However, it’s less well known that L&T is a diversification machine. Unlike many of its peers in the engineering, construction and capital goods sectors, it’s always looking for new growth opportunities and doesn’t shy away from selling businesses that have low growth potential or operate in a sector where the company has lost its competitive edge.
Set up by two Danish engineers in Bombay (now Mumbai) in 1938, L&T has in recent years entered sunrise sectors such as defence manufacturing, nuclear power equipment, green hydrogen, data centres and semiconductor chip design.
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For now, all of these are small businesses in relation to L&T’s huge scale but they have the potential to become key growth drivers over the next decade. While this may seem far-fetched right now, L&T’s track record is full of calculated bets and robust results.
These new ventures are expected to go the way of L&T’s bet on IT services and engineering research and development services in the early 2000s. Having started as a small venture to leverage L&T’s expertise in technology and engineering, it now accounts for a fifth of its consolidated revenue and a third of its profit before interest and taxes (PBIT).
L&T’s IT & technology services division clocked revenues of ₹44,473 crore in FY24, up from ₹6,450 crore in FY14. The conglomerate’s data centre and semiconductor chip design businesses are housed under this division, which reported PBIT of ₹7,659 crore in FY24, up from ₹1,240 crore in FY14.
The company’s technology consulting and digital solutions arm LTIMindtree is now among the top six companies in the sector with a market cap of ₹1.81 trillion. Similarly, LTTS is among the top players in the sector with a market cap of ₹53,750 crore. Their combined market cap comprises 49% of L&T’s total market cap of ₹4.8 trillion.
Here are five new-age, high-growth businesses with the potential to add crores of rupees to L&T’s top and bottom lines in the next few years.
#1 Defence
L&T Defence has been renamed L&T Precision Engineering and Systems as part of a new strategy to diversify into making non-military equipment and infrastructure. Currently, it manufactures armoured systems, missiles, guns, avionics, sensors, robotics submarines, aerospace systems, underwater platforms, patrol vessels, warships, weapon delivery and engineering systems, and radar systems.
L&T has many firsts in the defence space, but these are not widely known. It built India’s only nuclear submarine and also made a Bofors-type gun, the K9 Vajra-T, a 155-mm, 52-calibre self-propelled howitzer.
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The company makes armoured systems in Hazira, Gujarat, and its shipbuilding facility is at Kattupalli in Tamil Nadu. According to Jefferies, the potential market opportunity for Indian defence companies is expected to increase at a 14% compound annual growth rate (CAGR) over FY24-FY30E, driven by the government’s focus on indigenisation and exports.
Jefferies also expects India to have a $90-100 billion defence market opportunity over the next five to six years, and the defence industry to grow at 13% a year from FY24 to FY30. This suggests L&T is well placed for exponential growth in the defence sector.
#2 Green hydrogen
L&T Electrolysers Limited, a newly incorporated entity, is working to provide solutions in the production of green hydrogen, a promising alternative to fossil fuels. It is produced by separating hydrogen from oxygen in water through electrolysis. The only by-product of this process is water.
In March 2024, L&T commissioned its first indigenous electrolyser at the green hydrogen plant at AM Naik Heavy Engineering Complex in Hazira, Gujarat. This marked L&T Electrolysers’ entry into domestic electrolyser manufacturing and added another business to its portfolio of sustainable energy solutions.
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According to a report by the International Trade Administration, India’s green hydrogen market is expected to be worth $8 billion by 2030 and $340 billion by 2050. NITI Aayog, the government’s policy think tank, expects the electrolyser market to grow to $5 billion by 2030 and $31 billion by 2050 on the back of production subsidies, tax incentives, and the establishment of green hydrogen corridors. All of this this puts L&T in an advantageous position in the green hydrogen space.
#3 Nuclear power equipment
It’s not widely known that L&T has contributed to all 22 nuclear reactors operational in India through technology development, equipment manufacturing and site services.
Its product range includes steam generator assemblies, end shields, primary heat transport systems, stainless steel thermal insulation panels, and fuel rod sub-assemblies. It has a market share of more than 50% in manufacturing steam generators and end shields in India.
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This augurs well for the conglomerate as the government aims to source 25% of the country’s electricity from nuclear energy by 2050, up 10-fold the current 2.5%. The market is driven by the need to reduce greenhouse gas emissions and meet the growing energy demands sustainably.
#4 Semiconductors
Semiconductors are everywhere these days, from computers and mobile phones to washing machines and electric cars. India’s semiconductor market is expected to be worth $271.9 billion by 2032, according to Spherical Insights.
The government has launched the Semiconductor Fabs Incentive Scheme (SFMIS), a production-linked incentive (PLI) scheme, and the India Semiconductor Mission (ISM) to turn India into a global hub for semiconductor manufacturing. This has prompted some of India’s biggest corporations, including the Tata Group, to enter the space.
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Sandeep Kumar, head of L&T Semiconductor Technologies, said in an interview with Bloomberg in September, “Automotive, industrial and energy – those are the sectors we’ve picked as they are going through very heavy transformation. There is space to compete, succeed and even capture the market.” The company currently employs 250 people and plans to double this by the end of 2024.
#5 Data centre and cloud services
L&T has built data centres for both the government and private companies in India. L&T-Cloudfiniti was set up to provide cloud and data centre solutions in a market that’s expected to be worth $11.6 billion by 2032. According to market research firm IMARC group, India’s data centre market was worth $4.5 billion in 2023.
L&T-Cloudfiniti currently offers colocation services, construction, management of data centres, and managed cloud services. It has data centres in Navi Mumbai and Chennai. While it is relatively new, it is backed by a strong parent firm and benefits from synergies with LTIMindtree, and L&T Technology Services.
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L&T has the potential to become one of the top players in all these sunrise sectors, thanks to its engineering and technological expertise, brand equity, strong and cash-rich balance sheet, and a global client base that includes most of the Fortune 500 companies and government agencies.
Not surprisingly, its stock has been on a tear, clocking a CAGR of 20% over the past five years. Its price-to-earnings ratio has been surging, too. The stock is currently trading at a PE ratio of 36.1, a substantial premium to the 10-year median PE of 27.
L&T stock price: past five years
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The company is all set to leverage these high-growth areas and continue to push ahead, but whether the markets have already priced these in remains to be seen.
For more such analysis, read Profit Pulse.
Note: We have relied on data from Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.
Rashmi Pratap specialises in financial and socio-economic reporting and has worked with India’s top business newspapers and magazines in a career spanning more than two decades. She is also the founder of 30Stades.
Disclosure: The writer and her dependants do not hold the stocks/commodities/cryptos/any other assets discussed in this article.
