Larsen & Toubro Limited

Ladies and gentlemen, good day and welcome to Larson & Toubro Limited Q1 FY24 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an option to be free to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. P Ramakrishnan, head investor relations from Larsen and Toubro Limited. Thank you and over to you, sir.

Thank you, Nirav. Good evening, ladies and gentlemen. A very warm welcome to all of you into the Q1 FI24 earnings call of Larsen and Toubro. The presentation summarizing the performance of Q1 FI24 was uploaded on the stock exchange and in our website, at around 6 PM today evening. As usual, instead of going through the entire presentation, I will take you through the key highlights for the quarter in the next 30 minutes or so, and post that, we will take Q&A. Before I start, the usual disclaimer, the presentation that we have uploaded on the Stock Exchange and our website today, including the discussions that we will have in this call, contains or may contain certain forward-looking statement concerning L&T group's business prospects and profitability, which are subject to several risks and uncertainties, and the actual results could materially differ from those in such forward-looking statements. India has remained an oasis of stability despite the continuing global macroeconomic volatility. The domestic activity in Q1FI24 remained resilient as reflected by the various high frequency economic indicators. The purchasing managers index or the PMIs that we call for both manufacturing and services is also indicating a sustained expansion. The growth momentum is likely to continue on a stable ready crop production expected normal monsoon, continued buoyancy in services and stable inflation with a softening bias. Although I did mention a normal monsoon, let me clarify that the distribution of rainfall is as important as the total volume and we will be monitoring these developments closely. Secondly, given the healthy balance sheets of banks and corporates, supply chain normalization and declining uncertainty, conditions are favorable for a continued capex cycle in sectors like infrastructure, power, that includes renewables, petrochemicals and defense in the near to medium term. When we look outside India, it is our view that although the global economy is turning the corner, but it does face a long road ahead in order to attain stable and sustainable growth. It is positive to see China come back, energy prices being stable, headline inflation on the reverse in many developed economies, and supply chain normalization. The Middle East, which is our next big geography for our projects business, is stable. We continue to see plenty of opportunities revolving around oil and gas, core industrialization, and energy transition initiatives in this part of the world. Before I get into the details of the financial performance parameters, I would like to share a few important highlights of the quarter. The board of directors of the company has approved a proposal to buy back through the tender equity, tender route equity shares of the company for an aggregate amount not exceeding 10,000 crores. The 10,000 crores excludes the tax on buyback. The proposal is subject to approval of the shareholders. Further, the board has also approved a special dividend of Rs. 6 per equity share. Secondly, our defence engineering business has signed a teaming agreement with Navantia Spain for the purpose of submission of a techno-commercial bid for the Indian Navy's prestigious P-75I submarine program.

Thirdly, our daily ridership

in Hyderabad Metro crossed the 5 lakh mark on July 3rd. And as recent as yesterday, the metro ridership touched a record 536,000. Our group company LTI Mine Tree has entered the Nifty 50 Index from July 13, 2023. Finally, our financial services business achieved the Lakshya 2026 goal of more than 80% retailization of its book three years in advance. I will now cover the various financial performance parameters for Q1-FI24. Q1-FI24 is a quarter of robust performance across most of the financial parameters. Our group order inflows revenues and PAT is up by 57%, 34%, and 46% respectively over the corresponding quarter of the previous year. Our NWC to revenue, that is net working capital to revenue, at 17% in Q1 FY24, has improved 360 basis points over the corresponding quarter of the previous year. Our ROE is at 12.8%, on a trailing 12 month basis in June 23 that has gone up by almost 130 basis points over the 12 months TTM as of June 22 and by 60 basis points when you compare with the year ended March 2023. I will now move on to individual performance parameters. Our group order inflows for Q1FI24 at Rs. 655 billion registered a Y-on-Y growth of 57%. Within that, our projects and manufacturing businesses secured order inflows of Rs. 504 billion for this quarter, which is a growth of almost 79% over Q1 FY23. Our Q1 FY24 order inflows in the projects and manufacturing portfolio are mainly from infrastructure and hydrocarbon segments. During the current quarter, our share of international orders in the projects and manufacturing portfolio is at 35% as compared to 33% in Q1 of last year. Our share of private orders within the domestic projects and manufacturing orders is at 24% for Q1FI24 as compared to 32% for Q1-FI23. During the quarter, orders were received across segments like rail, renewables, rural water supply, transmission and distribution, commercial and residential buildings, and both onshore and offshore verticals of the hydrocarbon segment. Now moving on to prospects pipeline, We have a total prospect pipeline of Rs. 10.07 trillion for the remaining nine months of FY24, vis-a-vis Rs. 7.52 trillion at the end of Q1 last year. This itself represents an increase of 34% on Y-on-Y basis. The increase is largely due to the sharp improvement in hydrocarbon prospects pipeline. If you recall, we had started or commenced this year FY24 with a prospect pipeline of 9.73 trillion. We normally begin every year with a particular prospects pipeline and with every passing quarter, the same is updated for the remaining quarters of the financial year. This time around, the prospects pipeline has moved up after our Q1 results, primarily aided by substantial improvement in hydrocarbon prospects that I mentioned a little while ago. The broad breakup of the overall prospects pipeline at the end of Q1 FY24 would be as follows. Infrastructure, Rs. 5.85 trillion. as compared to Rs. 5.47 trillion Q1 last year. Hydrocarbons Rs. 3.47 trillion as compared to Rs. 1.02 trillion Q1 last year. Power is at Rs. 0.45 trillion vis-a-vis Rs. 0.6 trillion Q1 last year. And the rest combining of heavy engineering, defense and green energy, EPC aggregates to 0.29 trillion for the current nine months, vis-a-vis 0.43 trillion that we saw at the end of Q1 previous year. Moving on to order book, our order book is at rupees 4.12 trillion as at June 23. As our products and manufacturing business is largely India-centric, 71% of our order book is domestic and 29% international. Now of the international order book of Rs. 1.21 trillion, around 87% is from Middle East and 5% is from Africa. The remaining 8% is from various countries including Southeast Asia. So clearly the Middle East capex in both intra and hydrocarbon segments is on an upswing post the stability in oil prices. As far as the domestic order book of 2.92 trillion is concerned, the breakdown is as follows. For the share of the various constituent customers, central government has 12% share, state government 29%, Public sector units are state-owned enterprises 39% and private sector 20%. Approximately around 23% of our total order book of rupees 4.12 trillion is funded by bilateral and multilateral funding agencies. Again, 91% of our total order book is from infrastructure energy. You may kindly refer to the presentation slides for further details. In the current quarter, that is during Q1-FI24, we have deleted orders of Rs. 17 billion from the order book. And as of June 23, the share of slow-moving orders is less than 1% of the order book. Coming to revenues, our group revenues for Q1-FI24 at Rs. 479 billion registered a Y&Y growth of 34%. International revenues constituted 40% of the revenues during the quarter. In the projects and manufacturing business, our revenues for Q1-FI24 at Rs. 327 billion registered a Y&Y growth of 49%. Moving on to EBITDA margin, our group level EBITDA margin without other income for Q1-FI24 is 10.2% at a drop of 80 basis points over the Q1 of previous year. This drop of 80 basis points is mainly due to past pressures in the legacy EPC projects. The detailed breakup of the EBITDA business-wise is also given in the annexures to the earnings presentation. You would have noticed that EBITDA margin in the projects and manufacturing business for Q1FI24 is at 7.4% vis-a-vis 8.3% in Q1FI23. I will cover the details when I talk about the performance of the segments. Our recurring and reported PAT for Q1FI24 at Rs. 24.9 billion is up by 46% over Q1 of last year. The robust PAT growth is delivered on the back of substantially improved activity levels and further aided by improved treasury operations. The group performance P&L construct along with the reasons for major variances under the respective function aids is provided in the presentation. You may kindly go through the same for further details. Coming to working capital, our net working capital to sales ratio has improved from 20.6% in June 22 to 17% in June 23, an improvement of 360 basis points. Our group-level collections, excluding the financial services segment, for Q1-FI24 is at Rs. 439 billion vis-à-vis Rs. 344 billion in Q1-FI23 that representing an increase of 28%. The improvement in gross working capital ratio on the back of improved customer collections is also flowing into the overall improvement in the net working capital to sales ratio. At this juncture I would also like to mention that on a sequential basis our NWC to revenue has has come down by 90 basis points that is from 16.1% in March 23 to 17% in June 23. As you may be aware quarter 1 of every financial year is generally a seasonally weak quarter for customer collections and therefore the 90 basis points of reduction is well within the guided or the desired range. Finally, the trailing 12-month ROE for Q1-FI24 is at 12.8 vis-a-vis 11.5% in Q1-FI23, an improvement of 130 basis points. And improved profitability with every passing quarter is contributing to this improvement in ROE. I will now comment on the performance of each segment before we give our final comments on our outlook for the remaining nine months of the year. First, infrastructure. Coming to order inflows, this segment secured orders of Rs. 401 billion for Q1-FI24 vis-a-vis Rs. 183 billion in Q1-FI23, registering a growth of more than 100%. During the current quarter, the orders were secured in rail, renewables, rural water supply, transmission distribution, minerals and metals, as well as commercial and residential real estate. Our order prospects pipeline in infra for the nine months for FY24 is at Rs. 5.85 trillion vis-a-vis Rs. 5.47 trillion during the comparable period of last year. This infra prospect pipeline of rupees 5.85 trillion comprises of domestic prospects of rupees 4.61 and international prospects of rupees 1.24 trillion. The sub-segment breakup of the total order prospects in infra is as follows. Transportation infra, the share is 23%. Buildings and factories, 21%. water and effluent treatment 18%, heavy civil infrastructure 17%, power transmission distribution including renewables 15% and minerals and metals at 6%. The order book of this segment has crossed Rs. 3 trillion mark for the first time and is at Rs. 3.01 trillion as at June 23. The book bill for this segment is around three years. Coming to revenues, the Q1 revenues for infrastructure at Rs. 221 billion registered a growth of 56% over Q1 of the previous year, obviously largely aided by the strong execution progress across multiple jobs from the opening order book. Our EBITDA margin in this segment for Q1 FY24 is at 5.1% as compared to 6.5% in the corresponding quarter of the previous year. The margin for the quarter is a function of the job mix that we have and legacy COVID jobs nearing completion in the current year. I would like to highlight the fact that Q1 FY24 margin is well within our own internal budget estimates for the quarter. We expect these legacy COVID-impacted jobs to conclude possibly by the end of Q2, Q3 of the current year. Having said that, we are rigorously pursuing customer claims under the terms of the respective contracts. The settlements, however, may happen over a period of time. Finally, although infra margin has taken a subdued, I would say, reporting due to the impact of COVID and commodity prices over the last couple of years, it is heartening to note that the working capital intensity has substantially improved during the same period, resulting in stable return ratios over a period of time. Moving on to the next segment, which is energy projects. This segment comprises of hydrocarbon and power. The receipt of both domestic and international orders during the quarter helped the hydrocarbon order book, whereas power business reported a muted order inflows. We have a very strong order prospects pipeline of rupees 3.92 trillion for this energy segment for the remaining nine months of FY24. Comprising of hydrocarbon at Rs. 3.47 and power comprising Rs. 0.45 trillion. The order book for this energy segment is at Rs. 728 billion as of June 23 with hydrocarbon order book at Rs. 680 billion and power at Rs. 48 billion. The Q1-FI24 revenues at Rs. 66.8 billion registered a healthy growth of 32%, mainly driven by the pickup in execution momentum in the international projects of hydrocarbon business, whereas the degrowth in the power segment is largely reflective of a depleting order book. The energy segment margin in Q1-FI24 is at 9.1% vis-à-vis 8.5% in Q1-FI23. Execution cost savings aids margin improvement in power, whereas hydrocarbon margin is reflective of the jobs at various stages of completion and progress. The breakup of order inflows, revenues, and EBITDA margins of this segment is given as part of annexure to the presentation. We now move on to high-tech manufacturing segment that comprises of defense and heavy engineering business. The order inflows for this segment for Q1 has been impacted by deferrals in both heavy engineering and defense. We have an order prospects pipeline of Rs. 252 billion for this segment for the remaining three quarters of FY24. The order book of this segment is Rs. 256 billion as of June 23. Healthy execution momentum across both the segments drive a 40% revenue growth in the current quarter whereas the margin improvement of 170 basis points over the corresponding quarter of previous year is largely a function of execution cost savings. Once again, we have given a detailed breakup of order inflow revenues and EBITDA of both the businesses under this segment in the annexure to the presentation. On the subject of defense engineering segment, I would like to once again reiterate that this business does not manufacture any explosives nor ammunition of any kind, including cluster munitions or anti-personnel landmines or nuclear weapons or components for such munitions. The business also does not customize any delivery systems for such munitions. Moving on to the next segment, which is information technology and L&T technology services, which comprises of two listed subsidiaries, LTI Minetree and LTTS. The revenues of this segment at Rs. 108 billion in Q1 FY24 registers a top-quarter growth of 14% Y-on-Y. Despite ongoing macroeconomic concerns, the deal pipeline for the segment is healthy and a good visibility across all the sub-segments that both the companies have. The negative variance in the EBITDA margin in Q1 FY24 vis-a-vis the corresponding period of the previous year is largely attributed to increased talent acquisition and retention costs. As both the companies in the segment are listed entities, the detailed fact sheets are available in the public domain. Now we move on to financial services segment. Here again, L&T Finance Holdings is a listed subsidiary and the detailed results are available in the public domain. Q1 revolved around strong retail disbursements, lower credit cost, improved asset quality and a rundown on the wholesale book. The balance sheet is strong on the back of adequate provision coverage ratios and inbuilt macro prudential buffers. Financial services segment achieved 82% retailization of its loan book in June 23, well ahead of the Luxia 26 targets. The retail book growth, asset quality and the return on assets are highly satisfactory. And finally, sufficient capital in the balance sheet is available to pursue growth in the medium term. The stage is set for this business to truly achieve fintech at scale. Moving to the development project segment, this segment includes the power development business that comprises of Naba Power, a 1400 MW coal-based plant in Punjab, and Hyderabad Metro. Let me mention here that the profit consolidation for L&T Infrastructure Development Projects, which is a joint venture that we do at past level, has been discontinued from Q4 FY23 post L&T signing the definitive agreement for the entire sale of stake. The investment in the L&T IDPL joint venture is classified as held for sale. Coming back to the remaining two assets in the segment, which is Naba Power and Hyderabad Metro, the majority of revenues in this segment is contributed by Naba Power. Improved ridership aids the revenue growth in Metro. Navapower, there was some impact of a lower power demand in the Q1 of current year due to a moderate summer. But having said this, the company is doing quite well on the back of a record plant availability factor and plant load factors. Coming to Hyderabad Metro, some statistics, the average metro ridership has improved from 285,000 passengers a day in Q1 FY23 to to 4,22,000 passengers per day in Q1-FI24. Our average ridership in Q4-FI23 that is Jan to March 23 was 408,000 passengers a day. The ridership in the month of June 23 at 445,000 passengers per day was higher than the Q1-FI24 average. As I mentioned earlier, the ridership per day crossed the 500,000 mark on July 3rd and touched a record high of 536,000 yesterday. The higher segment margin in Q1-FI24 is primarily due to the improved metro performance and consolidation of Naba profits. The metro at a patch level, we did consolidate the loss of Rs. 3.35 billion in Q1-FI24 vis-a-vis a loss of Rs 3.25 billion in Q1 FY23, primarily due to a higher interest cost, despite the improvement in daily ridership. Moving on to the last segment, that is others, this segment comprises reality industrial walls, construction equipment and mining machinery, rubber posting machinery, and a residual part of the smart world communication business that was transferred to LTTS. The Q1 revenue growth of 50% over the corresponding quarter of the previous year is led by reality and construction and equipment and mining machinery. The margin for the segment during the quarter is largely in line with the corresponding quarter of the previous year. Coming to the last part of my presentation, the outlook, India's economic growth continues to display encouraging resilience despite the continuing global chaos. Prudent fiscal and monetary policy management from the government and RBI respectively has resulted in the partial decoupling of India's growth story with the rest of the world. Encouraging real GDP growth with stable inflation as well as manageable internal and external balances can be expected in the near to medium term. Besides the spends in basic infrastructure, a higher government capex allocation in the green economy, including clean and renewable energy, will provide the necessary impetus to investments in energy transition and larger infrastructure projects. Outside India, as I mentioned earlier, prospects in GCC countries appear healthy. Major oil producing nations in the GCC are continuing to invest in oil and gas industrialization and energy transition initiatives that auger wealth for the company's projects business. In the backdrop of this mixed sentiment, the company will continue to pursue its planned trajectory of profitable and return-accretive growth. I would like to emphasize that the focus will remain on cash generation, judicious capital allocation, and distribution of cash to shareholders on a regular basis. The company has a robust order prospects pipeline in the medium term and is confident of sustaining its growth momentum by utilizing the emerging opportunities with the overarching aim of improving shareholder value on a sustainable basis. Finally, I would like to comment on our guidances for FI24 before we jump into Q&A. On order inflows and revenue, we are indeed off to a good start in Q1, both in terms of orders secured and the revenue that we have printed. We remain confident of achieving the order inflow growth of 10% to 12% and the revenue growth of 12% to 15% for the year FY24. So our guidance on both these parameters remain unchanged. And in fact, as we enter into Q2 FI24, we are also reasonably well placed in some large orders across infra, energy and the different sectors. On margins, that is EBITDA margins, since our progress on margins in the projects and manufacturing portfolio in Q1 FI24 is along the expected path, our guidance for 9% in this segment for the full year FI24 remains unchanged. As you may recall, when we were summarizing the performance of FY23, we also indicated that the margins of this particular projects and manufacturing segment for the first two quarters will be a little subdued, considering a substantial completion of the legacy jobs that we secured prior to COVID, during COVID. Post that, I think the mix of the recently awarded jobs will take a higher share. So the subdued margins is along with the expected estimates that we had already given. On working capital, we would maintain the NWC to revenue guidance of 16 to 18% band for the current year. Our integrated annual report for FY23 is published and we have also captured the key ESG parameters as part of the annexures to this presentation. Kindly have a look at the progress that we have done in FY23. We intend scheduling a separate ESG call for our stakeholders sometime soon where we will explain in detail our ESG plans and the progress on various parameters. Thank you, ladies and gentlemen, for this patient hearing. We can now get into Q&A.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touched-on telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and 1 to ask a question. The first question is from the line of Mohit Kumar from ICICI Securities. Please go ahead.

Good evening, sir, and congratulations on a very, very good quarter and the decision to reward the shareholders. My first question is on the certification. Does the current quarter include high speed rail order which announced on 22nd of July?

So the orders in the infrastructure segment includes the C3 order. As you may be aware, this bid happened in 11th of April, early April 2023. And as part of a process, the letter of award was formally issued. But before June itself, we had completed the relevant documentation. And incidentally, since we are executing the C4 package, I also want to state that the preliminary work for the C3 package also has started.

The guidance, despite having a very good quarter, our revenue growth and order inflow for the balance of the year looks like they are in the single digit below 10%. Is there any reason to not revise the guidance given that the prospect tables are good, order book is at a high?

So Mohit, I think when we, if you recall, when we did our earnings call for Q3 FY23 in January, we still had a similar question. And as you know that this year, we all are aware that the first three quarters for India could be really busy. And there is always a chance because of the impending general elections, although the dates have not been announced. So we have to be mindful of that. So we are taking into account this aspect. Although Q1 order inflow has been reasonably robust, but as you know, the ordering momentum can be a little lumpy at times. So let's see as we get into Q2, Q3, I think we'll have a better visibility to talk about revising the guidance. So as far as order inflows are concerned, we will still maintain that 10% to 12% trajectory. On the revenue execution part, we are given a guidance of 12 to 15%. And I am happy to say that the Q1 revenue growth has been quite, I would say, reasonably good. But Q2, as far as the projects is concerned, can have some impact because of the seasonal monsoon and all. So I think in terms of, but definitely Q2 will definitely at least give us a clear visibility in terms of the execution momentum that would flow into Q3, Q4. Maybe at that point of time, we can be a little more, I would say, we can have a better comfort on seeing whether we possibly can touch on the higher side of the revenue guidance. But at this stage, it is premature to conclude. So we still maintain the band of 12 to 15.

Understood. My second question is on the margins. The core margin were having, why you were weak. So does this legacy EPC projects, do you think, when do you think the impact of the legacy projects will wear off? And are these orders before FY21?

So I think that once again, this is, we had articulated quite in detail that When we closed FY23 in the month of May, when we gave the guidance of 9% for projects and manufacturing with a clear qualifier that the first six months could be a little subdued on the back of a major part of the jobs that we had secured until 2021, which is COVID year. And thereafter, these jobs, when they went into execution, they bore the additional brunt of higher commodity prices. So a major part of these jobs should get completed in the first half or possibly definitely by Q3 of the current year. And it is based on this construct that we have given a guidance of 9% for the full year with a clear view that the first six months for infra could be a little subdued.

Understood. Thank you. Best of luck. Thank you.

Thank you. Thank you. Next question is from the line of Ashish Shah from JM Financial Limited. Please go ahead.

Yeah. Hi. Good evening. My first question is on the mention of the commercial property sale during the quarter, which you mentioned in the press release. Could you just elaborate a bit on that, sir?

This is, I mean, as part of the real estate, as you are aware, our reality business comprises of both commercial and residential real estate. So in Q1, we completed the sale of a commercial real estate in Bombay that gave us almost around 80 crores of profits, I would say PPAT. That is included in the segment result of the others segment.

And what could be the revenue corresponding to this, if you can help?

Around 120 crore.

Okay. The second question is on the Hyderabad metro.

Once again, that is 200 crores, please. 200 crores is the revenue and 80 crores is the segment result.

Sure. Okay. Sir, also on the Hyderabad metro front, so could you elaborate on how much support we have received so far and what is the view and the outlook of getting maybe 3,000 crores over a period of three years? So are we on track on the runway to get that sort of?

Okay, so in FY23, we had received the government assistance of 100 crores. In Q1 current year, we received another 150 crores. And as we speak, in the month of July, we have received another 300 crores. So in all aggregate, we have received 550 crores till date. And we expect to possibly get another 450 crores, which is the first installment of 1,000 crores very shortly. So I would say it has been built in our overall construct that 1,000 crores each of the years in FY24-25. I-523 is what got spilled over, but we do expect the government to help us out, you know, dispersing the monies at the soonest.

Thank you. So the line for the participants dropped. The next question is from the line of Puneen Gulati from HSBC. Please go ahead.

Yeah, thank you so much and congratulations on great teamwork here.

What we really... May I request you to speak through the handset? Okay.

Can you hear me now?

Yes, please.

Go ahead, Puneet.

Yeah, so congratulations on great numbers. Can you elaborate a bit more on what's driving this execution strength? Is it just the sheer number of projects that you're doing has gone up or the scale has gone up? What's driving this humongous growth and revenue?

So, Puneet, it's a combination of all the statements that you made. I think the size of the order book And the scale of the projects that we have secured over the last two years in terms of larger project outlays, larger project bids. So in terms of the size of the projects and the scale of the project has helped us to achieve this kind of revenue execution momentum. And that is what is helping us out. And as you may be aware, we are also investing a lot on I would say construction equipments or project equipments that will enable us to speed up the execution momentum.

Okay. Okay. That's helpful. And secondly, if you can comment a bit more on the competitive intensity in the Middle East, that seems to be a very big market for you. You've shown a humongous growth in the pipeline as well and prospects. Some color there would be very useful.

So Middle East, as we see it now, I guess it would be a combination of largely the way we see is in hydrocarbon segment and the next segment that we are seeing plenty of opportunities in sequence of size or opportunities would be the renewables part. And thirdly, other industrial sectors like minerals and metals to the extent there are some of these core industries being set up in that part of the world. But hydrocarbons and renewables are clearly seen as an addressable opportunity in the near to medium term. And as far as competitive intensity is concerned, I guess, yes, the size of the cap expense that we are witnessing in some of the countries in Middle East is so large that – The few of the companies that have been selected as an approved bidder, I think the size of the cake is so large that each one will probably get a fair share.

Okay, so there shouldn't be any risk on the market side at all here at least?

In terms of prospects, I would say that hydrocarbons, renewables are a good medium-term prospect in terms of newer orders. I wouldn't dare to comment upon whether the prospects will continue to sustain two or three years down the line, but definitely in the next nine months to 12 months, the prospects are addressable, are visible. It all depends on how much of the share of those prospects gets converted into orders for L&T.

And margins, this 10% kind of margins should be base case here, or can they go up as well?

So, Puneet... Whereas it would be inappropriate for me to address the margins for orders that we are yet to secure. But definitely the hydrocarbon segment, the business has reported, I would say, consistently stable margins over the last two to three years. I mean, set aside quarterly because quarterly can be a function of the progress of jobs at various stages. But definitely, depending on successful project execution, I don't see a reason any major change in the margins profile that hydrocarbons has been demonstrating over the last one and up to two years.

All right. Thank you so much and all the best.

Thank you. Next question is from the line of Parikshit Kandapal from HDFC Securities.

Please go ahead. Hi, PR. Congratulations on a great quarter. So my first question is, First question is on the segments. I mean, you have said that the prospect pipeline has increased. And the large part of these are large-size orders from railways and other segments. So what we are seeing is that on the capital goods side of these orders, somewhere we're hitting a capacity constraint. So these things are in the coming quarters, there could be some challenges on the execution side because of shortage of equipment. And you can highlight in which segments of the order book you have seen this kind of build-out happening where the capacity utilization has really gone up from the supplier side.

So Parikshit, while I was giving you the order prospects pipeline where I also gave a split of the 5.85 prospects pipeline for infrastructure segment for the balance nine months, I also gave you a break-up ranging between transportation infrastructure, which is the highest, to minerals and metals at 6%, which is the lowest, across the entire five or six sub-segments that we have. Once again, I wish to reiterate here that the actual set of opportunities that could come in these segments could be possibly even more higher, but we are mindful of the fact that today the infrastructure segment itself is having almost a three trillion order book for execution. So we are targeting the projects where we have the capacity to execute and also the competitive incentive intensity for such kind of which also will be a shade lower.

So my question was more on the securing the equipment part. Like in a T&D project, there could be potential shortage of our farmers. So same way across your order book, there could be shortage in other segments. Are you seeing any trend where

Okay, so Parikshit, I'm sorry to interrupt you. As it stands now, because if you see the run-up of growth in the infrastructure segment in renews also, that doesn't seem to suggest that is there any shortage of equipment for execution or materials. So I guess at this juncture, I'm premature to comment that there is a possibility of infrastructure equipment you know, getting into an obstacle for execution.

Okay. My second question is on IDPL now. So can you highlight on what stage we are in terms of closures and most likely when we get the approvals and the money coming in?

So at this juncture, as you may be aware, IDPL is a holding company that has eight operating road assets and one transmission line asset. The approvals from agencies like NHI, Ministry of Road and Surface Transport, and other customers is in the progress. The target is to try to complete it in Q2, but there is a possibility it can slip over to Q3.

Last question on real estate. I think SNF has said that they are targeting to be top five players and 10,000 crores is the target for pre-sales. So I wanted to see what is the number for Q1S524 on the real estate.

So at this juncture, Parikshit, the way we are looking at is obviously L&T has captive land parcels across Powai, Navi Mumbai, Chennai, Bangalore, and one parcel in North India as well. So all of this has the potential to develop almost 12 million of residential land. and 15 million of commercial property development. So this is the overall objective of the reality business that we have in the next two to three years, I would say.

Thank you. Sorry to interrupt you, Parikshit. I'll request you to join the queue again for a follow-up question. A request to all the participants, please restrict to one question per participant. We have a long queue. And requesting join the queue again for a follow-up question. Next question is from Land of Renu Bait from IFL Securities. Please go ahead.

Yeah, thanks for the opportunity.

Renu, you're sounding distant from the phone.

My question is, any update on the divestment of Naha Power? And if you can also share what is the value of cash and liquid investments on the parent books at the end of first half?

Okay, so at this juncture, Renu, it is like this that we don't have, I would say, a serious interest in terms of Nava Power, but we continue to operate the asset. As I mentioned earlier, the asset is doing very well in terms of one of the best performing thermal power plants with a total TLF upwards of 85 odd percent. So it's doing quite well. Coming to the second question, the total investable surplus or what you call as cash which is lying, which can be considered for capex or which can be considered for even the divestment, sorry, buyback or so. At the standalone level, we can assume around 25,000 crores. At the group level, it could be around 35,000 to 40,000 crores because 10,000 crores is the total amount of cash which the ITTS companies have. And the rest, you cannot take L&D finance cash balance as an investable surplus. So I would say 25 plus 10, around 35 to 40 is the total group cash that we have.

Got it. And can you share what the sectors were the 17 billion orders people during the quarter?

Sorry, I didn't get you.

The 17 million orders which were deleted from the backlog.

It is largely in... As in the B&F real estate sector, it was an old order that was not moving, and that was almost 1,000 crores or so. The rest is all a combination of various orders, you know, after the completion. It is no longer required, so they get deleted.

Got it. Thanks, Makim, on the basis of.

Thank you. Thank you. Next question is from the line of Samit Kishore from Access Capital Limited. Please go ahead.

Thank you so much, Pierre. My first question is on hydrocarbon prospects, which have increased sharply. Could you give some color on what is driving this increase, whether it is onshore, offshore hydrocarbons, overseas, domestic, and so on?

I think I gave you the breakup of hydrocarbons, both domestic and overseas. So the total hydrocarbon prospects is at 3.47 trillion, okay? And you can take offshore at around 1 trillion, onshore at 2.3 trillion average.

Okay.

And the rest is a combination. I think you can take it that way. 1 trillion as offshore and 2.5 trillion as onshore.

Got it. The second question is, you know, while the defense – Prospects for the balanced fiscal, you know, seem to have gone down as included in that number for heavy engineering defense and green engineering, green energy EPC. But, I mean, clearly what we are reading in terms of your press releases on L&T co-developing AIP technology with DRDO, you know, the prospect of P-75I, you know, even the lightweight tanks that we are reading about, over what time frame, you know, and how large can these opportunities be in defense if you couldn't give some color?

Okay, so... Let me tell you the order prospects for defense that we have for the balance nine months. What we believe as tenders will get floated and awards may get announced is aggregating to around 0.19 or 19, 20,000 crores. This was actually 24,000 crores Q1 last year. But that doesn't mean that the prospects have come down. We are talking of what we believe are addressable opportunities that will come up for bids and get awarded. So we are only focusing on that. So needless to state, the P75I, all those bids are not included in the current order prospects pipeline.

Yeah, but can you elaborate on, you know, like the conversion of submarines to AIP, the Scorpene class, what could be the size of those opportunities for L&T? given that you have co-developed AIP with DRDO?

Yeah, it would be premature for me to give a value aspect to it, Sumit, because at the end of the day, these are jointly developed. The scope, how much of L&T gets it or how much goes to the public sector shipyards, I think at this juncture may not be appropriate for me to comment.

Sure. And finally, on electrolyzers, would you be able to roll out your utility scale electrolyzer this year from Hazira or is it going to spill over into next financial year? What is the scale of setup that you're doing for electrolyzers?

So, this has been filed in the stock exchange today for the benefit of all. So, L&T Electrolyzers Limited as a subsidiary has been incorporated and the board has approved an overall investment of around 500 odd crores. to set up this electrolyzer factory. And this is going to happen in Hazira, in our AMN heavy engineering campus. And we expect the factory to get commissioned possibly in the next nine months or so.

What is the capacity? It will cater to electrolyzer sizes up to four megawatt. Okay. Thank you so much.

Thank you. A request to all the participants, please restrict to one question per participant. The next question is from the line of Amit Mahavan from UBS Group. Please go ahead.

Yeah, hi. Thanks for the opportunity. Yeah, I just have a quick question on the ROE trajectory. Now that, you know, BIREC is already in works, you know, do you think FY26 corridor for ROE of 18% can see an upside risk, especially given, you know, next two years, the execution and margin ramp up in core that we can see. So any color there?

So, Amit, I think I mentioned the bridge of 12 to 18. Okay. So the capital allocation part is what is now to the buyback and higher amount of dividends, which will enable us to improve by 150 to 200 basis points. The second and more important thing is on the concessions part of our business, which is essentially L&T Metro. Hopefully, I think it should come back on track on the timely receipt of the state government assistance and also the TOD monetization. So definitely the next two to two and a half years, I think we will be seeing a good amount of progress. We expect a good amount of progress in terms of Metro operations are turning around the corner at least in the next two to three years. And as far as the projects and manufacturing business is concerned, I guess with the kind of order book we have and the opportunities that we are looking at both India and Middle East will sustain itself into improved margins from at least 2024-25 onwards. But the more important part in terms of the value capture in the projects and manufacturing portfolio summit would be the working capital intensity that we are bringing it down from almost 23% in that segment to almost 18% now. Amit, sorry.

okay got it answer second and quick question on uh you know middle east particularly saudi we seem to be getting a lot of um you know business attention there will we uh that entail um significant investments in that region for us uh uh and how do you see um you know the scenario vis-a-vis what you know we saw say 10 years ago when uh there were a lot of um competitive scenarios impacting profitability so how do you impact more comfort on that region as far as our strategy is concerned. Thank you.

So as far as Saudi is concerned, the two opportunities that we are targeting, I would say in terms of priority or aggregate size, obviously is hydrocarbons and secondly is the renewables part as part of the new city development. Over a period of time, I guess the amount of opportunities into Other sectors on power, you know, besides renewables, including water and all, will shape up. The kingdom is going through, I would say, a big transformation in terms of approach to both investment and mindsets, and this is something quite favorable. Competitive intensity, I would say, as far as hydrocarbons is concerned, is with a select few set of bidders. And as I mentioned in response to an earlier question on the same subject, I think the size of the CapEx is so big in terms of next 12 to 18 months. I guess every one of us will have a fair share of the size of the pie.

Thank you and good luck to you.

Thank you, Amit.

Thank you. Next question is from the line of Aditya Mohangya. from Kodak Securities, please go ahead.

Yeah, congratulations for a good set of numbers. I limited it to one question, which is on hydrocarbons. Probably probing you slightly more on this one. See this almost trebling of pipeline that you're seeing for a nine month basis. Is this something that can sustain the 3 to 10 rupee number? or do you see the case of one trillion rupee number again coming back at some point of time in the future? If you can give me some more color on the geographies and the areas where investments are happening, it will just give us more sense of the sustainability of this number.

So Aditya, I guess you are right to say that the hydrocarbon pipeline prospects itself are three trillion this time around. We are only looking at the prospects for the next nine months. It would be A little speculative for me to comment as to in June 24, whether the prospect pipeline will be equal to this or more than this. But definitely in the next 12 months, the opportunities that we are looking at more so from KSA, Saudi Arabia is quite significant. Besides the KSA, there are one or two other countries in the MENA region, GCC region, where we do see favorable opportunities to come our way.

Maybe I'll just kind of ask a little question over here, not a new one. Your subsidiaries in KSA have seen a lot of volatility in their top line. I don't know whether it is indicative of the way things happen in KSA, but what is changing at this point of time for us to be believing that the change in mindset over there is something that can lead to medium-term gains for us, which are more sustainable?

So when you talk of medium term gains, I'm sure you're referring to margins. I did mention that hydrocarbons margins has been consistently in that 9% to 10% band over the last two years or so. And with the kind of order book that we have across both India and outside India, I don't see any reason for us to comment upon whether there would be a significant increase upturn in margins or a downturn. The only fact I would like to put across here is we have to be mindful that the execution has to be in line with the planned timelines. If that happens, I guess that will be something our credibility in the system, which we have already done. And hence, that's one of the few important reasons that L&T has been getting consistently large orders from this part of the world in so far as hydrocarbons are concerned because of the favorable experience that the customer has seen while L&T has executed the jobs in the recent past.

Thank you a lot for the color. Those were my questions.

Thank you. Next question is from the line of Ashwani Sharma from ICSA Securities. Please go ahead.

Good evening, Pierre, and thanks for the opportunity. And congratulations to the entire identity for the strong performance. Just a quick one. So we have exceedingly done, you know, really well in Saudi over the years. We were number one international contractors in CY22 in Saudi. So do you think that we can replicate this success in other GCC juggle phase? Is there a strategy, you know, to capture in FY24 or FY25?

So, Ashwini, I guess as a contractor, we are an approved or I would say a selected bidder or accredited bidder in most of the major customers across the various countries in the Middle East and the MENA region. So today as we see it, it is possibly Saudi and one or two opportunities outside of Saudi where we are seeing a sizable amount of business traction that can happen. But we are also be mindful that you should have each and every country in Middle East talking about projected jobs. Now only when those jobs are addressed, then we can quote. So today we are seeing is the maximum amount of opportunities coming from KSA.

Okay. And the last one and the quick one, on the offshore wind business which you have recently formed, I wanted to understand what kind of opportunities over there you see.

We are still working on offshore wind. Obviously, for us, it is a natural extension of our offshore hydrocarbons competencies that we are going to leverage upon. At this juncture, we are looking at technology because that also requires some amount of technology inputs for us to position ourselves, like the way we are now putting across to put up this electrolyzer plant for catering to sizes up to 4 megawatt electrolyzers. Similarly, for offshore wind also, we are looking to, you know, increase our capabilities out there, leveraging our offshore hydrocarbon competencies that we have.

Yeah, thanks.

Thank you. Next question is from the line of Deepak Krishnan from Macquarie.

Please go ahead.

Deepak, your voice is breaking here.

Deepak, can you hear us?

Deepak, afterwards, you can take possibly the next person.

Yes, sir. The next question is from the line of Ankita Shah from Ilaria Capital. Please go ahead.

Yes, thank you. So, given the very strong prospect pipeline that we have and we are expecting a good momentum in closing forward, so what is the kind of capacity expansion in terms of Capex that we are looking at?

CAPEX is a function of the type of orders that we get Ankita for very large orders. Like for example, when we talk about C3, C4 and all these coastal road packages, the various project specific CAPEX that we have to take is actually built into the project bid cost itself. Having said this, it would be appropriate for me to comment, given the fact that we are having such large jobs and the possibility of getting larger size jobs, the capex requirements in this segment of projects and manufacturing could range between, average between 3,000 to 4,000 crores each year.

Okay. That's it. Thank you so much, sir. And wish you all the very best and many congratulations on this long performance.

Thank you. Thank you. The next question is from the line of Barinder Vijay Kumar from Spark Capital. Please go ahead.

Good evening.

Barinder, your audio is coming very distant.

Is it better now?

If you can speak a little louder. It's a little feeble. I think you have to come closer to the handset.

Okay. Is it better now? Yeah, I can hear you. Go ahead. Yeah, sir. Sir, we have this TOD monetization pipeline at Hyderabad Metro, about 18.5 million square feet. What is the status? When are we likely to receive money? How much in FY24 and 25?

So, okay, 18.5 million square feet is the total TOD rights that we have. The monetization is not for the entire 18.5. Again, 18.5, we have developed around 1.5 million square feet of TOD, which we expect to monetize. Hopefully, we should see some of that happening in the current year.

We had some target of number to be received from TOD per year. How much would it be?

So, the target, Barani, is this we have mentioned earlier also, that the TOD monetization will fetch the Metro SPV around... 2000 crores in terms of the total cash that they will be able to collect against the developed TOD parcels. And this cash will enable us to bring down the debt. So 2000 crores is the estimate that we are considering for TOD monetization. And in terms of the timelines, some part of that should happen in the current year itself or a major part. But we are progressing satisfactorily on that. Let us see how it shapes out in the current year.

Okay. Second question on the power T&D prospects. We see government of India trying to push renewable options and a lot of options have happened. Though we are not a big player in India, do we see good inflow from this segment this year?

Okay, so the share of power TND in infrastructure, the order prospects that we have for infrastructure at 5.85 trillion, the share of power TND is almost 19% of that and it is equally split. In fact, it is tilted more towards almost 55% is international and the balance 45% is domestic. Hello.

Hello. Yeah, no, I was asking about the renewable portion there. Would we be expecting good inflow there given Indian renewable options are increasing?

The international portion consists largely of renewables. The domestic is all the classic traditional power transmission distribution projects including substations and so on.

Okay, got the answer, sir. All the best.

Thank you. Next question is from the line of Sanjay Kumar. So my thought financial, please go ahead.

Hi, sir. So on solar, I understand we don't want to do solar panel manufacturing because commodity and 50 gigawatt capacity coming through PLA. But does that mean we lose out to integrated developers like, say, Tata, Adani? What would be our market share in solar EPC? It looks like we are not focusing on solar in India at all.

So we have done a lot of solar renewable projects in the past in India. We are now focusing more of such opportunities outside of India. That doesn't mean that we are not taking those kind of opportunities. In response to the earlier gentleman's question, as I said, there are some solar renewable prospects in India also, but our focus is to take more of such projects outside India. The more important point is that the India solar projects that we are looking at, in terms of size and scale, it is a little smaller, whereas the overseas solar projects are opportunities that are big in scale.

Okay, got it. And second, can you talk about the orders in US? Because US is spending a lot on construction, which we are seeing in jobs data and even project announcements. But for us, US and Europe contribute 15% to inflows and revenue, but less than 1% to backlogs for the last three years. So it seems to be a short cycle order. So are we focusing there? What kind of orders are we getting?

So Sanjay, what you see in US and all, they're all reflecting nothing but the revenues of the ITTS portfolio, which is also put in order inflow. So as an EPC contractor, our order prospects pipeline currently does not address any issues Western world orders at this juncture.

Okay.

And on high-tech manufacturing, having said this, I mean, there are obviously opportunities when you talk about making complex pieces of equipment, largely for the petrochemical sector. So that's more of an export job which our heavy engineering does. But outside of that, U.S. infrastructure or European infrastructure, they are largely restricted to the respective contractors of those regions only.

Okay, makes sense. And on high-tech, are we looking at semiconductors or small modular reactors for nuclear?

Semiconductors at this juncture, no comments. As far as modular reactors are there, we are working, but it's a little premature for me to comment in detail.

Okay, thank you.

Thank you. As there are no further questions, I now hand the conference over to Mr. P. Ramakrishnan for closing comments.

Thank you all for taking your time to attend this call. I hope all the queries have been answered. In case if you have any further clarifications, please feel free to reach out to me or my colleague Harish. We will be there to clarify. Thank you. Thanks once again.

Thank you very much. On behalf of Larson and Dubrow Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.