L&T (Larsen & Toubro) is not just a leader in engineering, construction, and capital goods; it is a strategic diversification powerhouse. Unlike many competitors in its sector, L&T continually seeks new growth avenues while remaining agile enough to divest from segments that exhibit low growth potential or where it lacks a competitive edge. This ability to pivot and adapt has been crucial to its impressive performance and sustainability in the market.
Established in 1938 by two visionary Danish engineers in Bombay (now Mumbai), L&T has expanded its reach into several burgeoning sectors. In recent years, it has made significant inroads into areas such as defense manufacturing, nuclear power equipment, green hydrogen, data centers, and semiconductor chip design. These ventures reflect its commitment to remaining at the forefront of industry innovation.
While these new sectors currently represent a small fraction of L&T’s overall market size, they hold immense promise and could potentially become significant growth engines in the coming decade. This may seem ambitious at first glance, but L&T has a proven history of making calculated, strategic investments that lead to robust outcomes.
The company’s early foray into IT services and engineering research and development in the 2000s serves as a poignant example. Starting as a modest initiative to capitalize on L&T’s technological prowess, this segment now contributes to about 20% of consolidated revenue and a third of its profit before interest and taxes (PBIT).
In the fiscal year 2024, L&T’s IT & technology services division generated revenues of ₹44,473 crore, a remarkable increase from ₹6,450 crore in FY14. This division also encompasses the enterprise’s data center and semiconductor operations, which reported a PBIT of ₹7,659 crore in FY24, soaring from ₹1,240 crore in FY14.
L&T’s subsidiary, LTIMindtree, has rapidly ascended in the tech industry, positioned among the top six companies with a market capitalization of ₹1.81 trillion. Similarly, L&T Technology Services (LTTS) enjoys a strong market presence with a capitalization of ₹53,750 crore. Collectively, these tech segments account for nearly 49% of L&T’s total market capitalization, which stands at ₹4.8 trillion.
Below, we explore five high-growth sectors where L&T is poised to cement its position and drive substantial revenue growth in the near future:
#1 Defence Sector Expansion
L&T Defence has recently undergone a rebranding to L&T Precision Engineering and Systems, reflecting its commitment to diversifying its offerings. Currently, the division produces a wide range of systems, including armored vehicles, missiles, artillery, avionics, and sophisticated naval platforms.
Notably, L&T has achieved significant milestones in India’s defense landscape, including the construction of the country’s first nuclear submarine and the development of advanced artillery systems such as the K9 Vajra-T 155mm self-propelled howitzer.
According to market analysts, the Indian defense market is anticipated to grow at a 14% compound annual growth rate (CAGR) from FY24 to FY30E, fueled by the government’s focus on indigenization and increased exports. Jefferies expects the overall market opportunity to range from $90 to $100 billion in the coming years—positioning L&T well for explosive growth.
#2 Green Hydrogen Initiatives
L&T Electrolysers Limited, a newly minted subsidiary, is at the forefront of developing innovative solutions in green hydrogen production. This eco-friendly alternative to fossil fuels is generated through the electrolysis of water, with water vapor as the only by-product.
In March 2024, L&T launched its first indigenous electrolyser at its green hydrogen facility in Hazira, Gujarat, marking a significant step into domestic electrolyser manufacturing. Reports indicate that India’s green hydrogen market could reach $8 billion by 2030 and $340 billion by 2050, presenting L&T with a lucrative opportunity in the sustainable energy sector.
#3 Nuclear Power Contributions
L&T has been a pivotal player in India’s nuclear energy landscape, contributing to all 22 operational reactors through technology development and equipment manufacturing. The company commands a high market share in steam generator production and various critical components essential for nuclear reactor function.
With the Indian government aiming to source 25% of electricity from nuclear energy by 2050—rising from the current 2.5%—L&T is well-positioned to meet the increasing demand for sustainable energy solutions while reinforcing its market leadership in nuclear power equipment manufacturing.
#4 Semiconductor Sector Growth
The semiconductor market in India is poised for remarkable growth, projected to reach $271.9 billion by 2032. With the government initiating strategic programs to boost local semiconductor manufacturing, numerous major corporations, including L&T, are capitalizing on this trend.
Recently, Sandeep Kumar, the head of L&T Semiconductor Technologies, announced ambitions to focus on crucial sectors undergoing significant transformation, such as automotive and industrial applications. The company is expanding its workforce in this area, underscoring its commitment to tapping into this burgeoning market.
#5 Data Centers and Cloud Services
L&T’s footprint in the data center space has grown, as it has constructed facilities for both governmental and private sector clients. Under the L&T-Cloudfiniti brand, the firm is positioned to offer comprehensive cloud and data center services, with the Indian market’s value forecasted to climb to $11.6 billion by 2032.
Currently, L&T-Cloudfiniti is supportive of numerous data center operations, providing colocation services, management solutions, and cloud services—leveraging synergies with its technology services divisions to enhance offerings.
With exceptional engineering capabilities, brand equity, and a robust balance sheet, L&T stands to gain significantly in these sunrise sectors. The company’s stock performance over the past five years has demonstrated strong growth, boasting a CAGR of 20%. Presently, L&T trades with a price-to-earnings ratio of 36.1, reflecting favorable market sentiment.
Going forward, as L&T harnesses opportunities across high-growth sectors, it is essential to remain vigilant about whether these potential gains have already been priced into the market.
This strategic outlook underscores L&T’s potential as it ventures into impactful sectors, paving the way for future successes and financial growth.
