Larsen & Toubro Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Order book swells 31% Y-o-Y to Rs 6.67 tn: Inflows surged 45% Y-o-Y, led by Hydrocarbon, Buildings, Factories and Renewables, and management is confident of exceeding its 10% full-year inflow growth guidance.
• Infrastructure revenue stalled, but margins inched up: Extended monsoons and payment-linked slowdowns in rural water projects held the top line flat, yet execution efficiencies lifted segment margin 30 bps to 6.3%.
• Energy is the growth engine with a margin hangover: Revenue jumped 48% on international Hydrocarbon ramp-up, but cost overruns on legacy pre-COVID projects compressed margins to 7.3%, a drag that is baked into full-year guidance and expected to clear by March 2026.
• Hyderabad Metro exit crystallizes: An in-principle deal with Telangana will transfer debt and equity at Rs 2,000 crore, triggering a standalone impairment but potentially a marginal consolidated P&L credit, with closure targeted by fiscal year-end.
• What to watch next quarter: Whether Kuwait’s budget allocation unlocks ~\$4.5 bn of L1 bids, the pace of H2 infrastructure execution catch-up, and any margin recovery signal in Energy as legacy projects conclude.

Order Inflows & Pipeline

• Broad-based surge: Group order inflows grew 45% Y-o-Y, with the Projects & Manufacturing portfolio up 54% to Rs 96,800 crore, driven by strong activity across Hydrocarbon, Buildings & Factories, Heavy Civil and Renewables.
• Domestic and international both fired: Domestic inflows rose 40% Y-o-Y, international 62% Y-o-Y, with private-sector share in the domestic order book climbing from 21% to 30% over six months, reflecting improved Real Estate, Power Generation and Data Storage activity.
• Ultra-mega Middle East wins: Onshore and Offshore Hydrocarbon businesses each secured ultra-mega orders, including a natural gas liquids plant and multiple offshore EPC and upgrade packages.
• Prospects pipeline at Rs 10.4 tn: Up 29% Y-o-Y, led by Infrastructure and Hydrocarbon, with management bullish on Saudi, Qatar, Kuwait, Al Khafji and UAE.
• Kuwait L1 positions await budget: L&T holds L1 on three of five bids worth ~\$4.5 bn, but all prices are above budget; the budget allocation process is expected to complete this quarter or next.

Subramanian Sarma: "We'll now have to see how the whole process now moves on in terms of budget allocation. We are kind of optimistic that they should be able to get the extra funds. However, all the prices are, are above the budget though we are L1."

Segment Performance

• Water segment slowdown is deliberate: Execution on Jal Jeevan Mission projects was slowed because payments are slower; L&T is not building up execution without getting paid.
• Realty order book conversion: Rs 12,000 crore of order book plus Rs 4,000 crore of unsold inventory expected to convert to revenue over the next 2–3 years, with expansion planned into MMR, NCR, Bengaluru and Chennai.

Energy: The Growth-Margin Tradeoff

• Hydrocarbon drives the top line, legacy jobs weigh on margins: International project execution is ramping up rapidly, but cost overruns on select pre-COVID awards, partly pandemic-related, are depressing segment margins. Contractual entitlements exist but are not recognized until approved per internal policy, making this a phasing issue.
• Thermal power revival is real: Management sees a buoyant domestic thermal market, calling it "the simplest and fastest solution" to grid instability from renewables and rising power demand from AI and data centres. L&T is targeting 10–15 GW of incremental thermal orders over the next 2–3 years.
• International positioning has structurally improved: L&T now competes for multibillion-dollar projects it could not access a decade ago, with customers committed long-term and less sensitive to spot commodity prices. Management expects this international run to continue for at least 2–4 years.
• Margin recovery timeline: Current softness is baked into the 8.5% P&M EBITDA guidance; legacy jobs are expected to reach final execution stage by March 2026, with margin improvement thereafter, the extent to be communicated after the fiscal year closes.

Subramanian Sarma: "I think thermal power becomes the simplest and fastest solution. So we've seen a significant uptick in that."

Hyderabad Metro Exit

• Deal structure: Government of Telangana will take over the SPV by refinancing existing debt and acquiring L&T’s entire equity stake for Rs 2,000 crore. L&T will have no further obligation, right or indemnity post-transaction.
• Accounting impact: The investment carrying value of Rs 7,000 crore was impaired to the Rs 2,000 crore realizable value in standalone results. On consolidation, cumulative losses already reflect the reduced value, so divestment could show a marginal P&L credit.
• Timeline: Target consummation by end of fiscal 2026, with final agreement contours being finalized.

P. Ramakrishnan: "The understanding is we will have no further obligation, right or any sort of indemnity post the transaction."

Strategic Initiatives & Partnerships

• Green ammonia with ITOCHU: L&T GreenTech signed a joint development agreement with ITOCHU Corporation for a 300 KTPA green ammonia project at Kandla, Gujarat, with ITOCHU planning to offtake for bunkering in Singapore. The project will proceed only if it meets standard IRR and risk criteria.
• ACWA Power MOU: Renewables business entered an MOU for the Yanbu green ammonia project in Saudi Arabia, covering solar PV, wind, BESS, substations and transmission lines, with a commitment to enter an EPC contract once the final proposal is accepted.
• AMCA fighter program: L&T and Bharat Electronics formed an equal JV consortium to bid for the prototype program, covering airframe, fixtures, system integration and flight certification. ADA is expected to shortlist bidders this quarter, with prototype delivery in FY28–29 and serial production ~8–9 years away.
• Semiconductor push: L&T Semiconductor Technologies acquired power module design assets from Fujitsu General Electronics of Japan and signed an MOU with IISc Bangalore to co-develop a national 2D innovation hub for next-generation semiconductor materials.
• EMS expansion under study: L&T is seriously exploring electronics manufacturing services under its Lakshya L31 strategy, but management called details premature and asked investors to wait until May 2026 for specifics.

Balance Sheet & Capital Allocation

• Working capital improved: Group NWC to sales ratio tightened from 12.2% to 10.2%, driven by strong customer collections over the last 12 months. The Q2 Y-o-Y collections dip is timing-related after very strong Q1 inflows. Full-year NWC guidance held at ~12%.
• Sustainability-linked financing: Secured a USD 700 mn sustainability-linked trade finance facility, with terms tied to greenhouse gas emission intensity and freshwater withdrawal KPIs.
• L&T Finance retailization complete: Achieved 98% retailization of the loan book by September 2025, well ahead of Lakshya 2026 targets, with ROA at 2.4%.

Guidance & Commitments

Key Metrics