---
endpoint: analytics
pattern: Conglomerates
status: done
latency_ms: 187333
conversation_id: 7e05828e-ed96-4408-a61b-2e62247f428b
citations: 0
created: 2026-05-31 18:59:55Z
---

# Is CLSA incrementally more positive/negative on Larsen & Toubro. If so, why?

**Yes — CLSA is incrementally more positive on Larsen & Toubro (L&T).** The rating remains OUTPERFORM (O-PF), but the tone, target price, and conviction have stepped up materially through the 4QFY25 cycle (May 2025) and were reaffirmed as a top pick in CLSA's latest India Capex Insights (24 June 2025). The shift is incremental rather than a step-change in rating — the upgrade lives in the narrative, forecast quality, and conviction signaling, not in the headline call.

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## Direction of travel: more positive

| Marker | Before (pre-4QFY25) | Now (latest CLSA notes, May–Jun 2025) |
|---|---|---|
| **Rating** | O-PF | O-PF (maintained) [1][8] |
| **Target Price** | Rs4,151 | **Rs4,176** (+0.6%, roll-forward) [1][8] |
| **Upside to TP** | — | **+16.5%** (price Rs3,583 as of 24-Jun) [16] |
| **Top-pick status** | Implicit | **Explicit #1 top pick in India Infrastructure** [13] |
| **Margin call** | Flat/awaiting | **First margin expansion in 5 years guided**; CLSA views guidance as **conservative** with upside risk [1][4] |
| **Pipeline narrative** | Cautious | **57% YoY pipeline growth** to US$221bn for FY26 [3][6] |

CLSA labels L&T "a key India & ME capex cycle play" [1][14] — that explicit positioning didn't carry the same conviction in prior vintages.

---

## Why CLSA is incrementally more positive

### 1. 4QFY25 was a "guidance surprise" — the title of the 8-May note tells the story
- "For the third year in a row, L&T beat on E&C order inflows (20% YoY vs guidance of 10%), execution (18% vs 15%) and working capital (11% vs 12%) while beating its flat margin guidance for FY24 with a 10bps expansion." [2]
- FY26 guidance: inflows +10%, execution +15%, **and 20bps of core margin expansion** — CLSA explicitly calls the margin element "the bigger surprise" [1]
- "We think L&T's guidance of 20bps YoY of margin expansion in FY26 is **conservative, with upside risk** on a) lower legacy orders, b) a lower base, c) maturity of backlog vs the early stage of order execution where no margin is recognised and d) benign materials." [4]

### 2. The order pipeline jumped sharply — and surprised on mix
- FY26 prospects pipeline of **US$221bn, +57% YoY** [1][3]
- Pipeline composition (Rs tr): Infra 9.8 / Hydrocarbon 7.0 / Power 0.2 / HE & Defence 0.1 / Green Energy 0.3 — **total Rs17.4tn vs Rs11.7tn in FY25** [6]
- Biggest driver: **hydrocarbon prospects +93% YoY**, anchored by L&T's largest-ever EPC win — the **>US$4bn offshore gas contract from QatarEnergy LNG (NFPS comp 4)** [3][6]
- Backlog has grown 22% YoY to Rs5.6tn at 4QFY25 — its highest growth pace in the multi-year series [5]
- CLSA flags this as a positive earnings-driver but also notes a watch-item: Aramco oil capex risk and "likely soft India orders" — i.e., the upside is acknowledged with eyes open, not cheerled [3]

### 3. Returns inflection — ROE at a 12-year high
- "L&T saw a 100bps YoY fall in net working capital despite execution up 18% YoY, helping **boost its RoE 140bps to 16.3%, which we view as commendable**." [4]
- CLSA model: ROE moves from 14.5% (FY24A) → 18.2% (FY25E) → **19.3% (FY26E) → 19.4% (FY27E)** [5]
- EPS growth: **+25.2% FY25 / +17.9% FY26 / +18.6% FY27** [5]
- CLSA flags capital-return actions ("its actions to improve return ratios and capital return should soothe nerves") as part of the positive shift [1]

### 4. Subsidiaries finally turning into a tailwind (May 7 note: "Subsidiaries deliver")
- Subsidiaries are **31% of consolidated EPS** and had a **good FY25 with +18% rec. PAT growth** [8]
- **L&T Finance (LTFH, 66% sub):** rec. PAT +50% YoY, on a +64% base in FY24, as the book "retailised" to 97% retail vs 75% in FY23; retail grew +19% in FY25 with asset quality improving — "LTFH should drive parent consolidated PAT growth and pay hefty dividends" [9]
- **Hyderabad Metro:** 24% YoY reduction in losses; monetised >Rs13bn of land/sub-leasing (10% of asset debt) + Rs9bn interest-free state support → 20% YoY drop in interest cost [11]
- Tech subs (LTIM, LTTS) are the offset — margins fell, but promoter expects them to "regain PAT growth leadership from 2HFY26" [10]

### 5. Latest sales-trader signal (24-Jun India Capex Insights #65) — L&T is the #1 named top pick
- "Top picks: **L&T (+16.5%)**, HAL (+4.5%), Nagarjuna (+41.6%), IRB (+45.5%)" [13]
- Investment thesis (verbatim): "L&T it is a **key India & Middle East (ME) Capex cycle play**. With its diversified product suits, it enjoys a tailwind for order inflow with gov., private, industrial and Middle East. Capex likely to sustain its double-digit growth in core E&C execution. **Margins are likely to expand after four years & capital reallocation adds a further catalyst.**" [14]
- CLSA also flags a **positioning tailwind**: FII have been underweight L&T (and only slightly less so recently), while domestic MFs reversed their underweight in the last two quarters on the backlog surprise — "any outperformance of this large-liquid stock versus India global benchmark indices could **hurt funds**" (i.e., implicit pressure for FII to close the gap) [15]

---

## Nuance — where CLSA is calibrated, not euphoric

The incremental positivity is not unhedged:

- **Consolidated earnings were CUT 6–7% over FY26-27 in the May 7 note**, "to factor-in our lower IT earnings and assume no growth in FY26 E&C inflows on a high base and global uncertainty" — TP went up via roll-forward, not via raised forecasts [12]
- **Pipeline optimism flagged**: the US$221bn pipeline "appears optimistic in the current environment especially with the perception of a slowing Middle East" [1]
- **Tech subs (LTTS/LTIM)** remain the soft spot, with FY25 margin declines [10]

So the shift reads as: **higher conviction on the core E&C cycle and margin path, balanced by trimmed near-term consolidated forecasts** — net of which, the rating, TP, top-pick status, and the language around L&T's structural set-up have all moved in a more constructive direction.

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## Corpus recency caveat
Latest CLSA L&T-specific note in scope: **8 May 2025**. Latest L&T-mentioning capex note: **24 June 2025** (India Capex Insights #65). The view above is "latest" relative to the corpus, not literal today.

---

**Sources**
[1] Larsen & Toubro - O-PF (Guidance surprise) — CLSA (8 May 2025) — 607958683LinqAlpha.PDF
[2] Larsen & Toubro - O-PF (Guidance surprise) — CLSA (8 May 2025) — 607958683LinqAlpha.PDF
[3] Larsen & Toubro - O-PF (Guidance surprise) — CLSA (8 May 2025) — 607958683LinqAlpha.PDF
[4] Larsen & Toubro - O-PF (Guidance surprise) — CLSA (8 May 2025) — 607958683LinqAlpha.PDF
[5] Larsen & Toubro - O-PF (Guidance surprise) — CLSA (8 May 2025) — 607958683LinqAlpha.PDF (financials table)
[6] Larsen & Toubro - O-PF (Guidance surprise) — CLSA (8 May 2025) — 607958683LinqAlpha.PDF (pipeline table)
[7] Larsen & Toubro - O-PF (Guidance surprise) — CLSA (8 May 2025) — 607958683LinqAlpha.PDF (cover/TP)
[8] Larsen & Toubro - O-PF (Subsidiaries deliver) — CLSA (7 May 2025) — 607958427LinqAlpha.PDF
[9] Larsen & Toubro - O-PF (Subsidiaries deliver) — CLSA (7 May 2025) — 607958427LinqAlpha.PDF
[10] Larsen & Toubro - O-PF (Subsidiaries deliver) — CLSA (7 May 2025) — 607958427LinqAlpha.PDF
[11] Larsen & Toubro - O-PF (Subsidiaries deliver) — CLSA (7 May 2025) — 607958427LinqAlpha.PDF
[12] Larsen & Toubro - O-PF (Subsidiaries deliver) — CLSA (7 May 2025) — 607958427LinqAlpha.PDF
[13] India Capex Insights #65 (US NDR feedback) — CLSA (24 Jun 2025) — 607962623LinqAlpha.PDF
[14] India Capex Insights #65 (US NDR feedback) — CLSA (24 Jun 2025) — 607962623LinqAlpha.PDF
[15] India Capex Insights #65 (US NDR feedback) — CLSA (24 Jun 2025) — 607962623LinqAlpha.PDF
[16] India Capex Insights #65 (US NDR feedback) — CLSA (24 Jun 2025) — 607962623LinqAlpha.PDF

