Fundamental Analysis of L&T: A Comprehensive Overview

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L&T

Larsen & Toubro (L&T) is a renowned Indian multinational company specializing in technology, engineering, construction, manufacturing, and financial services. Founded in 1938 by Danish engineers Henning Holck-Larsen and Soren Kristian Toubro, L&T has evolved into one of India’s largest and most respected conglomerates. Over the decades, L&T has expanded its global footprint, offering high-value services and solutions across various industries.

Checkout the Balance sheet Dashboard and lets understand step by step fundamental analysis:

Fundamental Analysis Of L&T

Sales, Net Profit & Operating Profit

  • Sales: L&T’s sales have demonstrated consistent growth, from ₹1,19,683 Cr in March 2018 to an anticipated ₹2,41,539 Cr by March 2025.
  • Net Profit: The net profit has risen from ₹8,004 Cr in March 2018 to a projected ₹16,806.93 Cr by March 2025.
  • Operating Profit: Operating profit has seen a significant increase from ₹20,111 Cr in March 2018 to an expected ₹32,295.24 Cr by March 2025.

Operating Profit Margin

The Operating Profit Margin has experienced fluctuations, peaking at 17.25% in March 2021 and is projected to slightly decline to 13.32% by March 2025.

Earnings Per Share

Earnings per share have generally trended upwards, increasing from ₹52.59 in March 2018 to a forecasted ₹101.76 by March 2025.

Return on Equity (ROE)

The Return on Equity has seen variations, peaking at 17.03% in March 2021, with an expected increase to 18.01% by March 2025.

Asset Distribution

  • CWIP (Capital Work in Progress): ₹3,045 (1%) – Ongoing projects that are yet to be completed.
  • Fixed Assets: ₹42,964 (13%) – Includes long-term investments such as property and equipment.
  • Investments: ₹45,648 (13%) – Financial investments like stocks and bonds.
  • Other Assets: ₹2,47,437 (73%) – Encompasses all other assets.

Liability Distribution

  • Borrowings: ₹1,16,322 (34%) – Loans and debts the company owes.
  • Equity Capital: ₹275 (0%) – The money invested by the company’s shareholders.
  • Other Liabilities: ₹1,36,412 (40%) – All other financial obligations.
  • Reserves: ₹86,084 (26%) – Funds set aside for future use or emergencies.

Strengths

  • Strong Revenue Growth: L&T has consistently increased its sales, reflecting its strong market position.
  • High EPS: Steady growth in Earnings Per Share, indicating robust profitability.
  • Diverse Asset Base: Significant investments and other assets showcase the company’s financial strength.
  • Strong ROE: Return on Equity remains robust, demonstrating efficient use of equity capital.
  • Leading Industry Position: L&T’s reputable brand and vast experience across various sectors enhance its competitive edge.

Weaknesses

  • Fluctuating OPM: Variability in Operating Profit Margin suggests operational challenges that need addressing.
  • High Borrowings: Significant borrowings could pose a financial risk, requiring careful management.
  • Decline in Some Ratios: A slight decline in certain financial ratios indicates potential areas of concern.
  • Market Volatility Impact: Sensitivity to market conditions can affect performance and requires strategic navigation.
  • Global Economic Dependencies: Reliance on global markets introduces external risks that need to be mitigated.

FAQs

What is the expected EPS for L&T in March 2025?

The EPS for L&T is projected to be ₹101.76 in March 2025, reflecting the company’s strong earning potential and profitability over the years.

How has L&T’s Operating Profit Margin changed over the years?

The Operating Profit Margin (OPM) has shown significant fluctuations, peaking at 17.25% in March 2021. However, it is expected to slightly decline to 13.32% by March 2025, indicating operational challenges and market dynamics that the company needs to manage effectively.

What is the predicted net profit for L&T in March 2025?

The net profit for L&T is anticipated to reach ₹16,806.93 Cr by March 2025, highlighting the company’s growth trajectory and its ability to generate substantial profits over time.

What are the main components of L&T’s asset distribution?

The major components of L&T’s asset distribution include Other Assets (73%), Investments (13%), and Fixed Assets (13%). This diversified asset base showcases L&T’s strategic investments and robust financial health.

How does L&T’s Return on Equity (ROE) reflect its financial health?

L&T’s ROE has seen ups and downs, with a peak of 17.03% in March 2021 and an expected rise to 18.01% by March 2025. This indicates the company’s efficient use of equity capital and its potential for sustained profitability.

What strategic measures can L&T implement to mitigate financial risks?

To mitigate financial risks, L&T can focus on reducing borrowings, enhancing operational efficiency to stabilize profit margins, and diversifying its market presence to reduce dependence on global economic conditions. Strategic planning and proactive risk management will be key to maintaining financial health.

How significant are L&T’s investments in its asset distribution?

Investments constitute 13% of L&T’s total assets, highlighting the company’s strategic approach to financial growth. These investments are crucial for long-term stability and potential returns, contributing significantly to L&T’s overall financial strength.

What is the importance of L&T’s reserves in its liability distribution?

Reserves make up 26% of L&T’s liabilities, acting as a financial cushion for future uncertainties and emergencies. Maintaining substantial reserves is essential for sustaining operations and addressing unexpected financial challenges.

What does L&T’s sales growth indicate about its market position?

The consistent increase in sales, from ₹1,19,683 Cr in March 2018 to a projected ₹2,41,539 Cr by March 2025, indicates L&T’s strong market presence and its ability to capture and expand its market share effectively.

Checkout the performance of L&T stock price starting from 2018 to till date

Conclusion

L&T’s financial analysis reveals a robust growth trajectory with significant increases in sales, net profit, and EPS. While the company showcases strengths such as strong revenue growth and a diverse asset base, it also faces challenges like high borrowings and fluctuating profit margins. Future predictions indicate continued growth, making L&T a resilient player in its industry. By closely monitoring its financial health and addressing areas of concern, L&T can sustain its market leadership and continue to deliver value to its stakeholders.

By implementing strategic measures to mitigate risks and capitalize on its strengths, L&T is well-positioned to achieve its financial goals and maintain its leading position in the market.

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Anirban Paira brings over 6 years of robust experience in the banking industry, specializing in various loan segments including Retail, MSME, and Corporate Loans. Leveraging his extensive background, Anirban excels at delivering in-depth balance sheet analysis of listed companies, transforming complex financial data into actionable insights. Through his expertise, Equity Alchemy aims to empower investors and financial enthusiasts with clear, detailed, and visually compelling company analysis.

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