Larsen & Toubro Limited

Ladies and gentlemen, good day and welcome to the Larson & Toubro Limited Q2 FY25 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 conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. Today we have with us on the call Mr. Subramanian Sharma, Whole Time Director and President of Energy Division and Mr. P. Ramakrishnan, Head Investor Relations of Larsen & Toubro Limited. I now hand the conference over to Mr. P. Ramakrishnan. Thank you and over to you, sir.

Thank you, Sagar. Good evening, ladies and gentlemen. A very warm welcome to all of you into the Q2FI 25 earnings call of Larsen & Toubro. The presentation, the earnings presentation was uploaded on the Stock Exchange and on our website around 6.35 p.m. just now, maybe one hour back. I hope you have had a chance to have a quick look at the numbers. As per past practice, instead of going through the entire presentation, I will take you through the important highlights for the quarter, followed by our financial performance summary for the quarter due to FY25. in the next 25 to 30 minutes. Post that, we will take questions. Before I start, a brief disclaimer from our end. The presentation that has been uploaded on the Stock Exchange and our website today, including the discussions that we will have on the call today, may contain certain forward-looking statements concerning the group's business prospects and profitability that 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 two of our earnings presentation that has been uploaded on our back. The Indian economy has continued to remain resilient and is expected to maintain a stable growth momentum for the rest of the financial year. This growth is being aided by a prudent policy framework of the government of India complemented by a proactive monetary policy management from the Reserve Bank of India. Besides achieving a healthy trade-off between growth and inflation, the country's fiscal discipline and a well-managed balance of payments converges towards macroeconomic stability. The well-capitalized balance sheets of the banks and the companies further strengthen our hope of a sustainable growth in the real GDP in the near to medium term. With the risk of elections and monsoon behind us, one expects recovery in economic activity in the coming quarters. Further, we expect a healthy public and private cap expense to drive economic growth in the second half of this fiscal year, FY25. Moving on to international, the global macro picture is marked by the geopolitical uncertainty arising out of the conflicts in West Asia and Eastern Europe. The growing divergence in the growth inflation dynamics across countries has resulted in varying monetary policy responses wherein many developed nations have reduced rates while some are providing policy stimulus to revive their economies. Despite all of this chaos, it is encouraging to note that the countries in the Middle East led largely by Saudi Arabia are continuing to focus on investments in oil and gas, infrastructure, industrialization and energy transition projects. Having covered the macro landscape, let me now share a few important highlights for the quarter. Effective for September 2024, the company has carved out a separate business vertical for renewable energy out of the power transmission and distribution business within its infrastructure segment primarily to capitalize on the growth opportunities in the renewable segment in a more focused manner. This strategic move comes as the global shift towards clean energy gains momentum and is driven by the need for decarbonized electricity to combat an all-pervasive climate change. Moving on to carbon-like solutions, I wish to clarify once again that in Q1 2015, Q1FI25, we had renamed L&T Energy Power to Carbon Light Solutions. We had mentioned that we expect this business to play a major role as an enable for energy transition by offering low carbon solutions. This will include gas to power, carbon capture, and various low carbon solutions. We had also mentioned that we were not keen in pursuing EPC opportunities in the thermal power because of the unfavorable contracting terms, whereas we would selectively pursue BTG, that is boiler and turbine generator island opportunities over time. I hope this clarifies our position with respect to our strategy with respect to carbon light solutions. The heavy engineering business won a new order on a sole sourcing basis from ITER, which is the International Thermonuclear Experimental Reactor Project, for deployment of a critical advanced welding technologies for the world's largest nuclear fusion project at the ITER site in southern France. The ITER is an engineering mega project aimed at creating energy through nuclear fusion process. Earlier in calendar 2020, L&T had successfully fabricated and completed the early delivery of the world's largest stainless steel high vacuum pressure vessel, cryostat for the ITER project. The ITER project is a globe-spanning collaboration comprising of 35 countries. Coming to the precision engineering and systems business, since its inception in the early 80s, this business has built a portfolio of wide-ranging, indigenously designed and developed products, systems, solutions, platforms, and technologies for the defense engineering and aerospace sectors. We believe the government's indigenization efforts will immensely benefit the defense PSUs, including multiple private companies such as us. While remaining very excited about the opportunities in the near future, we also need to factor the stretched timelines around ordering as multiple programs need to pass the development test and need government clearances at various levels. We will regularly communicate with investors on the progress made. With respect to the green energy, the electrolyzer manufacturing business, we have signed a technology license agreement for 4-megawatt electrolyzer design with McPhee on the 18th of September, 2024. Previously, this agreement was signed for 0.5-megawatt electrolyzer design with McPhee in March, 2013. Continuing with the electrolyzer factory expansion, the first automated robotic line for stack assembly with a capacity of 150 megawatts has been installed and commissioned successfully at our AM Nike engineering complex in Hazira in September 24. As mentioned earlier, we will ramp up the capacity to 500 megawatts in the near to medium term, followed by 1 gigawatt in the medium to long term. The group will actively pursue opportunities in the green energy EPC and target selective participation in green energy development projects as well. We will share the details at an appropriate time. Coming to real estate development, in our group strategic plan that ends FY26, we had targeted exit order inflows, that is FY26 order inflows and revenues for the realty development business around 8,000 crore and 5,000 crore respectively for the year of FY26. We are on track to achieve the goals on the revenue side. As far as order inflows are concerned, they are dependent on launching of projects in Mumbai, Bangalore, Chennai, and possibly new launches elsewhere. We remain optimistic on order inflows for the current as well as the next financial year. Whereas it will be difficult to comment on the period beyond FY26, I would like to mention here that we possibly target around three to four times growth on order inflow and revenue from our exit trajectory in FY26. Depending on the market conditions, we will pursue growth in residential and commercial through multiple formats. Here again, we will share the details once our plans are finalized with respect to real estate development. Coming to The semiconductor design, I would say, incubation that we have done, this is done through L&T Semiconductor Technologies Limited, LTSCT, that is currently a wholly owned subsidiary. LTSCT has inaugurated its new development center in Bangalore, a pivotal step in its journey to innovation and excellence in the Indian semiconductor industry. During the current quarter, LTSCT completed the acquisition of 100% equity of Silicon Systems Private Limited, a Bengaluru-based semiconductor startup focused on power semiconductors with a portfolio of more than 30 granted patents and a team of 60 experienced engineers. The acquisition is expected to accelerate LTSCT's product development roadmap for power semiconductor devices. LTSCT also signed a MOU with the Center for Development of Advanced Computing, an autonomous scientific entity under the Ministry of Electronics and Information Technology, Government of India. The strategy collaboration will aid indigenization efforts with an emphasis on the creation of Make in India integrated circuit, system on chip circuit, and electronic systems design and manufacturing solutions for automotive, industrial, and energy applications. At the current juncture, LTSCT will operate as a fabless semiconductor entity with a primary focus on nurturing IP and fostering innovation with the Indian semiconductor industry. LTSCT therefore proposes to operate as an integrated product company offering a wide range of semiconductor solutions and software products with a focus on analog, power, mixed signal, MEMS, radio frequency, and VLSI chips catering to automotive industrial products, communication, and energy infrastructures in India, as well as globally. Coming to another expansion to a new business, that is data centers, a quick update. A 2-megawatt data center in Panway is under integrated testing and is expected to be commissioned in the current quarter, which is October to December 24. Further, a 12-megawatt data center in Chennai is nearing completion of its testing phase and is expected to be commissioned shortly. We have plans of scaling up the data center in Chennai to 30-megawatt in the near term. Besides Chennai, we will also be looking to set up data centers at Mahapay Navi Mumbai and Whitefield Bangalore in the near to medium term. We are also evaluating multiple other opportunities currently and will share the details once the plans are finalized with respect to this business. Lastly, Hyderabad Metro achieved the highest ridership ever on a single day of 5.63 lakhs on August 14, 2024. Now I will start by giving you a summary of the various financial performance parameters for Q2 FY25. Q2 FY25 was a quarter of robust performance across all the financial parameters. Our group order inflows for Q2 registered a sequential growth of 13%. On the back of a strong ordering momentum, our order book crosses a new milestone of Rs. 5 trillion. Aided by a strong execution momentum from several businesses within the core projects and manufacturing portfolio, our group revenues for the quarter registers a growth of 21% on a Y&Y basis. Similarly, our margin for the projects and manufacturing portfolio also expanded by 20 basis points over the corresponding quarter of the previous financial year. Our networking capital to revenue at 12.2% as of September 24, this is with respect to the group, improves by 170 basis points on a sequential basis. A very strong financial performance this quarter is also supported by robust free cash flows and an improvement in the return on equity as well. Our return on equity on a trailing 12-month basis as on September 24 is at 16.1%, improving by 140 basis points and 80 basis points on a sequential and Y-on-Y basis, respectively. Moving on to individual performance parameters, the group order inflows for Q2 FY25 at Rs. 800 billion registered a sequential growth of 13%, and a Y-on-Y decline of 10%. The corresponding quarter of the previous year had the benefit of the receipt of some international ultra-mega orders in the hydrocarbon business. Within the group order inflows, our projects and manufacturing business secured order inflows of Rs 630 billion for Q2, reporting a degrowth of 14% over the corresponding period of the previous year. Just now I mentioned that this is largely because of the high base in the corresponding quarter of the previous financial year. Our Q2 order inflows in the projects and manufacturing portfolio are mainly from infrastructure, hydrocarbon, precision engineering systems, as well as heavy engineering. During the current quarter, our share of international orders in the projects and manufacturing portfolio is at 62% vis-a-vis 68% in Q2 of last year. The current quarter witness orders getting received from multiple segments like renewables, transmission and distribution, roads and runways, urban transit systems, nuclear power, hydel and tunnels, minerals and metals, factories, precision engineering systems, and as well as offshore vertical of the hydrocarbon business. Moving on to the prospects pipeline for the near term, we have a total prospects pipeline of rupees 8.08 trillion for the remaining six to, for the near term, for more so for the six months of the current financial year. This corresponds to 8.78 trillion at the same time in the last year representing, I would say, a marginal drop of 8% on a Y-on-Y basis. This decrease is primarily due to a fall in the hydrocarbon and carbon light prospects pipeline. The broad breakup of the overall prospects pipeline for the near term, largely for six months, is as follows. Infrastructure comprises rupees 5.42 trillion vis-a-vis rupees 5.06 trillion last year. Hydrocarbons, rupees 2.25 trillion current year vis-a-vis rupees 2.91 trillion last year. Carbon light solutions, rupees 0.24 trillion vis-a-vis rupees 0.55 trillion last year. Aggregate of heavy engineering and precision engineering and systems, rupees 0.16 trillion vis-a-vis Rs. 0.23 trillion last year. Moving on to order book, our order book is at Rs. 5.1 trillion as of September 24, which is up 13% vis-a-vis September 23 last year. As the products and manufacturing business is largely India-centric, 60% of the order book is domestic and 40% international. Out of the international order book of rupees 2.05 trillion, around 85% is from Middle East and the rest is from other countries across the world. Like I said earlier, the various countries in the Middle East are continuing to focus on investments in oil and gas, infrastructure, industrialization and energy transition. The breakdown of the domestic order book of rupees 3.05 trillion which I said is 60% of the overall order book, is as follows. The share of central government projects is 14%. State government projects aggregate to 28%. Prospects from PSUs or state-owned enterprise comprise 36%, and the private sector has the remaining share of 22% of the domestic order prospects. Approximately around 17% of our total order book of Rs. 5.1 trillion is funded by bilateral and multilateral funding agencies. Again, 90% of this total order book comprises from infrastructure and energy. You may refer to the presentation slides for further details. During the H1-FI25, that is April 24 to September 24, we have deleted orders of Rs. 6 billion from the order book. There are no deletions from the order book in Q2-FI25. As of September 24, the share of slow moving orders is minuscule, which is around 0.5% of the total order book. Coming to revenues, our group revenues for Q2F5-25 at Rs. 616 billion registered a strong Y&Y growth of 21%. International revenues constituted 52% of the revenues during the quarter. The strong execution momentum in infrastructure, hydrocarbon, and precision engineering systems within the projects and manufacturing portfolio drove the overall group revenues for the quarter. Within the group revenue, the revenue for P&M business for Q2 FI25 is Rs. 445 billion, up by 28% over the corresponding quarter of the previous year. Moving on to EBITDA margin, our group level EBITDA margin without other income for Q2 FI25 is 10.3%, which are 11% in Q2 of the previous year. This EBITDA margin variance is mainly due to a non-recurring TOD, that is transit-oriented development monetization gain that happened in Hyderabad Metro in the previous year. The detailed breakup of the EBITDA margin business-wise, including other income, is given in the annexures to the earnings presentation. You would have noticed that the EBITDA margin in the projects and manufacturing business for Q2 FY25 is at 7.6% vis-a-vis 7.4% in Q2 of the previous year. I will cover the details a little later when I talk about the performance of each of the segments. Our consolidated PAC for Q2 FY25 at Rs. 34 billion is up by 5% over Q2 of the last year. This PAT growth is reflective of improved activity levels partly offset by lower other income. The drop in other income is a function of lower average treasury investments in the current quarter compared to the corresponding quarter of the previous year. As you may be aware, the drop in average treasury investment is also attributed to the share buyback that was done by the company last year. Further, PAT of the corresponding quarter of the previous year includes this gain that I was talking about the TOD monetization in Hyderabad Metro of Rs. 5.12 billion. Excluding this non-recurring TOD monetization gain, the consolidated PAC for Q2 FY25 has registered a growth of 25% over the corresponding quarter of the previous financial year. The group performance, the P&L construct along with the reasons for major variances under the respective function is provided in the presentation. You may go through the same for further details. Coming to net working capital, the net working capital to sales ratio or NWC to sales ratio has improved from 13.9% in June 24 to 12.2% in September 24, mainly led to an improvement in the gross working capital to sales ratio, backed by strong customer collections during the quarter. Further, on a why-on-why basis, the NWC to sales has improved from 16.7% in September 23 to 12.2% in September 24. The group level collections excluding financial services business for Q2-FI25 is Rs. 621 billion vis-a-vis Rs. 463 billion in Q2-FI24, registering an increase of 34% on a Y-on-Y basis. I would also request you to go through the cash flow statement as part of the annexures to the earnings presentation. The cash flow from operations for Q2-FI25 at Rs. 77 billion, has more than doubled vis-a-vis Rs. 35 billion in Q2 FY24. Finally, trailing 12 months ROE for Q2 FY25 is 16.1% vis-a-vis 15.3% in Q2 FY24, an improvement of 80 basis points. The improved profitability with every passing quarter, along with the return of capital to shareholders in the form of first buyback, is contributing to this improvement. Very briefly, I will now comment on the performance of each of the business segments before we give our final comments on the outlook. First, infrastructure. Coming to ordering flows, this segment secured orders of Rs. 495 billion for Q2-FI25, registering a robust growth of 77% on a Y-on-Y basis. International orders constituted 63% of the total order inflows. The current quarter, we received orders mainly in the transmission and distribution, renewable energy, and adequately supported by other business verticals like minerals and metals, buildings and factories, transportation, and heavy civil infrastructure. Our order prospect pipeline in infrastructure segment for the near term, that is six months, is around Rs. 5.42 trillion vis-a-vis Rs. 5.06 trillion during the same time last year. This represents an increase of around 7%. The infra prospects pipeline of Rs. 5.42 trillion comprises of domestic prospects of Rs. 4.14 trillion and international prospects of Rs. 1.28 trillion. The sub-segment breakup of the total order prospects in this segment is as follows. Water and effluent treatment comprises 17%. Power transmission and distribution, 7%. Renewables, 8%. Transportation infrastructure, 28%. Buildings and factories, 15%. Heavy civil infrastructure, 18%. And minerals and metals, 8%. The order book of this segment at Rs. 3.43 trillion as of September 24. The book bill or the execution time frame for this order book is around three years. The Q2 revenues for infrastructure segment at Rs. 320 billion registered a strong growth of 30% over the comparable quarter of the previous year. largely aided by a very strong execution progress across multiple jobs from the opening order book. Our EBITDA margin in this segment for Q2 FY25 is at 6%, vis-a-vis 5.4% in the corresponding quarter of the previous year. The higher margin is primarily explained by improved job progress. Moving on to the next segment, energy projects that comprises hydrocarbon and carbon light solutions. The decline in the Q2 order inflow for this segment is mainly due to a high base that I mentioned earlier during the call. Like I mentioned, the previous year Q2 had the benefit of ultra mega orders in the Middle East in the hydrocarbon business. We have a strong order prospects pipeline of rupees 2.49 trillion for this energy segment for the remaining six months. that comprises of hydrocarbon prospects of Rs. 2.25 trillion and carbon light solutions prospects of Rs. 0.24 trillion. The order book for this energy segment is at Rs. 1.17 trillion as of September 24 with the hydrocarbon order at Rs. 1.13 trillion and the carbon light solutions business having an order book of Rs. 0.04 billion. The Q2FI25 revenues for the segment at Rs. 89 billion registers a healthy growth of 31%, driven mainly by the execution ramp-up of international projects in the hydrocarbon business. The lower revenues in carbon light solutions are largely reflective of a depleting or a lower order book. The energy segment margin in Q2FI25 is at 8.8%. vis-a-vis 9.5% in Q2 of the previous year. The negative variation hydrocarbon margin in Q2 or the previous year is reflective of the stage of executions of the various jobs, whereas the improvement in the carbon solutions project margin is due to a better job mix. We now move on to high-tech manufacturing segment that comprises precision engineering and systems and the heavy engineering business. The receipt of land and marine system orders contributed to the order inflow growth in the precision engineering systems business, whereas heavy engineering business benefited from the receipt of a significant nuclear order. The order book of this segment is at Rs. 356 billion as of September 24. The order prospects pipeline for the remaining six months in this segment is around Rs. 158 billion. A strong execution momentum continues in the precision engineering systems, whereas heavy engineering revenue decline is reflective of jobs in the early stages of execution. The segment margin in the current quarter is impacted by additional cost provisions in certain jobs in the heavy engineering business. Moving on to the information technology and technology services portfolio, which largely comprises this business, this segment largely comprises of the two listed entities, LTI Mindtree and L&T Technology Services. The revenues of this segment at Rs. 118 billion in Q2 FY25 registers a modest growth of 6%, which is largely reflective of present market conditions. Despite the ongoing macroeconomic concerns, the deal pipeline for this segment is healthy with good visibility across all the segments that both the companies cater to. The segment margin improvement in Q2 vis-a-vis the corresponding quarter of the previous financial year is mainly due to higher forex gains and other income. As both the companies in this segment are listed entities, the detailed fact sheets of their performance are already available in the public domain. We now move on to L&D Finance Limited. Here again, the detailed results are available in the public domain. But very briefly, I would like to cover Q2 revolved around very strong retail disbursements, healthy collections, and improved profitability. The balance sheet is strong on the back of inbuilt macro prudential buffers. The financial services business has achieved 96% retailization of loan book in September 24, well ahead of its Luxia 26 targets. The ROAs remain healthy at 2.6% despite the sectoral headwinds. Like I had mentioned in my previous call as well, this business is building itself on the five pillars of growth, namely enhancing customer acquisition, a sharpening credit underwriting process, implementing futuristic digital architecture, heightened brand visibility, and capability building. And finally, adequate capital in the balance sheet is available to pursue growth in the near to medium term. Moving on to development project segment, this segment includes Nava Power and Hyderabad Metro. Most of the revenues in this segment are contributed by Nava Power. The revenue and margin variance of this segment is explained by the non-recurring TOD monetization of Rs. 5.12 billion in Hyderabad Metro in the quarter of the previous year. At this juncture, I would like to give you some ridership statistics on the Hyderabad Metro. The average metro ridership has improved from 4.32 lakh passengers in a day in Q1 FY25 to 4.68 lakh passengers per day in Q2 FY25. The ridership in Q2 FY24 was 4.62 lakh passengers a day. The metro at a pack level, we have the group has consolidated a loss of rupees 2.07 billion in Q2 FI 25 vis-a-vis a profit of rupees 2.4 billion in Q2 FI 24. Moving on to the other segment, this segment comprises reality, industrial walls, construction equipment and mining machinery, rubber processing or tire processing machinery, and the residual portion of the smart world and communications business. The Q2 revenues for this segment grew by 2% over the corresponding quarter of the previous year, mainly contributed by higher handover of residential units in the reality business, improved performance in walls business, partly offset by a degrowth in the construction equipment mining machinery business, including the rubber processing machinery as well. The sale of a commercial space in reality and improved overhead recovery in the Walsh business drives the segment margin improvement in Q2 over the corresponding quarter of the previous year. Coming to the last part of my presentation, the outlook for the near term, The Indian economy has remained sanguine despite the ongoing global political turbulence and is poised for steady growth. The macroeconomic parameters of inflation and growth are well balanced. The investment activity has remained resilient with the government cap ex rebounding from a contraction that was observed in the first quarter. Additionally, a new government policy offering employment incentives to workforce and companies could improve the availability of skilled and trained labor. A better than expected southwest monsoon augurs very well for the revival of the rural economy and consumption demand. With the government's fiscal consolidation efforts, the government debt is projected to decrease. Further, consumer inflation is anticipated to remain range bound on account of an improved agricultural output. The various high-frequency indicators point towards a healthy growth momentum. The manufacturing activity is also gaining on the path of improving domestic demand, lower inputs costs, and a supportive policy environment. The global economic perspective is one of cautious optimism as the conflicts in Eastern Europe and West Asia are yet to spill over beyond the affected countries. The continuing disruptions in the Red Sea are affecting global trade in terms of higher costs and longer lead time. Amidst all this upheaval, the Middle East continues to expand its investment in oil and gas industrialization and the various energy transition initiatives. The China Central Bank has unveiled its biggest stimulus since the pandemic to pull the economy out of its deflationary slide and back towards the path of growth. Lastly, heightened economic and financial market volatility is likely to continue in the short term as the US presidential elections are just around the corner. NIT is confident that the various structural reforms undertaken by the Indian government in the last 10 years will improve the quality of India's growth, besides setting a strong foundation to propel the realization of a Vikasith Bharat by 2047. The company remains committed on pursuing a technology-driven growth and deliver profitable returns to all its stakeholders on a sustained basis. Lastly, we continue to maintain our guidance for the current financial year around group order inflows, group revenues, margins in the projects and manufacturing portfolio, and group net working capital to revenue. Just to recall, the guidance for order inflow was 10%. For the group revenues was 15%. The margins in and around the same for the margins for the P&M portfolio in and around the same level that we had printed for FY24 and the NWC to revenue target around 15% as of March 25. Thank you, ladies and gentlemen, for the patient hearing. We can now begin with 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 one on their touch tone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.

The first question comes from Mohit Kumar from ICICI Securities.

Please go ahead.

Yeah. Good evening, sir. And congratulations on a very good ordering flow in H1A 525 despite a very high base. So my question is based on the first is how do you think about the domestic prospects? Last year was subdued in account of general elections. The first half ordering flow was also flat. The question is, are you seeing the signs of improving activity in substantial terms in H2?

Okay, Mohit, I think when we reported the financial results for FY24, when we gave the guidance for ordering flow growth of 10% at the group level, we had actually baked in that the first six months as far as the domestic order prospects converted to ordering flow could be a little subdued. given the fact that the first quarter was elections, followed by the government formation in Q2. Despite this, I would say, subdued environment, we believe that our numbers of domestic order inflows has been quite, I would say, good, in line with our own expectations for the first six months. But definitely, the H2, we believe that given that the conditions for the GDP growth and the overall financial state of affairs for the government and the private sector, I guess we could see a more busier second half with respect to the overall domestic ordering environment is concerned. As I was talking about against the total order prospects of 8.08 trillion, the share of domestic prospects is 57% aggregating to 4.6 trillion. So in a way, it actually suggests that as we had assumed at the start of the year, the second half of the current financial year would tilt more to domestic ordering resumption at a larger scale.

Understood. My second question is on the the EPC tender for thermal power plant. Is it fair to assume that we will not participate in the full EPC tender for thermal power plant? Having said that, EPC has its own forte, right? And why we are restricting ourselves to only doing BTG? In fact, even in the end, EPC bar tender is main plant practice, meaning that we have to do the EPC work for the main plant. Can you help us understand?

Okay, this is Karma here. So we had said earlier that in the overall thermal power plant scenario, EPC business, which includes BTG and balance of plant, we had seen some. A, first thing was that the terms and conditions were not favorable. And two, what we had seen is that there were significant delays in the balance of the plant-related activities, particularly multiple interfaces with various stakeholders. The combination of that was really causing some hardship in terms of extended project duration and hold-up in bank guarantees and unfavorable cash flows, et cetera, et cetera. All of that was addressed. I mean, we had decided to withdraw from the whole segment, but then later on there have been some extensive discussions, and we have been able to negotiate better terms and conditions for the VTG part. And I think it also fits well into our core capability of manufacturing where we have a very advanced capacity and de-risk the overall portfolio because then we are kind of more in control of our own destiny and less dependent on others. I think all that fits into our overall risk profile, and we believe that with this approach we should be able to deliver more consistent and better results.

That's very helpful. So my last question is how are you thinking about monetization of the balanced 14 million square feet of land at Hyderabad in medium term? And what is holding us back from the accelerated monetization?

So Mohit, I will take that. This is PR here. So as we have been talking about in terms of bringing back Hyderabad metro and track is a combination of two items. One is the state government financial support and along with the DOD monetization. Since it is a concession project, each of the DOD monetization that we need to do are subject to prior approvals of the government. So we did one particular tranche in the Q2 of the previous year, and we are looking to monetize some of the parcels in the near term. Hopefully, I think you should get something happening in the next six months or so. But it will all be done in tranches, and each tranche will be subject to a prior government approval. Because it is the overall, the metro concession is a combination of running the metro along with the real estate development. So whenever we get an opportunity, interested party to buy over a particular land parcel, we will take a government approval and do that. And we do expect, this is the pipeline of discussions and opportunities that are happening now. We do expect some amount of monetization to hopefully gain momentum and get crystallized by the end of this financial year.

Understood, sir. Thank you and all the best, sir. Thank you. Thank you.

Thank you. The next question comes from Aditya Bhatia from Investex.

Please go ahead.

Mr. Bhatia, your line is unmuted. Please proceed with your question. Yes, there is no response from the line of the current participant.

We'll move on to the next question. The next question comes from Atul Tiwari from JP Morgan. Please go ahead.

Yes, sir. Thanks a lot. Sir, one question again on Hyderabad Metro. So the PAT loss was 2.07 billion in this quarter. It looks like that it has trended down versus close to being 2.7, 2.8 billion per quarter kind of number. Is there any one-off or it is like a normal decline because of increasing the cash flows due to increasing?

Q2 of the current financial year is normal operations of Hyderabad Metro. Of course, the ridership has improved, but I would like to state is Hyderabad Metro today is largely the loss is on account of the interest on the loans that we have taken. It is because of a slightly lower interest rate and a slower loan portfolio, the losses is coming down. Now, this is steady state operations quarter as far as Hyderabad Metro is concerned. So, as the passenger traffic improves, slowly the extent of the loss should be coming down.

Okay, sir. And, sir, now that the execution of the large hydrocarbon projects one last year has started, So is it tracking in line with, you know, whatever we expected in terms of margin performance and the speed of execution, et cetera? I think because there has been a bit of a concern on very large exposure in Middle East and the margins in those projects.

Yeah, this is Sharma here again. I think, yeah, both those projects, 40,000 crores, right? I mean, one, I think they are very much on track. In fact, they are. As we speak, we are slightly ahead of schedule at this point in time. And we have made some significant commitments already with respect to cost commitments, I mean, to the terms of supply and construction. So, so far, it looks good, yeah.

Okay, sir. Thank you. Good to know. Thanks a lot. And best of luck for the future.

Thank you. The next question comes from Amit Anwani from Prabhu Das Leela there. Please go ahead.

Hi, sir. Am I audible?

Yes, sir.

Yes, please.

Yeah, yeah. So my question is on the hydrocarbon prospect you highlighted that there's been 80-90,000 reduction now for hydrocarbon prospects, order intake prospects for H2. Just wanted to broadly understand has the pace of ordering slowed down or anything which we have now are not considering as a prospective order for H2, is that the reason for the reduction in hydrocarbon prospects?

No, no. See, the reduction, what Pierre was talking about is with respect to last quarter, same time. And as he had explained that we had a large contract, I mean, two of them, 40,000 crores were awarded to us. But as such, in this financial year and first half, we have secured awards based on, I mean, we are performing as per our budget and it is as per our forecast. So I said, I do not see any slowdown or any loss of momentum. It is only in comparison to the lumpy big jobs we had last year. And that is the nature of the business. I mean, never know that maybe we'll get similar lumpy large jobs in the second half. So we have a still strong pipeline and we are bidding for some large projects and we'll have to wait and see how the how it unfolds in the second half.

My second question, sir, on the order prospect overall. So we have seen that the prospect has been quite lumpy last year from international markets, and this year also there have been substantial orders from international markets. Broadly wanted to understand, and now we have been doing thermal also, BTG, as you highlighted, broadly for the domestic market next 18 months which areas or projects where we are seeing momentum and are we overall seeing the domestic order intake also picking up strongly in next 12-18 months since now the major events are over with respect to elections and many things are behind us just wanted to understand the 18-24 month perspective and major order prospects in domestic markets.

Okay, so let me take that apart from what we spoke about just a while ago on the carbon light solutions that the order prospects with to the BTG. I think a large part of the prospects pipeline centers on infrastructure. So if you really see the total infrastructure order prospects for H2 aggregated to 5.42 trillion, out of which the share of domestic was 4.13 trillion. Now, if I look at the overall composition of this 4.13 trillion of domestic order prospects, I would say from our perspective, it is actually a good mix of, you know, industrial structures, factories, residential structures, data centers, hospitals insofar as the B&F segment is concerned. We do see a significant amount of investments happening on the transportation infra, both in rail and also on the road, express elevated corridors. This also is quite substantial and this also we believe that we should be getting a decent share provided the prospects get converted into the tendering mode. Coming to the other aspects of, I would say, besides this segment, There are also certain opportunities coming up in ports, in the airports, and also HIDL-related projects in the country. So, I would say that the infrastructure segment, the composition of order prospects cover most of the segments where L&T is, I would say, one of the leading players.

Lastly, on margins, you said that project manufacturing margins would stay similar to last year. So now since we have moved for five months and you have some clarity on the prospects, this is the current order book. Are we now sensing improvement in FY26 and any quantum you would like to broadly highlight on margin front when the margin improvement can be expected to start?

So I would like to mention here that as far as margins, all the guidance is concerned, it is for the specific financial year. So, as we have closed H1, I would say at a higher margin clip as compared to the H1 of the previous year. The P&M portfolio margin has improved by 20 basis points. So, the year has been good. And at this juncture, I would like to maintain that the margin guidance that we have given at the start of the financial year with respect to the P&M portfolio at 8.2 to 8.25% still holds good. Let us see how Q3 shapes up before we look at to revising. As far as next year is concerned, I guess we will look at next year at a separate time frame, not at this juncture case. However, having said this, let me also tell you the order book that we have is a mix of both domestic and international orders. with a good mix of projects across sectors, some high-quality jobs, and also some normal commercial-related jobs. So it gives us a good, I would say, as we get into, as we end FY25, I think the FY26 looks to be a good start from an overall margin trajectory perspective. But to put a number to that, I think it's a little premature.

Thank you so much for answering my question.

Thank you. The next question comes from Parikshit Gandapal from HDFC Securities. Please go ahead.

Yeah, hi, PR. Am I on again?

Yes, please. Yes, Parikshit, go ahead.

Sir, you, earlier in your commentary during the call, you mentioned about getting into development assets and the green power. So, if you can elaborate, what are you looking at in this segment?

Sorry, what is that? Development projects in green energy. Okay. In the green energy, we have two markets. One is the export market and one is the domestic market. Within domestic market, a lot of tenders have come out for green nitrogen as well as green ammonia, refinery sector as well as fertilizer sector. And we will participate on those. And they are all mostly on the development side. And similarly, on the international also, we are seeing some development and traction in supply of green ammonia and green hydrogen in Korea and Japan and those countries. We are partnering with some of those international players and will participate in those tenders. And if we are successful, then we'll have maybe an agreement, uptake agreement, against which then we will consider investing and developing those assets. As far as IOCL tender is concerned, that is again for green nitrogen in Panipat. That is available now as part of this large tendering activity going on. And we will participate as we had done it in the past. Okay.

To add to what Mr. Sharma just now spoke about, as far as our presence in development projects in this space is concerned, I think we will be very clear that we will always work on with those projects where the off-take arrangements are confirmed and for a longer time. So that there is a visibility of return.

Secured.

But will you also be open to looking at solar development assets?

No, currently that's not part of our plan.

So that's the storage

Battery storage is something we are studying. Now we are exploring and looking at some technologies. And it is under evaluation, I think. Maybe a bit premature to say anything definitive. But it is under consideration. But solar, we have made a decision not to get into development. I think it's too late in the game, in my view.

And neither into module and battery. I mean, cell manufacturing on the solar side.

No, no, no. That's not in the plan.

The second question is on the increasing share of the export orders or international orders. So, Pierre, how do we look at the margins? I mean, you said that this year margins will maintain, but incrementally in absence of any large ordering, the domestic side till now and the share of international increasing. So, do you think the trend, I mean, the last call you highlighted that a trend will be like from here on the margins will keep improving. So, how will the trend change?

So, partnership, the international project margins have been maintained in line with the bid conditions that we had secured those projects. But as you may be aware, most of the international projects are largely fixed price jobs. So, a timely completion will eventually lead to a better margin realisation. Having said this, I think one important thing is it is not only giving us size, it is also giving us recognition across the globe. Because today, Middle East is just not the only geography where we are getting, I would say, projects both in hydrocarbons and renewables. We are getting basis of a strong performance in the project that we secured. I think it is giving us good credentials to pursue opportunities outside of Middle East also. But having said this, fixed price contracts, the time of execution, timely execution will obviously ensure better margins in the future as far as the thing is concerned. As Mr. Sharma pointed out, some of the major hydrocarbon jobs that we secured in the last 12 months or so, The execution has been in line with expectation and some cases we are actually ahead. Hopefully, I think it should lead to an improvement in the margins profile. But to put a number at this juncture, maybe again premature. But I wish to conclude here that the mix of the 50-50 composition of, I would say, execution between domestic and international also giving in the form of better cash flows and thereby, you know, overall improvement returns is possible.

So return wise it is fine but mix wise it is diluted the margins increase in export mix or international mix will be margin diluted.

It depends on the stage of execution. So hydrocarbons what we are witnessing is all early execution stage projects. So hopefully in the next year they will achieve peak execution when in the form of you know we do not recognize margins unless the projects achieve a particular stage. So once they achieve Once they cross that, and if there is on-time execution, you should see some amount of margins improvement to happen.

Okay. So, since the NWC days, I mean, we've seen a very, very strong kick-off, I mean, improvement there. So, what is driving this? We have been hearing, Kavinshi, from other EPCs, much smaller EPCs, where they are facing problems in the Jal Jeevan Mission Project. The collections have not been up to the mark. So, because of that, they have reduced their execution. But, overall basis, what is driving this strong collections for you? And have you also faced some issues in the Jal Jeevan Mission Project, which is part of your order book?

So, Parikshit, let me tell you that when we are giving the working capital, I wish to reiterate that this gain or the favorable movement in net working capital is a combination of a major drop that we are witnessing in gross working capital, further supported by advances which are shown in current liabilities, advances from new projects. Yes, there are in certain sectors, across certain sectors or segments, there are some headwinds in terms of delayed collections because of the financial conditions of the respective customer or state or whatever. But we are mindful of the fact that wherever we are witnessing such and given the fact that we have a very large order book to execute, we are executing in such places only the execution progress is in line with the collections that we are getting. So, we are able to manage this in a better way given the fact that we have a multi-segment, multi-geography that is within the India itself. Multi-geography means I am referring to a combination of both state central and across states. I think it is possibly enabling to ensure that we do not do execution unless and until payments are happening on time.

This is the last question for all the real estate business. I mean, now it has become quite sizable and we spoke about 8,000 crores of order booking and 4,000 crores of revenue and the media reports suggest that you're looking at 40,000 crores of order booking over the next 10 years in this business and adding about 50 to 60 million square feet of land parcels. So, I wanted to know what kind of margins you typically make in these, because this is now going to become a very sizable, it's only becoming quite sizable as a part of the business. So, what kind of margins typically you are able to record in this segment, or embedded margins, or if you can give some color on embedded margins on the phase or order bookings?

Like for example, okay, let me put it like this Parikshit that in the current quarter, which is the other segment, right? So the real estate business, the reality business had secured a margin of almost 37%. Okay. Now, is this embedded margin? Because in this business, we recognize revenue only when the residential unit is handed over. Okay. So in quarters wherever there is a large amount of handing over after receipt of the clearances of the respective municipal jurisdiction, you will find a bump up in revenue and also bump up in margins. But just to conclude our immediate plan on this particular business is the total portfolio of almost 84 million square feet comprising both residential and commercial We have almost completed 24 million square feet, which means that is already gone into the P&L of the past. So that is maybe around 40 million of residential square feet yet to be monetized or coming as revenue and profits in the near future, and a commercial around 20 million square feet. So broadly speaking, 84, you have already done 24, okay, that leaves 60. And in 60, you have residential comprising of 40 and commercial comprising of 20. Commercial would be a combination of lease and outright sale, whereas residential as a model is, it's an outright sale. Now, out of this 40 million square feet of residential under construction that is launched and we are taking bookings would be around 10 million square feet. And future development, I was talking about various places in a combination of, you know, joint development and also our own land parcels is another 30 million square feet. On a commercial, under construction is 10 million and future development is 10. Now, this is the existing, I would say, structure we have. As we finalize the real estate business, how we are going to take it up ahead, we will cover that at an appropriate point of time.

Typically, what kind of capability are you doing around the land annually? Because now you need to replace.

Okay. So, the new parcels that we are developing currently, apart from monetizing our own land parcels, is largely on joint development route. We are not investing land for residential development at this juncture.

Okay, sir. Thank you. Those were my questions. I wish you a happy Diwali.

Thank you. Same to you as well.

Thank you. The next question comes from Aditya Bhatia from Investec. Please go ahead.

Hi, good evening, sir. If we look at our order and flow guidance, we are looking at almost 20% order and flow growth in H2, while our prospect pipeline is down by almost 10%. So what is really leading to it? Are we anticipating a higher market share or are we anticipating a higher chunk of those orders actually getting converted, those tenders actually getting converted into orders? Finalizations happening quicker, that is.

So Aditya, okay, let me, I think since you have asked the question, I need to go with numbers. Last year, FI order, FI24, the actual ordering flow that the company printed was 3 lakh crores, consolidated, okay? And if you take a 10% guidance on growth, the FY25 guidance for total order inflow is 3,30,000 crores. Please, this is in crores. Now, the H1 FY25 actuals is almost at 1,50,000 crores. Now, if I have to go by to meet the guidance of 3,30,000 and I subtract the IT companies and financial services, my core business of projects and manufacturing, my run rate, which I need for order info is another 1,50,000. Correct. Okay. Now, my order prospects is 8 trillion or 8 lakh crores. Okay. Now, you know, you can derive the win rate that is required, provided all these order prospects come into tendering, I mean, subject to the normal qualifiers. But this particular win rate that you will get, you know, is not something very unusually different from what we have printed or we have done in the recent last two to three years.

Generally, we've been noticing like 13 odd percent kind of a win rate is kind of slightly higher than that, which is why I'm wondering that are we also anticipating a pickup in market share?

It's obviously the one big thing is that many of the order prospects that we have, there are very large ticket sizes in all the segments, both domestic and international. Obviously, we believe that some of this will get bid out and we stand a good chance of trying to make it. But it is not something at this juncture, let me tell you, that this is something, a number with a very, very high, I would say, run rate that is required. This is something that we have witnessed in the last two years.

Sure, sure, sir. And so my second question is on power segment. There have been some media articles about us winning some orders from NTPC. So just wanted to kind of know, is that correct? Is that not correct? And while you mentioned that you will not be undertaking any EPC orders, how serious are we going to be on BTG orders on the power side, on thermal power side?

I think, Aditya, I think this was covered in detail by Mr. Sharma when we talked about sometime back at the early part of the call that what's our plan. So we have had, as the public domain news suggests, that we are well placed in some of the bids that has happened on BTG, almost 6400 megawatts. We are well placed across three projects. Let us see how they come into a contracting opportunity in the current quarter, I would say, Q3. Mr. Sharma, would you like to add?

No, I think, yeah, you said it. I think we should know within this quarter where we reach on this. As per the tender conditions, this 6.4 gigawatt entry locations The customer will award two packages of the bundle to L1 and the other one. Third one could go to the L2 bidder if they are able to successfully conclude negotiations. We'll have to see. But I think it looks like that we'll have at least 4 gigawatts if everything goes well.

Perfect, perfect, sir. That's it, sir. Thank you. Thank you.

Thank you. The next question comes from Srimidi Karlekar from HSBC. Please go ahead.

Yeah, hi. Thank you for the opportunity and congratulations on your set of numbers. So it's very good to see 60 basis point kind of improvement in infrastructure with the margin. So would you say that underlying margin improvement, if you look at separately the domestic business and international business, are probably far higher and partly getting offset by a mixed change towards international business?

So Srinidhi, I think I responded to specific question five minutes back. So let me tell you that yes, infrastructure margins have improved when you compare quarter on quarter. There has been an improvement. The margin trajectory in the projects and manufacturing portfolio is a variation of the various projects execution across sectors, across states, across geography. So, basis of construct, we gave the guidance of around 8.2 to 8.25 for the full year. We are on a positive start, let me tell you, basis of our H1 numbers and we do expect that the H2 also, there are no such perceived headwinds in so far as execution is concerned across the entire projects and across the projects in all the geographies. So, hopefully I think we should be we should be at least meeting the guidance that we have talked about or we have referred to.

Right. And sir, second related question is when the guided lake will be around 8.2 kind of margins in the projects business in 2025 as well, how should we see margins like these 8.2 margins are still below the trend that is possible considering how business has changed both on the kind of orders that you are winning as well as how the business makes it changing or you think they are probably 1-2% below trend levels. So some kind of good guidance on how one should think about improvement over the next couple of years from where you exit in 2025.

So let me tell you the projects that L&T has secured across the various segments in the PM portfolio in the last two years. The momentum has to pursue a profitable growth. That has been the underlying objective. Now, of course, as the project business, obviously the risk on execution always is there. And as we speak, we don't see any headwinds or external headwinds in terms of the project that is delayed in execution. Now, I was mentioning in response to working capital, in some sectors, the execution is delayed because payments is not happening. But a large part of the order book is coming under normal execution, both India-based projects and also international projects. And we have not compromised on our, I would say, bidding philosophy in terms of, you know, taking margins where we are not compromising on margins. So, timely execution, timely completion will enable, obviously, improvement in margins from what they have been bid for.

And the last one, if I may, is your commentary on both public CapEx sustaining momentum as well as visible improvement on the private CapEx side. But if we look at contrary, we are seeing that a lot of state CapEx budgets are getting moderated. Even the central CapEx for key infrastructure ministry is seeing some moderation. And on the private side, both B2C as well as B2B product demand is kind of getting moderated. So in that context, what I want you to understand is, could you please elaborate what is the confidence that you see sustained ordering moment from both private as well as public side?

So as far as private sector CapEx is concerned, I guess the opportunities are still quite strong in so far as the entire expense sector of real estate. When you talk about real estate, I am talking of healthcare, I am talking of data centers, I am talking of residential, I am talking of commercial. So we do see significant amount of investments getting lined up by as far as the private sector is concerned. In so far as core industry is concerned, we do see, like for example, the minerals and metals, if I have to talk about which is largely a sector where you have private sector investments, the total order prospects is roughly in the range of 45,000 odd crores, 45,000 to 50,000 crores. It's a mix of both domestic and international. So, domestic order prospects also is roughly around 50%. Now, this is entirely coming from the minerals and metals industry or investment that have been planned. So, I would say that it is, maybe it could have picked up more better, but it's not premature to comment that, you know, there is no private sector opportunity. That is not, that is being addressed by Larsen Tobro, okay? Let me put it that way. So wherever we have the prospects are there, these are all named prospects when we talked about the total prospects pipeline of 8.08, and we hope that many of these projects fructify.

Thank you.

State level prospects I would say has come down relatively so because we do see some of the states looking to convert some part of the state revenues into other subsidies and all of that stuff. To some extent there is some drop but I guess I think our let us say, given our structure of order book that we have, we are also going a little selective in terms of pursuing opportunities where we are sure to, our chances of winning are better and our chances of completing the project and getting paid on time is also better.

Thank you, sir, and all the very best. Thank you.

Ladies and gentlemen, we would take that as our last question for today. I would now like to hand the conference over to Mr. P Ramakrishnan for closing comments.

So thank you. Thanks everyone for attending this call. It was our pleasure to interact with all of you. Good luck and wishing all of you a very happy Diwali. Thank you.

Thank you. On behalf of Larsen and Tubro Limited, that concludes this conference. Thank you for joining us. And you may now disconnect.