Greenfield sectors, order book likely to drive L&T revenue growth

Larsen & Toubro, or L&T, recently transferred its realty segment to a wholly owned subsidiary, L&T Realty Properties. This move is aimed at scaling the realty business and potentially listing it to unlock value.

 

Analysts reckon L&T Realty can achieve sales of Rs 8,500 crore, translating into an operating profit of Rs 4,700 crore by FY30. The transfer is via a slump sale valued at Rs 6,300 crore. L&T Realty delivered sales of Rs 850 crore in H1 FY26, and Rs 200 crore was contributed by the subsidiary. (FY25 realty revenue was Rs 2,600 crore, with operating profit at Rs 1,300 crore).

 

Consolidation may increase management focus and aid scale-up. L&T Realty has land development potential of 65 million square feet across residential, commercial and retail spaces. L&T Realty is also pursuing select projects via land acquisitions and joint ventures, in addition to development of owned land. This could add upside to realty revenues.

 

Apart from the realty hive-off, L&T is also likely to be a major beneficiary of the recent decision to open up the nuclear power sector. Indeed, its growth prospects in new areas like defence, green hydrogen and nuclear power (with an estimated total addressable market of Rs 1.4 trillion, or $16 billion, in FY26 and high growth rates) could accelerate growth for the engineering major, which already has a big order book. 

 

Over the next five years, despite a high base, L&T may see revenue compounding at low double digits while net profit grows at mid-teens. In the near term, order backlog and smart working capital management will drive steady earnings growth. L&T has improved its return on equity, or RoE, from 11 per cent in FY21 to 17 per cent in FY26, through better capital deployment. The company has the capacity to move capital quickly into greenfield sectors like real estate, defence and green hydrogen. As and when a long-awaited pick-up in the private capex cycle occurs, it could push growth into top gear.

 

Defence ordering is lumpy, but the policy of self-reliance could mean the addressable market grows by an average of around 7 per cent per annum for the next decade. Green hydrogen is an entirely new domain and the science and engineering has not stabilised yet. Most projections assume the sector will take another three to four years before it attains scale, although growth rates could be in the mid-20s. The dynamics of nuclear engineering are much better understood, but projects tend to be long-gestation and timelines are often stretched even further by objections from civil society. Here too, growth is expected to accelerate only by FY30.

 

But in all three domains, L&T can leverage existing capabilities and advanced technology partnerships, and these may be margin accretive. L&T also has the unusual capacity of possessing both engineering, procurement and construction, or EPC, capability and tech capacity, which may help it integrate tech in project planning, bidding, risk management and execution. So, L&T should capture leading market share in these areas. The company anticipates substantial growth from annual nuclear reactor orders and a likely doubling in defence outlays.

 

L&T’s strong order book has been driven by orders from the Middle East (and around 50 per cent of the order book is overseas), which have offset a slowdown in domestic orders. A pick-up in domestic orders can only come via the resumption of private sector capex. While government-driven infrastructure capex has supported the market, this has stabilised at current growth rates of early double digits. The key drivers for the next private capex cycle would be electronics, power and data centres.

 

After growing at around 17 per cent revenue and 19 per cent net profit between FY25-27, L&T may see a slowdown to revenue growth of 11–12 per cent and net profit of 16 per cent over FY28-30. Other players in defence have higher valuations, and nuclear and green hydrogen could be high-margin. This could lead to a re-rating.

 

The external order book is heavily oriented to the Middle East and that exposure could be vulnerable to negative geopolitical developments. That is a downside risk. L&T’s broad capabilities across most engineering spheres leave it in an excellent position to exploit opportunities as these may arise.