over 9M FY26, the company was confident it would exceed its initial full-year guidance of 10% order inflow growth.

The group's revenue grew by 12% in 9M FY26. Anticipating a fast-paced ramp-up in project execution in Q4, L&T expected to exceed its full-year revenue growth guidance of 15%.

Although it is difficult to assess the impact of Middle East tensions on L&T's financials, any prolonged disruption could weigh on near-term order inflows, execution timelines, and margins. This makes execution continuity the key point to track in the near term.

The 4X Revenue Visibility

Its Rs 7.3 tn order book provides revenue visibility of over 4 years, as per its standalone FY25 revenue of Rs 1.4 tn.

This provides medium-term revenue visibility despite near-term uncertainties.

A Strong Order Book Pipeline

L&T's near-term order prospects pipeline currently stands at Rs 5.9 tn. The order pipeline for the Infrastructure segment is Rs 4 tn, at a similar level to Rs 4 tn in FY25.

This pipeline comprises Rs 2.6 tn from the domestic market and Rs 1.4 tn from international prospects. Approximately 35% of these domestic prospects originate from the private sector, reflecting a revival in private capex across multiple sectors.

The government's budgetary allocation of around Rs 2.9 tn for the Ministry of Road Transport and Highways continues to support long-term EPC and Build-Operate-Transfer opportunities.

The energy pipeline has expanded to Rs 1.7 tn, largely driven by the Hydrocarbon segment (Rs 1.3 tn) and rapid growth in the CarbonLite Solutions business (Rs 0.4 tn).

L&T also expects growth in green hydrogen and derivatives, alongside coal-based power, which will continue to coexist with renewables in India to ensure national energy security.

This dual-track energy strategy reduces dependence on any single transition pathway.

The thermal power plant sector is currently experiencing a revival in India, presenting medium-term opportunities.

Hi-Tech Manufacturing & Defence prospect pipeline sits at Rs 0.24 tn. The outlook is supported by India's increasing defense capital acquisition budget (Rs 1.8 tn), providing visibility due to the modernisation of armed forces and military infrastructure.

Focus on New-Age Businesses

L&T is making a pivot to capitalize on the global energy transition, expecting its green business portfolio to drive significant future growth, with a clear focus on building new revenue engines.

It has incubated an entirely new business vertical focused on integrating renewable power with green hydrogen, green ammonia, and methanol production.

To this end, the company has secured 500 acres of land at Kandla Port in Gujarat to develop a large-scale green hydrogen and derivatives production plant.

Through its subsidiary L&T Electrolysers, the company has established a state-of-the-art, robotic-enabled factory in Gujarat, with an initial capacity to manufacture 400 MW of alkaline electrolysers annually.

It also aims to scale its green hydrogen electrolyser manufacturing to 10 MW stacks.

In the nuclear vertical, the company achieved a major milestone by securing regulatory approval from the US Department of Energy for the transfer of Small Modular Reactor technology to India. This positions L&T to lead the development of commercial nuclear energy.

Additionally, the heavy engineering business signed an MoU with US-based Holtec International to offer design-and-build solutions for heat-transfer equipment at nuclear and thermal power plants worldwide.

Its Power EPC business (CarbonLite Solutions) is sharpening its focus on carbon capture technologies, nuclear turbine islands, pumped-storage plant turbines, and traditional thermal power plants.

To enhance strategic focus, renewables is now a standalone business vertical.

The company has established a new wind vertical and expanded the capacity of the Battery Energy Storage Systems (BESS) integration facility in Kancheepuram to 1.2 GWh per annum.

L&T also ventured into semiconductors to align with India's reliance on imported chips and secure the global supply chain, marking its entry into high-value design-led manufacturing.

The company aspires to be India's first fabless semiconductor product company. It plans to design smart, energy-efficient chips for the mobility, industrial, energy, and application solutions sectors.

To accelerate its design expertise, it even acquired SiliConch Systems, a Bengaluru-based fabless semiconductor design start-up that holds over 30 granted patents.

It's also focusing on digital infrastructure to ride the AI and digital transformation wave, targeting long-term demand from data and compute-intensive applications.

The data center business has rebranded itself as Vyoma to spearhead expansion into hyper scale data centers. It currently operates 14 MW of capacity and plans to commission an additional 18 MW. This will expand the data center capacity to 32 MW, creating a scalable digital infrastructure platform.

New facilities are planned in Mahape, Panvel, and Bengaluru to support high-performance computing. The total expected capex investment for the data center business is roughly Rs 10 bn.

L&T also holds a 15% stake in E2E Networks, an Indian hyperscaler focused on advanced Cloud GPU infrastructure. This strategic partnership will enable L&T to offer end-to-end AI and cloud solutions to Indian enterprises.

It's Precision Engineering & Systems business is expanding into new-age warfare. The company entered into a strategic partnership with US-based General Atomics Aeronautical Systems to manufacture Medium-Altitude Long-Endurance Remotely Piloted Aircraft Systems in India.

The precision engineering capabilities are being strategically diversified from critical defense sectors into industrial electronic modules, mobility, and robotics.

The parent company initiated a slump sale of its realty business, transferring it to a wholly owned subsidiary, L&T Realty Properties Limited, consolidating all real estate assets into a unified platform.

The business is aggressively expanding, acquiring new projects totaling over 20 million sq. ft. (msf) for premium residential developments in Mumbai and Bengaluru, as well as 1.6 msf of commercial office space in Bengaluru and Pune.

The IT business, however, is facing some slowdown, which could act as a near-term drag on overall growth momentum.

Financials in Consistent Uptrend

L&T has been reporting consistent growth. In FY25, consolidated revenue rose 16% year-on-year to around Rs 2.6 tn. This was driven by momentum in the infrastructure segment. Operating profit rose 12.5% to Rs 264.4 billion (bn), while margin declined by 30 bps to 10.3%.

Net profit surged 15% to Rs 150 bn. Return on Net Worth improved to 16.3%, up from 14.9% in FY24.

The momentum stayed strong in 9M FY26. Revenue rose by 12% year-on-year to Rs 2 tn, driven by order book execution. Operating profit grew by 13% to Rs 205.4 bn, while margin stood at 10.1%. Net profit (excluding one-time provision for new labour codes) grew 25% to Rs 119.5 bn.

Is L&T Undervalued?

At Rs 3,435, L&T is trading at a price-to-earnings (PE) multiple of 27.7 times, which is a discount to its 5-year median PE of 32.2 times.

This suggests the stock is trading below its historical average valuation.

This valuation could narrow if the situation in the Middle East stabilises as long as the execution momentum remains strong.

Bottomline

Larsen & Toubro stands at a critical intersection.

On one side, it has built a strong, diversified execution engine with a Rs 7.3 tn order book, rising domestic opportunities, and a clear push into future-facing segments like green hydrogen, semiconductors, and digital infrastructure.

On the other hand, its growing dependence on the Middle East introduces near-term volatility, especially amid geopolitical disruptions and oil-linked uncertainties.

Despite this, execution momentum remains intact, and guidance upgrades signal confidence.

At current valuations, the stock reflects some of these risks. The key point is how well L&T balances global exposure with domestic growth while sustaining execution and margins.

That said, instead of relying solely on hype, investors need to carefully analyse the company's fundamentals, including financial performance, corporate governance practices, and growth strategies.

Happy investing.

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