---
endpoint: analytics
pattern: Conglomerates
status: done
latency_ms: 236403
conversation_id: b5d6e495-c20f-4492-8b91-098ce071917a
citations: 14
created: 2026-05-31 21:25:04Z
---

# How does Larsen & Toubro’s valuation compare to peers, and what justifies its premium/discount?

# Larsen & Toubro (LT IN / 500510): Valuation vs Peers and Justification

**Subject**: Larsen & Toubro Ltd (BSE: 500510 / NSE: LT) — India's largest engineering, procurement & construction (EPC) conglomerate. CLSA rating: **Outperform (O-PF)**, target Rs4,176/share (SOTP-based) [2][8].

**Source vintage**: CLSA research dated 7 May – 24 June 2025 (latest available in the archive). All comparisons below are relative to that vintage; the published Bharat Forge / Indian capital-goods cohort moves materially with quarter-to-quarter sentiment.

---

## 1. How L&T's headline multiple stacks up vs the Indian capital-goods cohort

The most direct apples-to-apples table in the archive is CLSA's India capital-goods comp set (Figure 19, *India Capex Insights #65*, 24 Jun 2025), pairing 12-month forward PE against forward EPS growth [1]:

| Company | 12M Fwd PE (x) | EPS growth (%) |
|---|---:|---:|
| JK Infraprojects (JKIL) | 15 | 22 |
| NCC (NJCC) | 15 | 21 |
| **L&T (500510)** | **30** | **24** |
| HAL | 32 | 21 |
| Cummins India | 38 | 14 |
| BEL | 48 | 32 |
| Thermax | 50 | 25 |
| BHEL | 50 | 26 |
| ABB India | 50 | 8 |
| Siemens India | 51 | 19 |
| Amber | 55 | 44 |
| CG Power | 75 | 31 |
| Dixon | 78 | 42 |

**Key reads of the table** [1]:
- L&T's 30x is the **lowest forward PE among the large-cap capex / capital-goods coverage** (vs ABB 50, Cummins 38, Siemens 51, Thermax 50, BHEL 50, BEL 48), and is well below the new-economy/EMS names (Dixon 78, CG Power 75, Amber 55).
- On a **PEG-style read**, L&T offers ~24% EPS growth at 30x — i.e. a PEG ~1.25x — versus ABB (50x for 8% growth, PEG ~6x), Siemens (51x / 19% growth, PEG ~2.7x) and Thermax (50x / 25%, PEG ~2x). On growth-adjusted valuation, L&T screens **cheap to MNC-listed peers** and **slightly expensive to mid-cap EPC pure-plays** (NCC, JKIL at ~15x for similar growth).
- The May 28 version of the same comp table (Figure 57, *Capex Insights #63*) shows essentially the same standings [7].

L&T's **core E&C business currently trades just above its long-term average of ~23x 1-year forward PE**, per CLSA's relative-value framing of the stock [7]. So on its **own historical band**, the core business is **not at a premium** — it is at roughly average multiples.

---

## 2. L&T's own valuation table (CLSA model)

From *Larsen & Toubro — O-PF (Guidance surprise)*, 8 May 2025 [4]:

| FY end Mar | FY23 | FY24 | FY25CL | FY26CL | FY27CL |
|---|---:|---:|---:|---:|---:|
| Rec. EPS (Rs) | 73.5 | 90.6 | 113.4 | 139.6 | 167.5 |
| Rec EPS growth (%) | 19.7 | 23.2 | 25.2 | 23.1 | 20.0 |
| Rec P/E (x) | 47.7 | 38.7 | 31.0 | 25.1 | 21.0 |
| P/BV (x) | 5.2 | 5.3 | 4.7 | 4.4 | 3.9 |
| EV/Ebitda (x) | 27.5 | 24.6 | 19.1 | 15.4 | 12.9 |
| Dividend yield (%) | 0.9 | 1.0 | 1.1 | 1.3 | 1.5 |
| RoCE (%) | 6.7 | 7.6 | 9.9 | 11.3 | 11.9 |
| RoNW (TrustE) (%) | 12.0 | 14.2 | 17.1 | 18.7 | 19.7 |
| Net debt / equity (x) | 0.60 | 0.64 | 0.42 | 0.27 | 0.13 |

The valuation **de-rates rapidly on the EPS Cagr** (rec EPS Cagr ~22% FY24-27CL). FY27CL P/E of 21x and EV/Ebitda of 12.9x are well below the comp-set averages.

---

## 3. SOTP — where the premium / discount actually sits

CLSA's TP of Rs4,176 is **SOTP-based**, not a single-multiple read. The core EPC business gets **30x 1-year forward PE — explicitly set at a 25% discount to the capital-goods comp set** to derive value [3]. Listed subsidiaries are valued at a discount to their own benchmarks (LTTS at 10% discount to its 5-yr avg 32x; LTI Mindtree at 10% discount to CLSA TP; LTFH at 10% discount to 1.735x forward book). Infra subs are DCF-valued [2]:

| Bucket | Stake | Method | Value (Rs/share) | % of SOTP |
|---|---:|---|---:|---:|
| Core EPC business | 100% | 30x 1-yr fwd PE (25% disc to capex comps) | 3,068 | **73.5%** |
| LTI Mindtree | 68.7% | 10% disc to CLSA TP | 545 | 13.0% |
| LTTS | 73.8% | 10% disc to 5-yr avg 32x | 264 | 6.3% |
| L&T Finance Holdings | 66.1% | 10% disc to 1.735x fwd P/B | 227 | 5.4% |
| L&T Realty (Urban Infra) | 100% | DCF, 11.7% CoE | 55 | 1.3% |
| Nabha Power | 100% | FY23 PDPL value | 28 | 0.7% |
| L&T Metro (Hyderabad) | 100% | DCF, 11% CoE | 28 | 0.7% |
| Other subs / investments | — | 1.5x FY23 BV | 24 | 0.6% |
| **Total / Target** | | | **4,176** | **100%** |

**Implication**: the **core E&C business carries the entire SOTP** (73.5%). Subsidiaries contribute the remaining 25%, but all are valued at a **discount to peer/own multiple** — i.e. CLSA is **not paying a premium for the conglomerate structure**; if anything, the conglomerate stack is being discounted to protect against holdco-style value-leakage.

---

## 4. What justifies the relative discount to MNC capital-goods peers (ABB, Siemens, Cummins, Thermax)

Despite a stronger growth profile, L&T trades at a **40–45% PE discount** to MNC-listed peers (30x vs 50–51x). The archive points to a coherent set of reasons:

1. **Business mix — lumpy, capital-intensive EPC vs higher-margin product franchises.** ABB / Siemens / Cummins / Thermax are **product-led capital-goods franchises** with light balance sheets, faster cash conversion, and higher steady-state ROCEs. L&T runs a **project-EPC model** with milestone billing, working-capital intensity, contingent liabilities, and exposure to LD (liquidated-damages) clauses and competitive pricing — risks CLSA flags as the structural caveat in the L&T thesis [3][12]. The MNCs also benefit from parent-company technology and a perceived "scarcity premium" for plays on India electrification / automation. The market historically pays for that asset-light, product-margin profile.

2. **Conglomerate / holdco discount.** ~25% of SOTP is in listed/unlisted subsidiaries (LTIM, LTTS, LTFH, Hyderabad Metro, Realty) [2][9]. CLSA itself applies a 10% holdco discount to each listed sub and DCFs the infra subs [2] — the market typically goes further. Cumming, Siemens and ABB are **single-business focal points**, not a stack of cross-cyclical assets.

3. **RoCE has been historically lower than MNC peers.** L&T consol RoCE only crossed back into double digits in FY25CL (9.9%) and is forecast to reach ~11.9% by FY27CL [4]. By contrast, ABB / Siemens / Cummins routinely sit in the 20–30% RoCE zone on India's listed comp screens. The discount is partly a return-on-capital adjustment.

4. **Margin profile — high-single-digit vs mid-teens.** Core E&C Ebitda margin has hovered 8–9% (FY25 8.7%, with FY26 +20bps guidance) and is on a slow recovery from a 308bp drawdown over five years driven by Covid-led under-utilisation and 2023 cost-job pass-throughs [6]. ABB / Cummins / Siemens / Thermax run 12–18% Ebitda margins. Even with FY26-27 margin expansion baked in (E&C Ebitda margin to 9.1% by FY27CL), the structural gap remains.

5. **Order-backlog inflation.** L&T's E&C backlog grew 22% YoY to US$68bn (record high) by end-FY25, helped by US$7bn in mega ME / India thermal-power wins [14]. The market discounts that growth-via-mega-orders backlog more aggressively than recurring product revenue: book-to-bill is 3.5x (Cons) vs 1.9x for Siemens India and 1.0x for Thermax — signalling growth visibility, but also execution/concentration risk.

---

## 5. What justifies L&T's premium to mid-cap EPC peers (NCC, JKIL, BHEL, IRB)

Versus the **domestic EPC / construction pure-plays**, L&T trades at a clear **premium**: 30x vs NCC 15x and JKIL 15x [1] — i.e. roughly a **2x multiple**. CLSA's own valuation rationale for NCC is the cleanest justification: NCC is explicitly valued at "15x PE on one-year forward earnings… a **50% discount to the industry leader Larsen & Toubro (mid-cap discount)**, and approximately a 10% discount to its own trading multiple" [5]. The premium is grounded in:

1. **Scale, diversification, and risk-spreading.** L&T's E&C backlog is US$68bn (FY25), 47% international by L&T-segment slice, across hydrocarbons, transmission, power T&D, infrastructure, water, defence, urban mobility and green hydrogen [14]. NCC / HCC / JKIL run sub-US$10bn backlogs concentrated in domestic civil and water. Scale reduces project-specific blow-up risk that the market chronically prices into the mid-caps.

2. **Execution credibility — multi-year beat track record.** "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" [8][14]. That recurring beat pattern is something the mid-cap EPCs have not replicated.

3. **Capital-allocation reset / improving return ratios.** Core E&C RoCE moved from 17.5% (FY16) to **a 5-year high of 25.7% (FY25)** [6]; consolidated RoCE moved from 6.7% (FY23) → 9.9% (FY25CL) → 11.9% (FY27CL) [4]. The reallocation away from low-ROA wholesale finance toward retail finance (LTFH ROA expansion) and metro-loss reduction (Hyderabad Metro losses down 24% YoY) [9] is supporting a re-rating of the consol RoCE — something NCC / HCC / JKIL cannot offer.

4. **Margin tailwind ahead.** Management guidance for FY26 is +20bps of core margin (after five years of compression), with CLSA modelling 9.1% by FY27CL [8]. Mid-cap EPCs are still margin-takers on competitive bidding.

5. **Subsidiary optionality.** LTIM and LTTS together contribute ~19% of SOTP at conservative valuations [2]; LTFH after retail-isation grew rec. PAT +50% YoY in FY25 [9]. Mid-caps are pure-play E&C with no equivalent.

6. **Subsidiary turnaround surprise.** Hyderabad Metro turned around (losses down 24% YoY) and LTFH PAT grew 50% YoY, contributing 31% of consolidated EPS in FY24 [9]. The subsidiary mix is no longer a drag — at the margin a contributor — which removes a prior bear argument and supports the premium vs single-segment EPC peers.

---

## 6. Defence cohort cross-check (for completeness)

L&T does not sit cleanly in the defence comp set, but it competes with the cohort for capex-cycle capital flows. CLSA's India defence comp table (24 Jun 2025) shows the cohort trading at FY26 PE of 37x–72x with ROAE of 14–35% [10]:

| Defence comp (FY26) | PE (x) | EV/Ebitda (x) | P/B (x) | RoAE (%) |
|---|---:|---:|---:|---:|
| HAL | 37.4 | 27.5 | 8.4 | 23.6 |
| BEL | 52.4 | 40.6 | 13.3 | 26.9 |
| BDL | 71.9 | 69.9 | 15.4 | 22.0 |
| CSL | 65.7 | 54.7 | 9.5 | 15.1 |
| MDL | 51.3 | 52.1 | 15.0 | 31.2 |
| GRSE | 54.9 | 55.1 | 15.1 | 35.0 |
| **Avg (ex outliers)** | **54.6** | **47.3** | **11.8** | **24.0** |
| **L&T (for comparison)** | **30** | **15.4** | **4.4** | **18.7** |

L&T trades at a **~45% PE discount and ~67% EV/Ebitda discount to the defence cohort average**, despite running a comparable consolidated RoNW (~18.7% FY26CL) and being a beneficiary of the same India capex narrative. The discount reflects (i) the EPC margin profile being structurally lower than defence-electronics / shipyards on government cost-plus contracts, and (ii) the lack of monopoly / nominated-supplier status that the defence PSUs enjoy. BEL's 40x PE itself is justified by CLSA at "15% discount to its own current trading multiple, and 5% discount to India's capital goods sector (ex-MII & MNCs)" — implying L&T anchors the lower bound of the capex universe [11].

---

## 7. IRB / road-developer cross-check

For another segment of the SOTP, IRB Infrastructure (peer in roads) is valued by CLSA via SOTP with project-level DCFs and a **13x PE for the construction business** [12] — i.e. road-developer construction earns less than half of L&T's core 30x multiple, because of (i) leveraged BOT/HAM project balance sheets, and (ii) annuity-like cash flows that the market discounts more heavily.

---

## 8. Bottom line — what the relative valuation says

- **L&T trades at a discount to MNC capital-goods peers (ABB / Siemens / Cummins / Thermax / BEL).** The discount is justified by EPC business model risk (working capital, LD clauses, competitive bidding), conglomerate complexity, structurally lower margins (~9% vs 12–18%), and historically lower RoCE (now improving). Even after FY26-27 margin expansion and capital reallocation, the gap is unlikely to fully close — but on **PEG / growth-adjusted metrics, L&T screens cheaper than the MNC bench**, supporting CLSA's Outperform stance [1][13].
- **L&T trades at a ~2x premium to domestic EPC pure-plays (NCC, JKIL, BHEL, IRB construction).** Justified by scale, execution credibility, capital-allocation reset, subsidiary optionality, and the "industry leader" mid-cap discount CLSA explicitly bakes into NCC's TP [5][12].
- **Core E&C currently sits "just above" its 23x average forward PE** [7] — not stretched on its own band. The case for further re-rating rests on (a) FY26 margin expansion delivery (+20bps guided), (b) sustained 20%+ order inflows on a high base, and (c) RoCE crossing into double digits durably (11.3% FY26CL → 11.9% FY27CL) [4][8].
- **Key risks to the premium** flagged by CLSA: government change in India, 35% backlog exposure to international (mostly ME) projects, labour laws / LD clauses driving cost overruns, and competitive intensity in domestic EPC capping margins [3].

---

**Sources**
[1] India Capex Insights #65 (US NDR feedback) — CLSA (24 Jun 2025), 607962623LinqAlpha.PDF — capital-goods PE/EPS-growth comp table
[2] Larsen & Toubro — O-PF (Guidance surprise) — CLSA (8 May 2025), 607958683LinqAlpha.PDF — SOTP table
[3] Larsen & Toubro — O-PF (Guidance surprise) — CLSA (8 May 2025) — valuation method + risks
[4] Larsen & Toubro — O-PF (Guidance surprise) — CLSA (8 May 2025) — key ratios & valuation (P/E, P/BV, EV/Ebitda, RoCE, leverage)
[5] India Capex Insights #65 — CLSA (24 Jun 2025) — NCC valuation rationale (50% discount to L&T as mid-cap discount)
[6] India Capex Insights #63 (Modi 3.0 capex set to surprise) — CLSA (28 May 2025), 607960785LinqAlpha.PDF — L&T core E&C RoCE 5-yr high & margin trajectory
[7] India Capex Insights #63 — CLSA (28 May 2025) — "L&T's core E&C just above its average 23x PE"
[8] Larsen & Toubro — O-PF (Guidance surprise) — CLSA (8 May 2025) — FY26 guidance, multi-year beats, TP reiteration Rs4,176
[9] Larsen & Toubro — O-PF (Subsidiaries deliver) — CLSA (7 May 2025), 607958427LinqAlpha.PDF — LTFH / Hyderabad Metro turnaround, subsidiary EPS contribution
[10] India Capex Insights #65 — CLSA (24 Jun 2025) — India defence comp table (PE, EV/Ebitda, P/B, ROAE)
[11] India Capex Insights #65 — CLSA (24 Jun 2025) — BEL valuation methodology (40x 12M fwd PE)
[12] India Capex Insights #63 — CLSA (28 May 2025) — IRB Infrastructure SOTP / 13x PE for construction
[13] Larsen & Toubro — O-PF (Subsidiaries deliver) — CLSA (7 May 2025) — earnings cut, TP raised on roll-forward
[14] India Capex Insights #63 — CLSA (28 May 2025) — L&T backlog +22% YoY to US$68bn, US$7bn mega ME / thermal wins

## Citations

- [1] **607962623LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962623LinqAlpha.PDF>
- [2] **607958683LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607958683LinqAlpha.PDF>
- [3] **607958683LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607958683LinqAlpha.PDF>
- [4] **607958683LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607958683LinqAlpha.PDF>
- [5] **607962623LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962623LinqAlpha.PDF>
- [6] **607960785LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960785LinqAlpha.PDF>
- [7] **607960785LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960785LinqAlpha.PDF>
- [8] **607958683LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607958683LinqAlpha.PDF>
- [9] **607958427LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607958427LinqAlpha.PDF>
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- [11] **607962623LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962623LinqAlpha.PDF>
- [12] **607960785LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960785LinqAlpha.PDF>
- [13] **607958427LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607958427LinqAlpha.PDF>
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