Data centres, semiconductors to drive next growth phase for L&T: Amit Anwani

Larsen & Toubro’s latest earnings and forward commentary have painted a picture of short-term softness balanced by a cautiously optimistic long-term strategy. While execution challenges and geopolitical uncertainties weigh on near-term growth, the company’s five-year roadmap signals a decisive pivot toward technology-led and capital-intensive new businesses.

According to Amit Anwani from PL Capital, the company has reiterated its FY27 guidance of 10%–12% revenue growth and similar order inflow expansion, while maintaining a flattish margin outlook. The reclassification of business segments into Project, Product, and Manufacturing (PPM) has also brought clarity to margin expectations, with the company targeting around 7.8% PPM margins in FY27, largely unchanged from current levels.

A key overhang, however, remains the impact of external disruptions.

“The war is not yet over. We have to see the conversions and how the recovery will happen in terms of whatever logistics and shipping cost which also has risen over this period,” Anwani noted, highlighting how global uncertainty has already impacted Q4 performance by nearly 50 basis points on margins and resulted in an estimated ₹4,000–₹5,000 crore revenue impact.

Management has guided for a muted Q1 and a softer first half, with expectations of recovery only in H2. This back-ended growth profile, according to analysts, is consistent with L&T’s historical execution pattern, where a large portion of project execution typically happens in the second half of the year.

“Muted Q1 and softer H1 and then there would be a growth recovery in H2. So, the whole year will be recovery in H1 and then growth in H2, that is 10% to 12% revenue guidance which is building up,” Anwani said.

The Middle East, which accounts for nearly 38% of L&T’s order book, remains a critical swing factor. With exposure of around ₹3 lakh crore in the region, management has indicated that normalization of geopolitical conditions could unlock a stronger execution cycle from Q2 onwards.Execution Holds the Key to FY27 Growth
Despite a strong order book, the real challenge lies in execution momentum, especially if global uncertainties persist beyond the first quarter. Analysts suggest that the company’s guidance factors in modest H1 growth of 5%–6%, with expectations of a sharper H2 ramp-up.

“If the war elongates beyond Q1, then that could be a challenge with this kind of guidance. Otherwise, they might be closer to double digit this year,” Anwani observed.

International markets are expected to remain a key driver, contributing 40%–50% of inflows, with Middle East capex cycles likely to resume once stability returns.

Strategic Shift: Betting Big on New-Age Businesses
Beyond the cyclical outlook, L&T’s long-term “Lakshya” plan (FY31) marks a structural shift in capital allocation. The company is targeting 12%–15% revenue CAGR over the next five years, alongside 10%–12% order inflow growth.

A significant portion of capital expenditure—₹5,500–₹6,000 crore this year alone—is being directed toward semiconductors, data centres, electronics, and green hydrogen.

“In terms of data centre capacity, they are targeting 200 megawatt over the next four to five years from around 30 megawatt by end of this year,” Anwani said, adding that the focus is on AI-ready infrastructure with partnerships already in place, including Nvidia.

The manufacturing pivot is also expanding, with increased focus on defence electronics and industrial electronics. These moves signal L&T’s intent to gradually reduce dependence on traditional infrastructure growth, which has remained below 10% in recent years.

Long-Term Targets: Ambitious Yet Grounded
On returns, the company has maintained guidance of 16%–17% return on equity over the next five years, broadly in line with current levels.

“They are already at about 16.5%, so there is no improvement which they are factoring for the next five years,” Anwani noted, attributing this to heavy investments in emerging businesses that are expected to deliver returns beyond FY30.

Despite global uncertainties, the 12%–15% revenue CAGR target appears achievable, supported by a robust ₹7.5 lakh crore order book and strong growth in non-infrastructure verticals such as energy, renewables, defence, and heavy engineering.

While infrastructure—still nearly 50% of the business—may see slower growth due to execution delays and legacy project issues, non-infra segments are expected to drive disproportionate growth in the coming years.

“Infrastructure versus non-infrastructure, major growth might be captured in the non-infra business verticals over the next five years,” Anwani concluded.

Outlook
L&T’s near-term trajectory hinges on geopolitical stability and execution momentum in the Middle East. However, its long-term narrative is increasingly defined by a strategic pivot toward technology-heavy, capital-intensive sectors. If executed well, the company’s transformation could reshape its earnings profile meaningfully by the end of the decade.