When a global brokerage house revises its rating on a stock it was cautious on earlier, the market usually pays attention. That is what has happened with Larsen & Toubro (L&T). Goldman Sachs has upgraded the engineering and construction major to a ‘Buy’ rating and raised its target price to Rs 5,000. This indicates an upside of about 25% from current levels.
According to the brokerage report, the upgrade is driven by clearer earnings visibility, a strong order book, and growing opportunities in areas such as defence, green hydrogen, and nuclear power.
Let’s take a look at the key reasons why the brokerage is bullish on this stock and what is the rationale behind it –
Goldman Sachs on L&T: Why the brokerage changed its stance
According to the brokerage report, L&T is moving into a phase where near-term execution strength and long-term growth engines are aligning. Goldman Sachs said the company is “poised for growth in Defence, Green Hydrogen and Nuclear Power,” three segments that are expected to become a larger part of L&T’s order inflows over the next decade.
The brokerage expects the share of these new-age segments in L&T’s total order inflow to rise from around 4% currently to nearly 15% by financial year 2035 estimates, improving both revenue visibility and margins over time.
Goldman Sachs on L&T: Order backlog provides short-term comfort
In the near term, Goldman Sachs believes L&T’s strong order book offers clear earnings visibility. According to the brokerage report, “strong order backlog + low-working capital and optimizing capital allocation” are expected to support earnings growth over financial years 2026 to 2028 estimates. Recent order wins, especially from overseas markets such as the Middle East, have helped cushion weaker domestic ordering trends.
The brokerage also noted that L&T has improved its return on equity from 11% in financial year 2021 to an estimated 17% by financial year 2026.
Goldman Sachs on L&T: Shift back to domestic opportunities
Looking beyond the immediate horizon, Goldman Sachs expects L&T to gradually pivot back toward domestic projects as private sector capital expenditure picks up. According to the brokerage report, “we expect margins to improve (with contracts being negotiated vs priced on L1 basis),” particularly in sectors such as power, metals, real estate and defence.
Goldman Sachs on L&T: Long-term growth drivers take shape
The brokerage is particularly focused on L&T’s long-term positioning in emerging sectors. Goldman Sachs said new opportunities like green hydrogen, defence manufacturing and nuclear power will “start gaining prominence in the order-book” over the next decade.
According to the brokerage report, the green hydrogen opportunity alone could grow at a compounded annual growth rate of over 20% in the early 2030s, while defence and nuclear power are also expected to see sustained expansion. These segments are expected to be margin-accretive, helping improve profitability even if their revenue contribution remains in the mid-teens.
Goldman Sachs on L&T: Technology and execution as a differentiator
Goldman Sachs also highlighted L&T’s integrated business model as a competitive advantage. According to the brokerage report, “L&T has a unique combination of having engineering, procurement and construction and technology services under the same parent company,” allowing better use of technology in project planning, bidding, execution and risk management.
Goldman Sachs on L&T: Market share ambitions across new segments
The brokerage noted that the company is targeting a significant share of India’s nuclear energy expansion, along with strong positions in green hydrogen and defence manufacturing. It added that L&T Realty also plans to scale up its operations, with an aim to double revenue by the end of the decade, providing another support pillar to consolidated growth.
Goldman Sachs on L&T: Financial outlook and valuation
Goldman Sachs forecasts that L&T will compound revenue at early double-digit rates and profit after tax at mid-teen rates over the next five years. According to the brokerage report, “this strong growth in earnings over a prolonged period drives our upgrade of the stock from Neutral to Buy.”
The brokerage has raised its valuation multiple to reflect improving business quality and earnings durability. It added that assigning a higher valuation to the defence business could further increase upside potential beyond the current target.