Larsen & Toubro Limited

Ladies and gentlemen, good day and welcome to the Larson & Toubro Limited Q4 FY24 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. P. Ramakrishnan, Head, Investor Relations from Larsen & Toubro Limited. Thank you and over to you, sir.

Thank you, Rayo. Good evening, ladies and gentlemen. A very warm welcome to all of you into the Q4 FI24 Earnings Call of Larsen & Toubro Limited. We also have with us on the call today Mr. R. Shankar Raman, Old-Time Director, President and Chief Financial Officer of the company. The earnings presentation was uploaded on the Stock Exchange and on our website at around 6.40 p.m. I hope you had a chance to have a quick look at the numbers. As per practice, instead of going through the entire presentation, I will first walk you through the important milestones and achievements for the year, followed by our progress in our strategic plan that ends in FY26, a synopsis of our financial performance for the quarter Q4 and FY24, and finally the guidance for FY25 in the next 30 minutes or so, post which we will take the Q&A. Before I begin the overview, the customary disclaimer from our side, the presentation which we have uploaded on the Stock Exchange and our website today, including the discussions we will have on the call, may contain certain forward-looking statements concerning L&T groups, 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. I would request you to go through the detailed disclaimer, which is available in slide 2 of our earnings presentation that we have uploaded. Despite the global headwinds, the Indian economy continues to present a picture of resilience and momentum. The investment activity remains healthy on the back of continuing public capex and a selective recovery in private capex. Urban consumption spends has remained strong, whereas rural consumption is showing signs of recovery. The YNC reflected in the various high-frequency economic indicators only reconfirms the country's growth momentum. The fundamentals of the Indian economy remain solid and with healthier corporate and bank balance sheets, fiscal consolidation of course, external balances remaining eminently manageable, and forex reserves providing cushion against external shocks. The near-term monitorable in India revolves around the election outcome as well as the onset and progress of the southwest monsoon and its consequent impact on agriculture output for the year. First, let me share a few important milestones and achievements for the year. We are happy to report for the first time ever our group water inflows for the year has crossed Rs. 3 trillion on the back of CapEx tailwinds in the primary geographies that we operate for the projects and manufacturing portfolio, that is India and GCC. Secondly, during the year, we completed some landmark and prestigious projects, like India's longest sea bridge named the Atal Setu, connecting the city of Mumbai with its satellite city, Navi Mumbai, India's first coastal road with an underground tunnel in the city of Mumbai, The Sri Ram Janmabhoomi Mandir in Ayodhya, Uttar Pradesh. The Adi Shankarachar statue called the Statue of Oneness in Omkareshwar, Madhya Pradesh. India's first 3D printed office in Bangalore. All of this finally we are very proud to have played a critical role in India's moon mission, the Chandrayaan 3 mission as well. Our hydrocarbon business did exceptionally well and registered the highest ever order inflows during the year. The defense engineering business has now been renamed as L&T Precision Engineering and Systems with effect from 1st April 2024. This is in line with the vision to pursue opportunities in emerging deep technology sectors like precision manufacturing and electronic systems in defense, aerospace, and other industries. Further, during the year, the business also secured a major contract for supply of high-power radars to the Indian Air Force. Some important developments in the green energy portfolio L&T are successful manufacture of our first alkaline electrolyzer of 1 megawatt, in our Hazira campus on December 13, 2023. L&D Electrolysis Limited was also granted a maximum subsidy of Rs. 444 crore for 300 megawatts under the tranche 1 of the PLI scheme for electrolyser manufacturing launched by the Ministry of New and Renewable Energy. Further, L&T Green Tech, L&T Energy Green Tech Limited is also exploring options to acquire land in Gujarat and Odisha for manufacture of green hydrogen and its derivatives. During the year FY23-24, L&T forayed into fabulous semiconductor chip design by incorporating a 100% subsidiary by the name of L&T Semiconductor Technologies Limited. This was done in November 23rd. This company will be primarily engaged in the business of fabulous semiconductor chip design and product ownership. On data centers, the pilot Panvel data center in the Navi Mumbai region has gone live with a capacity of 1.4 megawatts. Secondly, in Kanchipuram near Chennai, the data center project is being constructed in two phases of 12 megawatt and 18 megawatt. Going forward, the company remains committed to investing in setting up modern and state-of-the-art data centers in the Bombay, Chennai, and Bangalore regions. In the financial services business, the merger between L&T Finance Holdings and its subsidiaries, L&T Finance Limited, L&T Infrastructure Credit Limited, and L&T Mutual Fund Trustee was concluded during the year. This merger leads to the creation of a simplified lending entity, and will create internal synergies, superior governance, and unlock avenues for growth. Further, L&T Finance Holdings Limited has been renamed as L&T Finance Limited. As on March 31, 2024, the financial services business has achieved 94% retailization of its overall loan book. In Hyderabad Metro, the monetization of the Raidur commercial property was concluded in Q2 of FY24. The sale consideration of Rs. 1,045 crore and a gain of Rs. 512 crore has been booked during the year. As of March 31, 2024, the Metro has received cumulative financial support of Rs. 900 crore from the government of Telangana. The company on April 10, 2024, has concluded the sale of its 51% stake in L&T Infrastructure Development Projects Limited, L&T IDPL, to an infrastructure fund managed by Edelweiss Alternative Asset Advisors Limited. In the reality development business, three new residential projects have been launched during the year, namely the Avinkya Enclave in Chennai, the Gateway Sewery in Mumbai, and Island Cove at Mahim. Finally, as all of you know, we successfully completed our first-ever share buyback during the year. Now let me move on to our progress in the current strategic plan, which ends on FY26. As all of you know, the current plan is a five-year roadmap for us, commencing from the financial FY22 and ending in FY26. We have already completed three years in the current plan. For the benefit of all our stakeholders, we have added a slide on our strategic plan progress as part of the earnings presentation. You may kindly go through the same. Very briefly, the targets we had set for ourselves during this five-year period ending FY26 were as follows. The group order inflows of Rs. 3.4 trillion in FY26, a CAGR of 14% during the five-year period. A group revenue target of Rs. 2.7 trillion in FY26, a CAGR of 15% during this period. And a group return on equity target of 18%. Like I said, we have completed three years in this current strategic plan. During these three years, our group order inflows and revenue have grown at a CAGR of 20% and 18% respectively, while our ROE is 15% as of March 24. The key achievements during these three years can be summarized as follows. We have achieved ahead of estimate growth in our projects and manufacturing portfolio. Although our margin profile in this portfolio has been softer vis-a-vis our expectations, the same has been more than compensated by the phenomenal improvement in working capital ratios, thereby resulting in superior ROICs. Secondly, the merger of LTI and Mindtree was satisfactory concluded during this period. Third, we have successfully fast-tracked the retailization strategy in our financial services business. Like I said earlier, the retail lending is almost at 94% of the total book as on March 31, 2024. Next, the investment of L&T IDPL and the hydroelectric assets has been satisfactorily concluded. This is in line with our strategy to reduce our exposure to the concessions portfolio. Also during this period, we incubated the green energy business, data centers, digital platforms like Sufin and Edutech, and very recently announced our entry into the semiconductor chip design. Finally, we also returned cash to our shareholders by way of a share buyback in addition to a stepped-up dividend distribution. We still have two years left in this current strategic plan. Amidst the capex tailwinds in India and GCC, we believe that we are on track to achieve our ordering flow and revenue target by FY26. The ROE improvement trajectory for the next two years will be a combination of multiple factors. Broadly speaking, a combination of improved profitability and asset turns, reduced losses in Hyderabad Metro, and return of cash to shareholders after setting aside funds for existing and newer business, which is always a lever available with us to improve the return on equity. Since we are on this topic of return ratios, I would request all of you to kindly go through the section on our journey of improvement in return ratios over the last five years. The same is covered as part of our earnings presentations. There are three slides in the earning deck on return ratios. The first slide covers the five-year journey of return ratios in the projects and manufacturing portfolio. The second slide covers the journey of return ratios for various business parts rolling up to the group level. And the third slide is on the improvement in the gross and networking capital ratios at a group level. All these slides are self-explanatory. You may go through the same. I will now cover the various financial performance parameters for Q4FY24. This quarter, Q4FY24, is a quarter of robust performance across the various financial parameters. Our group revenues and recurring pack for Q4FY24 is up by 15% and 8% respectively from whereas order inflows have declined by 5% over the corresponding quarter of the previous year. Our NWC2 revenue at 12% in Q4 FY24 registers a sequential improvement of 46 basis points and 410 basis points on a Y-on-Y basis. Moving on to individual performance parameters, our group order inflows for Q4 FY24 at Rs. 721 billion registered a Y-on-Y degrowth of 5%. Within that, our projects and manufacturing business portfolio secured order inflows of Rs. 560 billion for Q4 are declining by 8% over the corresponding period of the previous year. Our Q4 current year order inflows in the projects and manufacturing portfolio are mainly from infrastructure, hydrocarbon, and defense or precision engineering. During the current quarter, our share of international orders in the projects and manufacturing portfolio is at 27% vis-a-vis 43% in Q4 of the previous year. Further, during the quarter, orders were received across various spectrum of businesses like the electrification system works for the Mumbai-Amitabh high-speed rail project in the infrastructure segment, a major onshore project in Middle East, and a couple of large onshore and offshore packages in India as part of the hydrocarbons business. a major contract for supply of high-power radars for the Indian Air Force under precision engineering and systems business, a bridge order in Assam, an international metro order in Indonesia, and a hospital order in Oman, again in the infrastructure segment. Now moving on to the prospects pipeline, as of March 24 for F5-24-25, We have an aggregate prospect pipeline of Rs. 12.1 trillion as compared to Rs. 9.7 trillion at the same time last year. This represents an increase of 24% on a Y-on-Y basis. The increase is largely due to the improvement in the infrastructure and hydrocarbon prospects pipeline. The broad breakup of this overall prospect pipeline of 12.1 trillion is as follows. Infrastructure share is at Rs. 7.25 trillion vis-a-vis Rs. 6.5 trillion last year. The share of hydrocarbons in the current order prospects pipeline is at Rs. 3.87 trillion vis-a-vis Rs. 2.44 trillion last year. Power, Rs. 0.5 trillion, almost unchanged like last year. Heavy engineering and precision engineering and systems, Rs. 0.35 trillion vis-a-vis Rs. 0.25 trillion last year. The green energy business, there is a total order prospects of Rs. 0.10 trillion vis-a-vis Rs. 0.04 trillion last year. Moving on to the order book, our order book is at rupees 4.6 trillion as of March 24, up by 20% vis-a-vis March 23 last year. As the projects and manufacturing business is largely India-centric, 62% of this order book is domestic and the balance 38% international. Out of the international order book of rupees 1.81 trillion, around 92% comes from Middle East and 2% is from Africa. The remaining 6% is from various countries that includes Southeast Asia as well. As is evident, the GCC capex for both infra and hydrocarbon is on an upswing led by energy transition related investments and incremental opportunities in the hydrocarbon sector. The breakdown of the domestic order book of rupees 2.95 trillion, which I said 62% of the overall order book, the composition is as follows. Central government 14%, state government 28%, public sector corporation or state-owned enterprises 36%, and private sector, 22%. Approximately around 19% of our total order book of Rs. 4.76 trillion is funded by bilateral and multilateral funding institutions. Against this order book, 90% of this total order book comprises of infrastructure and energy. you can refer to the presentation slides for the further details. During Q4 FI24, we have deleted orders of Rs. 2 billion from the order book. Further, for the year FI24, as a total, the total orders that have got deleted for the full year is Rs. 57 billion from the order book. As on March 24, our slow-moving orders is well below 1% of the total order book. Now coming to revenues, the group revenues for Q4-FI24 at Rs. 671 billion registered a Y&Y growth of 15%. International revenues constituted 44% of revenues during the quarter. The strong execution momentum in infrastructure, precision engineering systems and reality within the projects and manufacturing portfolio drove the overall group revenues for the quarter. The revenue for projects and manufacturing business for Q4FY24 is Rs. 510 billion, up by 18% over the corresponding quarter of the previous year. Moving on to EBITDA margin, our group-level EBITDA margin without other income for Q4-FI24 is 10.8%, a drop of 90 basis points over Q4 of the previous year. This drop of 90 basis points is mainly due to higher SG&A costs. The higher SG&A expense in Q4 is reflective of linear expenses attributed to execution ramp-up higher credit costs in the financial services segment, and a relatively lower FX gain. Further, the previous year had the benefit of consolidation of the full-year profits of NABA that we accrued in Q4. The detailed breakup of EBITDA margin business-wise, including other income, is given in the annexures to the earnings presentation. You would have noticed that EBITDA margin in the projects and manufacturing business for Q4-FI24 is at 9.6% vis-à-vis 9.2% in Q4-FI23. I will cover the details a little later when I talk about the performance of each of the segments. Our recurring PAT for Q4-FI24 is at Rs. 43 billion. up by 8% over Q4 of last year. This PAT growth is reflective of improved activity levels and lower tax expenses. Our reported PAT for Q4FI24 at Rs. 44 billion is up by 10% over the corresponding quarter of the previous year. The exceptional items, that is net of tax for the quarter includes a gain on the divestment of stake in L&T Transportation Infrastructure Limited of Rs. 0.61 billion and a reversal of impairment of investment in L&T IDPL of Rs. 0.33 billion. The group performance P&L construct along with the reasons for major variances under the respective function heads is provided in the earnings presentation. You may kindly go through the same for further details. Coming to working capital, our NWC to sales ratio has improved from 16.1% in March 23 to 12% in March 24, an improvement of 410 basis points. For reference, our NWC to sales ratio was 16.6% in December 23. Our group-level collections, which excludes the financial services business, for Q4FI24 is Rs. 603 billion vis-à-vis Rs. 540 billion in Q4FI23, registering an increase of 12% on a Y-on-Y basis. The improvement in gross working capital on the back of improved customer collections is is actually flowing into the overall improvement in the NWC to sales ratio. I request you to go through the cash flow statement as part of the annexures to the earnings presentation. Our cash flow from operations for Q4 FY24 at Rs. 162.7 billion and for FY24 full year at Rs. 235.8 billion has registered an increase of 64% and 27% respectively over the corresponding periods of the previous year. Finally, the trailing 12-month ROE for Q4-FI24 is 14.9%, vis-a-vis 12.2% in the Q4 of the previous year. That is an improvement of around 270 basis points. Improved profitability with every passing quarter along with return of capital to shareholders in the form of the first ever buyback is contributed to this increase or improvement. Very briefly, I will now comment on the performance of each business segment before we give our final comments on our outlook for FY25. First is the infrastructure segment. Coming to order inflows, this segment secured orders of Rs. 313 billion for Q4FI24, vis-a-vis Rs. 412 billion in Q4FI23, representing a decline of 24% over the corresponding quarter of the previous year. During the current quarter, the orders were largely received in transportation infra, buildings and factories, and the power transmission renewable and distribution verticals. Our order prospects pipeline in infrastructure for F525 is around rupees 7.25 trillion, vis-a-vis rupees 6.51 trillion during the same time last year, representing an increase of 11%. This infra prospects pipeline of rupees 7.25 trillion comprises of domestic prospects of Rs. 5.39 trillion and international prospects of Rs. 1.86 trillion. The sub-segment breakup of this prospects pipeline in infrastructure segment is as follows. Water constitutes 21%. Power transmission, renewables and distribution comprises 21%. Transportation infra 20%, buildings and factories 14%, heavy civil infra 17% and finally minerals and metals at 7%. The order book of this segment is at Rs. 3.12 trillion as of March 24. The book bill for this segment is around 3 years. The Q4 revenues at Rs. 380 billion registered a strong growth of 22% over the comparable quarter of the previous year, largely aided by a strong execution progress across multiple jobs from the opening order book. Our EBITDA margin in this segment for Q4 FI24 is at 7.9%, vis-a-vis 7.5% in the corresponding quarter of the previous year. The margin improvement is primarily explained by targeted jobs crossing the revenue recognition threshold. On a full year basis though, the margin drop of 80 basis points from 7% in FY23 to 6.2% in FY24 is largely attributed to time overruns arising out of delayed clearances and logistical constraints in existing jobs, coupled with fast track completion of legacy jobs, is more than getting compensated by the improved NWC ratio from 18.2% last year to 12.5% in the current year. Moving on to the next segment, which is energy projects that comprises of hydrocarbon and power. Receipt of multiple domestic and a major international order during the quarter, facilitated hydrocarbon book. We have a strong order prospects pipeline of rupees 4.36 trillion for this segment for F525, comprising of hydrocarbon prospects of rupees 3.86 trillion and power prospects of rupees 0.5 trillion. The order book for this energy segment is at Rs. 1.18 trillion as of March 24, with the hydrocarbon order book at Rs. 1.13 trillion and power at Rs. 50 billion. The Q4 FI24 revenues at Rs. 82 billion registers a growth of 4%, mainly driven by the pickup execution ramp-up in the international projects of the hydrocarbon business, The lower revenues in power segments is reflective of a lower order book. The energy segment margin in Q4 FY24 is at 11.4% vis-a-vis 10.4% in Q4 FY23. Hydrocarbon margin in Q4 is aided by job mix coupled with a favorable claim settlement. The power margins are largely in line with that of the previous year, although the previous year had the benefit of execution cost savings upon a particular closure of a job. We will now move on to the third segment, which is the high-tech manufacturing segment, which comprises of the heavy engineering fabrication business and the precision engineering and systems business. The receipt of a major order during the quarter bought the order book of the precision engineering and systems, whereas the engineering business benefited from the receipt of a significant order from a key oil and gas customer in the Middle East. The order book of this segment at Rs. 320 billion as of March 24. The order prospects pipeline for this segment in FY25 is around Rs. 346 billion. The strong execution momentum drove revenues in the precision engineering and systems business, whereas heavy engineering revenue was impacted due to a lower opening order book, consequent upon certain order deferrals. The margins of this segment reflects the stages of execution of the various jobs. Since we are on this particular segment, I would once again reiterate that the precision engineering systems business does not manufacture any explosives nor ammunition of any kind, including cluster ammunitions 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, that is the IT and technology services, which comprises of two listed entities, LTI Mine Tree and L&T Technology Services. The revenues for this segment at Rs. 112 billion in Q4 FY24 registers modest growth of 3% attributed to the subdued global macro conditions that is impacting IT spend. Despite the ongoing macroeconomic concerns, the deal pipeline for this segment is healthy with a good visibility across the various sub-segments. The margin for this segment is largely in line with that of the previous year. I will not dwell too much on this as both the companies in this segment are listed entities and the detailed fact sheets are already available in the public domain. We now move on to financial services segment. Like I said, L&T Finance Holdings has been renamed as L&T Finance Limited. Here again, the detailed results are available in public domain. But to summarize, Q4 of the current year for L&T Finance revolved around strong retail disbursements, which were the highest ever in a quarter, improved profitability and better asset quality. The balance sheet is strong on the back of adequate provision coverage ratios and inbuilt macro-prudential buffers. Financial Services has achieved 94% of its retailization of its loan book, well ahead of its Luxia 26 targets. The retail book growth, asset quality, and the return on asset are all highly satisfactory. The business is building itself on the five pillars of growth, that is enhancing customer acquisition, sharpening credit underwriting, implementing futuristic digital architecture, a higher brand visibility, and finally capability building. I would like to conclude that there is sufficient capital in the balance sheet to pursue growth in the near and medium term. Moving on to the concessions of the development projects segment, this segment includes the power development business comprising of Nava Power and Hyderabad Metro. The company on April 10, 2024, concluded the sale of its stake in L&T IDPL. Therefore, as on March 31, 2024, the investment in L&T IDPL is classified as held for sale. The majority of revenues in the development project segment are contributed by Nava Power. The improved ridership facilitated the revenue growth and margin improvement in Hyderabad Metro. Some statistics on the ridership for Hyderabad Metro. The average metro ridership improved from 4.08 lakh passengers a day in Q4 FY23 to to 4.41 lakh passengers per day in Q4 FY24. Our average ridership in Q3 FY24 was 4.44 lakh passengers a day. That is slightly lower when it is compared to the current quarter, mainly due to the free bus entitlement to ladies under the new Mahalakshmi scheme of the state government from December 23 onwards. The Nava margin in Q4 was largely in line. However, please note the previous Q4 of FY23 include the consolidation of the full year FY23 profits of Nava Power. The Metro at a pack level, we consolidated loss of Rs. 2.11 billion in Q4 FY24 vis-a-vis a loss of Rs. 3.35 billion in Q4 FY23. For FI24 in Metro, we have consolidated loss of Rs. 5.6 billion primarily due to the gains on the commercial property monetization as compared to overall loss of Rs. 13.21 billion in FI23. Moving on to other segment, this segment comprises Realty, Industrial Walls, Construction Equipment and Mining Machinery segment. That includes rubber processing machinery and some residual of the smart world and communication business. The Q4 revenue growth of 27% over the corresponding quarter of the previous year is mainly contributed by the higher handover of residential facts in the reality business. The margin improvement in this segment again is primarily contributed by the reality business. Coming to the last part of my presentation, which is outlook, India's economic growth continues to display resilience despite the global geopolitical turbulence. Domestic activity has exhibited strong performance on the back of robust domestic demand. Better capacity utilization in the manufacturing sector, buoyancy in the auto and real estate, Healthier corporate balance sheets, a strong credit momentum, high tax collections and acceptable levels of inflation are aiding the growth prospects of the Indian economy. The country's growth momentum is likely to continue the medium term, backed by the sustained strength in domestic demand, easing on inflationary pressures, focused fiscal spending by the government, and a strong manufacturing revival through new-age greenfield investments and broadfield expansion across sectors. A combination of public and private cap spending is expected to propel the country's growth in the years to come. On the global front, the U.S. economy has shown persistence so far, but the inflation levels have led to the postponement of the rate cut decision by the Federal Reserve. Further, the U.S. presidential elections in November is expected to contribute to the economic volatility. Elsewhere, the UK and Europe economies are still fragile, and concerns around growth in China could further dampen the economic revitalization. The Middle East region is also feeling the impact of conflict in West Asia, and escalation or spread of the conflict and disruptions in the Red Sea could have an adverse economic impact in the region. Besides continued investments in oil and gas, structural reforms in these countries remain critical to boosting growth in the medium term by way of diversification into clean energy and other industrial sectors such as mineral processing. The headwinds from geopolitical tension, volatility in international financial markets, geoeconomic fragmentation, continuing sea route trade disruption and extreme weather events pose risk to the outlook. Nevertheless, India, due to its structural reforms, strengthening physical and digital infrastructure, as well as upbeat business and consumer confidence, is in a relatively superior position to withstand these multiple challenges. In this backdrop, the company, L&T, will continue to focus on profitable execution of its record high order book, as well as position itself for tapping into emerging opportunities. A high order book, a relatively strong balance sheet, a very diversified business portfolio, and proven execution capabilities enables the company to steer through the current volatile business environment. The company, as always, remains committed to maximizing sustainable value to all its stakeholders. Finally, I would like to comment on our guidance for FY25 before we take Q&A. On ordering flows, our guidance is around 10% growth in FY25 over FY24. This factors in domestic softness in tendering and awarding in H1 FY25 due to the ongoing elections in India and the formation of a new government. We also recognize that we have a large base to build our growth plans on. Having said that, the order prospects of Rs. 12 trillion for FI25 gives us confidence to pursue the order inflow guidance for this year, FI25. On revenues, our guidance is 15% growth over FI24. Given the large order book at this juncture, we believe our execution should carry on at a healthy clip without diluting our capital usage efficiency. A combination of a large order book and a normal payment environment in India and GCC gives us confidence around the revenue guidance of 15% growth. On the margins for the projects and manufacturing portfolio, the guidance for FY25 is largely in around the number that we posted or reported for FY24, which is around 8.25%. Here I would like to give a little more explanation for this margin guidance, which is a combination of the following factors. The first one being the portfolio mix. The domestic vis-a-vis international jobs in the order book, which is the international order book, currently has a share of 38% of the total order book. As you may be aware, international projects have significantly better working capital terms, while the margin profile tends to be a little lower when compared to domestic orders. Further, in the infrastructure segment, over the last couple of years, we have received multiple large renewable project orders, These renewable project orders give us a good revenue boost, but come with superior working capital terms, but the flip side being that these jobs have lower embedded margins. The second point is on the EPC business risk. As you are aware, most domestic jobs are bid on competitive basis, and the lowest bidder is awarded the contract. The quality and cost-based selection criteria, or the QCBS, is yet to evolve in India. In such a bidding environment, there is always a likelihood of the cost of execution exceeding estimates, although partially reimbursable by clients at a later date. Additionally, in infrastructure projects, time delays are inevitable given the large number of clearances that are involved. The third point is on client claims. Whereas the payments from clients have improved over time, claim acceptance and settlements from the clients are witnessing delays. This impacts the margin. Last, the EPC business is cyclic in nature. It does appear that we are in the middle of an upcycle where the growth has preceded our own plans. In order to improve our preparedness to deliver, investments in resources and capability building are required, which could impact margin in the near term, but followed by benefits in the medium term. Having explained the margin profile, let me also reiterate once again that the modest margins in this portfolio will be made up through volume growth and improved working capital intensity, thereby resulting in higher return on invested capital. Our guidance on working capital, we did quite well in FY24. A combination of improving revenues, higher customer collections, and customer advances led to this improvement. For FY25, we are guiding the NWSU to revenue at 15%. Before I conclude, I just want to give you an update that has been recently filed in the stock exchange maybe an hour back I would like to confirm to you that L&T, Larson & Toubro Limited, has been given by S&P Global Ratings. While it's letter dated today, it has assigned BBB plus a low-term issuer credit rating, which is two notches above the sovereign credit rating. The detailed filing is there in the stock exchange. Thank you, ladies and gentlemen, for this patient hearing. We will now begin the Q&A. We have covered in the last almost 45 minutes a lot of ground on the performance for the year and the guidance as well for FY25. In order to make best use of the available time, I would request you to restrict your questions on strategy and outlook. This will be answered by Mr. Shankar Raman. Any further bookkeeping-related queries can be addressed by the IR team. That's myself and Harish later on. Thank you.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and 1 on their touch-tone 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 questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Mohit Kumar from ICICI Securities. Please go ahead.