Larsen & Toubro Limited

and welcome to the Larson & Toubro Limited Q3 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, old-time director and president of P Energy Division, and Mr. P Ramakrishnan, head investor relations of Larsen & Toubro Ltd. I now hand the conference over to Mr. P Ramakrishnan. Thank you, and over to you, sir.

Thank you, Sarwar. Good evening, ladies and gentlemen. This is PR, P Ramakrishnan. A very warm welcome to all of you into the Q3 F525 earnings call of Larsen & Toubro Ltd. The earnings presentation was uploaded on the Stock Exchange and on our website around 6.30 p.m. I hope you had a chance to have a review, a quick review of the same. As usual, instead of going through the entire presentation, I will summarize the highlights for the quarter, followed by the financial performance summary in the next 30 minutes or so. and post which myself and Mr. Sumnesh Sharma, we will take the questions. Before I begin the overview, a brief disclaimer. The presentation that we have uploaded on the Stock Exchange and our website today, including the discussions we may have on the call today, may contain certain forward-looking statements concerning the group's performance, business prospects, and profitability. This would be subject to several drifts 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 the earnings presentation that we have uploaded just now. The growth momentum of the Indian economy has waned a bit in the recent quarters. The urban consumption has tapered off as the excess savings from the pandemic have been exhausted, formal sector wages have slowed down, and the consumption lending norms have also been tightened. Rural consumption, on the other hand, has continued as a healthy clip on the back of robust agricultural activity. Public investments have also slowed down due to the recent central and state elections in the country, whereas private investments have been episodic at best. Nevertheless, the recent pickup in the various high-frequency economic indicators suggests that the slowdown in economic activity has possibly bottomed out and could recover on the back of improved government spends in the near term. Moving on to the international landscape, the global situation continues to be marked by military conflicts, the changes in the political landscape across several countries, and trade wars, which is threatening to reignite inflation and minimal policy choices available to central banks. Similarly, the government across countries with elevated debt to GDP ratios are finding it difficult to impact fiscal impulses at will. On the positive side though, the ceasefire between Hamas and Israel is expected to bring the much needed stability in the GCC region. The GCC region led by Saudi Arabia is continuing to strengthen its physical and digital infrastructure besides monetizing its oil and gas assets. Coincidentally, multiple GCC countries are also embarking upon the energy transition journey with utmost seriousness. Having covered the macro landscape, let me share a few important highlights of the company for the quarter. The company posted or reported the highest ever order in growth in the history. This was received during the quarter for 1.16 trillion. The growth of 53% on a Y-on-Y basis was backed by a strong ordering momentum. in the infrastructure, hydrocarbon, carbon-based solutions, and precision engineering and systems businesses. Despite the lackluster economic activity in India in Q3, we have secured Rs. 987 billion, which is 64% Y-on-Y basis, of orders in the products and manufacturing business portfolio during Q3. with domestic and international contributing about 48% and 52% respectively. Moving on, L&T Energy Green Tech Limited has won 90,000 MTPA green hydrogen capacity in the tranche two of the green hydrogen production PLI at an average incentive of rupees 11.11 per kg, rupees 11.11 per kg of hydrogen. This incentive to be distributed over a period of three years will aggregate to a total benefit of around 300 crores. Thirdly, LTI MineTree recorded its highest ever deal wins in Q3 of 525 at USD 1.68 billion. Similarly, LTTS, L&T Technology Services, also witnessed its highest ever large deal bookings during the quarter, aided by eight large deals across six months, which includes one USD 500 million deal, two USD 35 million deal, two USD 25 million deals, and three USD 10 million deals. NCTS signed a definitive agreement on November 11, 2024, to acquire a 100% stake in Silicon Valley-based IntelliSwift and its subsidiaries for a consideration of USD 110 million. The objective of this acquisition was to deepen the company's offerings across software product development, platform engineering, digital integration, data, and AI. IntelliShift has 25 plus Fortune 500 logos, including five of the top ER&T spenders in software and technology. And it is also associated with four of the top five hyperscalers. This acquisition got fully closed this month. Moving on to financial services, L&T Finance Limited achieved a portfolio retailization of 97% in Q3, FY25. A milestone this business has achieved way ahead of its Lakshya 2026 targets. Lastly, the data center business has entered into a strategic business partnership with E2E networks and Indian cloud and AI cloud provider towards the adoption of JNAI solutions in India to foster a fundamental shift in the way accelerated computing on cloud is used by Indian corporates. Further, an investment agreement was signed on November 5th, 2024 for the acquisition of 21% stake in E2E networks of which 15% stake has been acquired through a preferential allotment of equity shares on December 4th for an aggregate consideration of Rs. 10.79 billion. The secondary acquisition of 6% is expected to be completed before May 30th, 2025. Now, let me now cover the various financial performance parameters for Q3 FY25. This quarter was a quarter of robust performance across the various financial parameters. Our group order inflows for Q3 registers a Y-on-Y growth of 53%. On the back of a strong ordering momentum, our order book is at Rs. 5.64 trillion on December 24. This has registered a growth of 20% on a Y-on-Y basis. Aided by a strong execution momentum from several businesses within the projects and manufacturing portfolio, our group revenues for the quarter registered a growth of 17% on a Y-on-Y basis. Our margins of the project and manufacturing portfolio at 7.6% is in line with the corresponding period of the previous year. Our net working capital to revenue is at 12.7% as on 31st December 24, this improvement of almost 390 basis points on a Y-on-Y basis. Our return on equity on a trailing 12-month basis as on December 24 is at 16.1%, improving by 90 basis points on a Y-on-Y basis. I now move on to the individual performance parameters. As said earlier, our group order inflows for Q3 FI25 at rupees 1160 billion registered a Y-on-Y growth of 53%. Within the group order inflows, our products and manufacturing businesses secure order inflows of Rs. 987 billion for Q3, reporting a robust growth of 64% over the corresponding period of the previous year. Our Q3 order inflows in the field and portfolio are mainly from infrastructure, carbon life solutions, hydrocarbon, and the precision engineering and systems businesses. During the current quarter, the share of international orders in the premium portfolio is at 52%, vis-a-vis 67% in Q3 of last year. Moving on to the order prospects pipeline, we have a total order prospects pipeline of rupees 5.51 trillion for the remaining three months of FY25, vis-a-vis Rs. 6.27 trillion at the same time last year. This represents a drop of 12% when compared to December 23 order prospects pipeline. This decrease is primarily due to the fall in the hydrocarbon and carbon light prospects. The broad breakup of the overall prospects pipeline for the remaining three months would be as follows. The share of infrastructure is Rs. 4.00 trillion vis-a-vis Rs. 4.01 trillion last year. The hydrocarbon prospects pipeline is at Rs. 1.44 trillion as of December 24 when compared to Rs. 1.71 trillion as of December 23. The heavy engineering and the precision engineering systems business, which caters to what we call the high-tech manufacturing segment, the auto prospects pipeline is at Rs. 0.06 trillion vis-a-vis Rs. 0.16 trillion last year. Moving on to the order book, our order book is at rupees 5.64 trillion as on December 24, which is up 20% vis-a-vis December 23 last year. As the products and manufacturing business is largely India-centric, 58% of this order book is domestic and 42% international. Of the international order book of rupees, 2.37 trillion, around 84% is from Middle East and 3% from Africa, and the remaining 13% comprise from other countries of 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 Rs. 3.27 trillion, which I said is 58% of the overall order book as of December, comprises of central government order book orders at 15%, state government orders at 26%, orders from public sector corporations or state-owned enterprises, the share being 39%, and the private sector contributing to 20% of the domestic order book. Approximately around 15% of the total order book of UPI's 5.64 trillion is funded by bilateral and multilateral funding agencies. Once again, 90% of this total order book comprises orders from infrastructure and energy. You may refer to the presentation slides for further details. During the nine-month period, F525, we have deleted orders of Rs. 6 billion from the order book. There has been no deletion of orders from the order book in the current quarter, which is Q3 F525. As of December 24, our slow-moving orders is around 0.5% of the order book. Coming to revenues, our group revenues for Q3-FI-25 at Rs. 647 billion registered a strong Y-on-Y growth of 17%. International revenues constituted 51% of the revenues during the quarter. The strong execution momentum in infrastructure, hydrocarbon, and the precision engineering systems businesses within the P&M portfolio drove the overall group revenues for the quarter. Within the group revenues, the revenues for the projects and manufacturing businesses for Q3 FY25 is Rs. 473 billion, up by 20% over the corresponding quarter of the previous year. Moving on to EBITDA margin. Our group level EBITDA margin without other income for Q3 FY25 is 9.7% vis-a-vis 10.4% in Q3 of the previous year. This EBITDA margin variance is mainly due to the revenue mix favoring the products and manufacturing segment and also lower operating margin in the ITTS segment. The detailed breakup of the EBITDA margin business-wise, including other income, is given in the annexures to the earnings presentation. You would also notice that the EBITDA margin in the production manufacturing portfolio for Q3 FY25 is at 7.6% in line with the corresponding quarter 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 PAT for Q3 FY25 at Rs. 33.6 billion is up 14% over Q3 of the previous year. This PAT growth is reflective of increased activity levels and improved treasury operations. The primary reason behind group PAT growth of 14%, despite group revenues growing at 17% for the quarter, is the lower operating leverage in the ITTS portfolio and slightly higher credit costs in our financial services business. The group performance P&L construct, along with the reasons for major variances under the respective function as is provided in the earnings presentation. You may go through the same for the details. Coming to working capital, our net working capital to sales ratio has improved from 16.6% in December 23 to 12.7% in December 24, mainly due to an improvement in the gross working capital to sales ratio backed by strong customer collections during the quarter. Our group-level collections, excluding the financial services segment for Q3 FY25, is Rs. 591 billion, vis-a-vis Rs. 494 billion in Q3 FY24, registering an increase of 20% on a Y-on-Y basis. You may also like to go through the cash flow statement as part of the annexures to the earnings presentation. Finally, the trailing 12-month return on equity for Q3 of 2025 is 16.1%, reserving 15.2% in Q3 of 2024, an improvement of 90 basis points for the year. Very briefly, I will now comment on the performance of each business segment before we give our final comments on our outlook for the remaining period of current year. First, infrastructure coming to order inflows. This segment secured orders for Rs. 491 billion for Q3 FY25, registering a robust growth of 14% on a Y-on-Y basis. International orders constitute 74% of the total order inflows. During the current quarter, the orders were mainly received in renewables, power transmission distribution, water, buildings and factories, and minerals and metals sectors. Our order prospects pipeline in infrastructure segment for the remaining three months is around Rs. 4 trillion vis-a-vis Rs. 4.01 trillion during the same time last year. This infra prospects pipeline of Rs. 4 trillion comprises of domestic prospects of Rs. 3.15 trillion and international prospects of Rs. 0.85 trillion. The sub-segment breakup of this total order prospects in infra would be as follows. Transportation infra share is 35%, heavy civil infra structure at 18%, water also at 18%, buildings and factories at 14%, minerals and metals at 6%, power transmission distribution at 6%, and renewables at 3%. The order book for this segment is at Rs. 3.61 trillion as of December 24. The book bill for infra is around three years. The Q3 revenues at Rs. 321 billion registered a healthy growth of 15% over the comparable quarter of the previous year, largely aided by execution across multiple jobs from a large opening order book. Our EBITDA margin in this segment for Q3 FY25 is at 5.5% in line with the corresponding quarter of the previous year. Moving on to the next segment, that is energy projects. This comprises of hydrocarbon and carbon light solutions. The receipt of two ultra-supercritical thermal power plant orders helps the carbon light solutions order book, whereas hydrocarbon benefited from the receipt of a mega-international onshore order. We have a strong order prospects pipeline of Rs. 1.44 trillion for this energy segment for the balance three months, comprising of entirely hydrocarbon prospects. The order book of this energy segment is at Rs. 1.46 trillion as of December 24, with the hydrocarbon order book at Rs. 1.1 trillion and carbon-like solutions at Rs. 0.27 trillion. The Q3 FY25 revenues for the segment at Rs. 111 billion registers a strong growth of 41% driven mainly by the execution ramp up in domestic and international projects of hydrocarbon, whereas lower revenues in carbonate solutions are reflective of a depleting opening order book. The energy segment margin in Q3 FI25 is at 8.3% vis-a-vis 9.7% in Q3 FI24. The negative variation in hydrocarbon margin over the previous year is largely reflective of the stage of execution of the various jobs in the portfolio, whereas carbon net solutions margin improved due to a favorable game settlement. We will now move on to high-tech manufacturing segment, which comprises of the precision engineering systems and the heavy engineering businesses. The precision engineering and systems business benefits from the receipt of the K9 Vajra repeat order, and multiple international order helps the heavy engineering order book. The order book for this segment at Rs. 418 billion as of December 24th. The order prospects pipeline for the remaining three months in this segment is around Rs. 65 billion for the next three months. The strong execution momentum continues in the precision engineering and systems, whereas muted revenues in heavy engineering is reflective of jobs in the early stages of its progress. The execution cost savings in heavy engineering business aids segment margin improvement at the overall segment level. Moving on to the next segment, which is the IT and the technology services portfolio. This comprises of the two listed subsidiaries, which is LTI Mine Tree and LTTS. The revenues of this segment at Rs. 121 billion in Q3 of 2025 registered a modest growth of 8%, largely reflective of the present market conditions. Despite the ongoing macroeconomic concerns and as I mentioned earlier, both these companies recorded very strong D wins in the quarter. The segment margin declined during the quarter is mainly due to wage hikes and forex losses in both these companies. I will not dwell too much on this segment as both the companies in this segment are listed entities and the detailed fact sheets are already available in the corporate domain. Next, we move on to L&T Finance. Here again, the detailed results are available in the public domain. But very briefly, I will summarize. The Q3 reward around healthy credit calibrated growth in the disbursements. The credit cost during the quarter was largely in check despite the ongoing headwinds in the microfinance portfolio and the balance sheet is strong on the back of built-in macro prudential buffers. The company expects credit costs in rural group and the microfinance loans to peak in Q4 FY25 and some normalization from Q1 FY26 onwards. The financial services business has achieved 97% utilization of its loan book in December 24, well ahead of the Luxia 26 targets. The return on assets remain healthy at 2.27% despite the sectoral headwinds. And finally, adequate capital in the balance sheet is available to pursue growth in the medium term. Moving on to the development project segment, this segment includes the power development systems comprising of Naba Power and Hyderabad Metro. Most of the revenues in this segment are contributed by Naba Power. A combination of improved PLF and higher energy charges in the Naba Power drives the segment revenue growth. At this juncture, let me give you some ridership statistics from the Hyderabad metro. The average metro ridership was 4.32 lakh passengers a day in Q1 FY25, 4.68 lakh passengers per day in Q2 FY25, and remains around 4.45 lakh passengers a day in Q3 FY25. The sequential decline in ridership was mainly due to the festive season holidays, during the quarter. Our ridership in Q3 FI24 was 4.44 at passengers a day. So on a Y on Y basis is lastly the same. The metro at a path level posted a loss of Rs. 2.03 billion in Q3 FI25 as against a loss of Rs. 2.54 billion in Q3 of the previous year. The improvement is largely on account of lower interest costs consequent upon reduction in debt. Moving on to the other segment, this segment comprises reality, construction equipment and machinery, rubber posting machinery, and industrial walls, and to some extent the residual portion of the smart world and communications business. The Q3 revenue at 9% growth over the corresponding quarter of the previous year was mainly contributed by a higher handover of residential units in the reality business and improved sales in the industrial machinery and the products business. The segment margin improvement is mainly due to a favorable revenue mix in industrial machinery and product business. Coming to the last part of my presentation, the outlook for the year, the revised outlook for the current year FI25, taking into account how we see Q4. Despite the initial hiccups, the Indian economy is poised for steady growth, with projections indicating a GDP growth of 6.8% for the fiscal year FI25. The rural consumption has remained encouraging, supported by strong agricultural performance due to a favorable monsoon. The services sector continues to be a key driver of growth. There are initial signs of a pickup in government spending post the center and various state elections, which will give the necessary impetus to the infrastructure capex spend in the near term. As the country strives to achieve the vision of a VIXIT-BARF by 2047, the government is expected to maintain its strong commitment to infrastructure investment, recognizing it as a key driver of broader economic growth. The forthcoming union budget is likely to strike a balance between policy continuity and fiscal discipline. The country would still be one of the fastest growing economies in the world, although the pace and sustainability of the growth trend would be shaped of how the country navigates challenges around global and financial market volatility, potential implications of intensified trade wars, domestic inflationary impulses, the compulsions around a coalition-led government, and finally a trade-off between social spends and pursuing long-term development goals. The global economy at the current juncture is at a crossroads, whereas policy changes by the USA could result in another drop of tariff costs. On the other hand, the ceasefire between Hamas and Israel should improve the situation in the GCC region. The European economies continue to move sideways, while questions over the Chinese economy further clouds the growth picture and put global economies towards fragmentation and localization. Further, we expect multiple countries to enhance their defense outplays in an uncertain world. The consequences due to climate change is getting serious attention and is leading to substantial investment outplays into cleaner technologies. Lastly, artificial intelligence and all its attributes and variants is gaining faster acceptance and adoption across the world. On a positive note, the GCC region, led by Saudi Arabia, will continue to strengthen its physical and its digital infrastructure, apart from monetizing its oil and gas assets. Coincidentally, multiple GCC countries have also embarked upon the energy expansion transition journey with relatively large investment outlays. In this economic backdrop, the company will continue to pursue its objective of a volume-led profitable and growth-accurative growth. The company has robust order prospects for the near term and is confident of maintaining its growth momentum by leveraging the emerging opportunities and maximizing shareholder value on a sustainable basis. Before we conclude, let me cover the guidance that we have given on the various parameters for the year FY25. First, order inflows. You will recall that we had given a guidance of 10% growth in order inflows for the year. For 9 months FY25, our order inflows at Rs. 2670 billion is up by 16% over the corresponding period of the previous year. and looking at a strong prospects pipeline of rupees 5.51 trillion for Q4, we believe that we would be surpassing the 10% guidance on ordering flows for FY25. With India expected to pick up in Q4, and since the international prospects pipeline also remains healthy, we feel confident of exceeding the guidance on ordering flows. As we speak, We seem to be well placed in orders in the projects and manufacturing segment of almost Rs. 500 billion. Coming to revenues, we had guided for a 15% growth in revenues for FY25. Since our group revenues for 9 months FY25 has reported a growth of 18%, and our order book remains strong, we do believe that there are potential upsides to the revenue guidance of 15% for the full year, FY25. Moving on to the EBITDA margin, our guidance on EBITDA margin for the projects and manufacturing businesses remain at 8% that we guided at the start of the financial year. This 8.2% is for the full year of FY25. On networking capital, we had earlier guided the NWC to revenue of 15% in March 25. Since our NWC to revenue is at 12.7% as of December, we believe that our networking capital to revenue should be around the same levels that we have printed for as of December 24. Lastly, as you are aware, our free cash flow generation has been robust in the last couple of years, and we are also stepping up our capital allocation into newer business areas like green energy, data centers, and semiconductor design. We do expect some of these investments to start contributing to group returns in the next luxury plan of the company, which will start from FY27 and end at FY31. With this, I conclude. Thank you, ladies and gentlemen, for the patient hearing. We will now begin the Q&A. My request to all the people who want to ask questions, in case you have any bookkeeping questions, please feel free to connect to me or Harish, my colleague, afterwards. We have with us also my senior colleague, Mr. Suparnam Sharma, who is the president and head of the energy business. Over to you.

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 touchtone 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. Our first question comes from Mohit Kumar from ICICI Securities. Please go ahead.

Yeah, hi. Thanks for the opportunity, sir. First question is on the, I think you mentioned that in projects and manufacturing, you are heavily placed in the 500 billion order.

Does it mean that you are L1 in those orders? Is that the right understanding?

I said we are well placed. It is just to give the comfort that You know, while we get into Q4, since you all know that a 10% guidance for the full year also means that we need to print almost 60, 650 billion groupies of orders in Q4. So just to give the comfort that we seemingly are on track because we are well placed in four, five very large orders. But there is kind of always, since the orders are large, there can be always a slippage into subsequent quarters. or not close the contract itself?

Understood. The second question is that have you included the order for 5 gigawatt, 19 gigawatt solar plus water? And is it possible to lay out the scope and difference of responsibility between you and Power China?

Is it possible to also give a color on the side of the project? So, you are referring to the renewables press release that we had? Yes, we were the preferred ETC contractor for the Middle East of 5 gigawatts to 19 gigawatt hours. So, it is an ultra-meta order, and that has been taken in the ordering flow for Q3. We received the client clearance sometime in January, and we have released the press release recently. It is, I would say, it is quite a very complex order and one of the largest renewable investments that UAE is embarked upon. And we feel, I mean, it's a prestigious order in flow for us. And what is the difference of responsibility between you and Power China? Power China is a separate contract. The total generation capacity and storage capacity is split into two contracts. This is Sharma here. And those two contracts are independent contracts. What we announced is related to our part. And similar scope is being done by China Power. So they are independent contracts, mutually exclusive and directly with the customers. We have no relationship with China Power on this contract.

Understood, sir. Absolutely, sir. My last question is the development of green hydrogen projects, which have been in the last quarter.

Is it contingent on finding the market for hydrogen in the advanced or let's say developed markets? Is that how you understand it? Yeah, yeah. I mean, we applied this. What we announced was this PLI scheme. And under that PLI scheme, we have been successful and we secured the 300-course incentive. which is subject to setting up that capacity. I mean, it is linear. I mean, if we set up the full capacity, then we will be entitled for that full incentive. Otherwise, it will get discounted based on the capacity we set up within that timeline. Now, of course, our decision will also depend upon how the market evolves and the economics related to that investment decision. We are very actively pursuing many opportunities within India as well as outside.

And we are quite confident that some of those will materialize now. To what extent and when is something a little bit uncertain now. But we are very hopeful. Thank you, Bishwar. Thank you. Thank you, Mohit.

Thank you. The next question comes from Amit Hanwani from PL Capital. Please go ahead.

Thanks for taking my question. My first question is on the execution on Stellar this time. We can see domestic infrastructure, business revenue is kind of moderate, seen a moderate growth. So any challenges we face this quarter with respect to project execution and domestic market in any of the projects which are there?

No, so let me answer that Amit. The execution of our, especially of the projects in the domestic sector with respect to infrastructure segment, I think it is continuing as per plan. There have been some isolated cases where we had to bring down the execution because of delayed payments, but otherwise the execution momentum is in line with our budgets that we have done and in line with our guidance itself.

So, second question on the prospects in the energy business. You said the 1.44 trillion pertains to only hydrocarbon and there's, I think, I guess, no thermal order prospect which you're accounting now. Is it that the prospects have kind of deteriorated in the market or we have been selected and now not taking orders in thermal in upcoming quarters?

No, I think thermals, there are 1.44 trillion has got several components. One is thermal power plants in India. Then we have hydrocarbon projects both in India and in West Asia. And then we also have some gas to power opportunities. I think between the three, we believe that we have a very good bit slate and And we should be able to secure a reasonable size of that prospect. Now, thermal power plant in India, we have made a strategy to bid for BTG, that is boiler turbine group. And we'll continue to pursue those. And, yeah, to some extent, we'll be selective. from a point of view of our manufacturing capacity and our ability to execute those jobs and provided, of course, the location and the situation conditions are favorable for us to execute in an efficient manner. Swamit, just to add to what Mr. Sumanath Sharma told, the auto prospects that I have articulated in the past, they are all for the what we believe are tenders which are going to come, which are addressable, not necessarily the auto prospects could be the order that is getting tenders to be larger, but it is all what you call the addressable L&T universe for the three months. So, to that extent, some of the opportunities may be coming in the next year, but not in the next three months. Sir, just to say that although we have won in formal, I have only kept into BTG, which we won in Q3. Yes. What we have printed or what we have disclosed in Q3, F525, relates to the BTG orders, BTG orders of NTBC.

Sir, thanks a lot. Thank you so much.

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

Hi, good evening, sir. Good evening.

So my first question is on the status of the submarine tender that we wanted to participate in. There have been some media articles around that, so if you could just tell us about what's really happening over there.

Okay, so there are media reports on this matter in the public domain. We cannot comment further as the matters pertaining to the bid are subject to an NDA. We have also sought out some clarifications to the customer, but unfortunately, I'm not in a position to comment further on this particular matter because of non-disclosure agreement compliance. Sure, sir.

Understood. My second question is on margins and the intraverticals.

it has been a while since margins have been hovering around this range, and we've not really seen a big expansion. Do you think this is a new normal, wherein we are looking at lower working capital, but that also kind of entails lower margins? Nothing wrong with the strategy, just trying to understand if this should be seen as a new normal. Okay, so the infrastructure margins have been a little softer in the last two to three years. We do expect with the The slow depletion of the orders that we had taken, you know, prior to FY22-23, all of them tapering on the last stages of execution, the new set of orders, which are last orders, subject to the fact that if we are able to complete them on schedule, we do expect some improvement in margins. But having said this, as a projects company, we have been we give guidance only for the particular year on the revenue. So in the month of May, after the internal budgets which will be closing out in the next one month or so, I think we'll have a better visibility to comment as to how the margin trajectory for FY26 spans out across the projects and manufacturing portfolio. Having said this, as you rightly mentioned, Despite the falling margins, the overall return on the investments, each of these businesses, each of the businesses under the projects and manufacturing portfolio, they have actually improved on the backs of timely billing and faster collections.

Sure, sir. Also, my last question is just wanted to understand if we are looking to get into some more stuff on the semiconductor side, maybe a foundry or maybe a display for electronics. Are we kind of thinking in that direction also, or would we be restricted to tablets?

So you have taken two questions on this. So the first point, as far as semiconductor is concerned, the current approach is to build up the semiconductor design, build up a good set of products, which will obviously will have to be get manufactured through other fabs before even exploring to decide whether we want to go on to investment in fab itself. The only thing I can talk about at the current juncture, our forage is in order to semiconductor design. And I hope, I think it will pan out in the next two to three years when we build up the various products under using this, I would say, IP led, LMP IP led design. And basically, the process that we have, we will explore whether we go into the path manner, but that is not in the near term. Sure, sir. And something else like display path? At this juncture, I mean, there are various aspects we are looking at, but very difficult to comment on the progress or what is the final set will happen. So, Sharma, you would like to add on this electronics part? No, I think, like you said, it will evolve.

These are all new arenas we are exploring, and we believe that long-term potential is quite good in this sector. That's why we are entering into this.

But we'll keep the options open, and as it evolves, then we will evaluate and implement appropriate strategies, but too premature to sort of articulate on the exact

because we are still exploring that. Perfect, sir. Thank you so much.

Thank you. The next question comes from Sumit Kishore from Access Capital. Please go ahead.

Thanks for the opportunity. My question is in relation to marketing. It provides

Sorry to interrupt. Your voice is breaking. Am I audible right now? Perfect. Loud and clear. So in case of hydrocarbons, the stage of execution of projects has been calculated in terms of the margin tip for the nine-month period. So when can we expect the stage of execution, given the execution itself is growing at a very swift pace? When does that cross the margin recognition threshold? And the second part of this question is on the ultra side, where, you know, could you give us some qualitative color on how the margin improvements that we've seen in the nine-month period, how is it sort of driven by domestic slash overseas?

Because higher overseas in the mix might be depressing your headline margin, and how is domestic behaving in that margin mix?

So two parts to it. One is on the hydrocarbon margins and the second is on the intra margins. So as far as hydrocarbon margins is concerned, I want to tell you that cumulative nine months or you take Q3, the margin accretion is over at the stage of completion of each of the businesses. The hydrocarbon margin is in line with our internal water benchmarks, and there are some large projects which will possibly cross the margin technician threshold in the near term. Some of that could be in Q4, and some of that could be slipping into Q1. But as you are aware, we have given a two-year margin guidance of the P&M portfolio at 8.2%, and whereas nine months cumulative, it's 7.6%, because all the three quarters, the margins have been at 7.6%. So which means that the Q4 run rate for EBITDA margin is of course going to be very high. And that has been, is based in our plan. Execution momentum and the state of progress, okay? So I don't think the hydrocarbon margin optically dropping is an assumption that has been based in our nine months trajectory itself. So I don't think we have any cost to worry. As far as infra-margin is concerned, We have been, we are having a good portfolio of a decent mix of renewable projects, sorry, decent mix of renewable projects and overseas projects in the Middle East and also quite a large substantial order book in the domestic side. Whereas the international projects can have optically lower margins, but I wish to tell you timely execution is enabling that we are able to print the margins that we have built. Whereas in domestic projects, as you know, there can be time and cost overruns for reasons possibly beyond our control. So in a way, both are offsetting each other. It is not necessary to conclude that a larger share of domestic project execution will be higher margins or a larger share of overseas projects in the international can possibly drop the margins. So I think the mix is good and we should be on track to meet the margin guidance for the entire pre-end of portfolio at 8.2% for the full year. Sure. And once the hydrocarbons are crossing margins at emissions threshold, next year the base will become favourable

hydrocarbons. Is that a right understanding?

It can happen in more and subsequent quarters. So, please understand, it's not that we are executing hydrocarbon projects what we secured one and a half years back. Most of those projects may have already crossed the market recognition. Hydrocarbon business has also secured ultra mega and mega orders in FY24 and even in the current year. So, all these jobs also we get into execution over a period of time. And the four, five large contracts that you mentioned you have favorably placed, are India contracts or overseas contracts? I will just state for clear, I would say it's four of five large contracts. Let's not get into whether it's domestic or international. Yes, the second question is on LAPS, Christopher.

It's a decent mix, it's a good mix, I said. Based on the chicken, was it? Yes. So Sumit, it is a collaborative acquisition.

So we have taken 15% stake at almost 1,080 crores of rupees. Another 6% stake is due for transfer sometime in May 25, okay? With this, it is being considered as an associate from an accounting perspective is an associate, but essentially from a business perspective, we thought, and as I mentioned, it is a collaborative partnership where we will leverage, Larsen & Tuber will leverage E2E's scope of offerings on the AI side, especially on the cloud data center, while we pitch our offerings, because as you may be aware, L&T is also investing into data centers. and we get into the higher end or more margin-led, we have to blend the offerings into giving cloud data services for our data center customers. So we will liberate that. And similarly, E2E also will liberate our data center infrastructure to strengthen their scope of offerings. So that way it is a collaborative partnership with a strategic investment also.

Thank you.

Thank you. The next question comes from Priyankar Biswas from BNP Paribas. Please go ahead.

Thanks for the opportunity.

So my first question is on the bonus. So what we are witnessing is that a lot of PPs and those things in the state budgets particularly So can you please elaborate like what are the areas in the domestic defects where you specifically see that you can break down from central state CPSs like that, which areas we should seek work from?

In terms of, okay, as I talked about the total auto prospects of 4 trillion rupees of infrastructure, a major part is coming out in domestic itself. So we have, actually it's a, that way a wide range I would say canvass of opportunities across various segments. It can be to keep it simple. Let me talk about the buildings of both private sector and also at the central level. There are various opportunities for public health, which means I'm talking about hospitals. There are opportunities on some large projects on the Heidel side. And I also want to tell you that there is a major set of urban infrastructure connecting between two cities. I'm not talking of railways. I'm talking of road networks, elevated corridors that are expected to get tendered out in the near term. So it's a combination of state and central-led projects. Largely states, I would say, and the share of the government prospects would be almost 75%, whereas private sector prospects, which covers the typical real estate and other data centers and so on, that is almost 25% of the overall prospect share.

Yes, I will just add in.

So, how do you... It's not a tilt to any specific sector. I think it's a decent mix of energy, of urban infrastructure, of, I would say, also water-related investments, everything else. That comes in. And even metals, but that comes under the 25% share private sector. Yeah, go ahead, Priyanka.

Yes, sir. Just adding on to this. So... what is your outlook for the defense bill? Because see the prospect that you gave for high tech, it seems to be quite low. So aren't you really constructive on the defense capex? That's my question.

So we are very much constructive on the defense capex, Priyanka, but I am going as the order prospects, what we believe is going to get tendered out in the next three months. So defense prospects are, doesn't mean that defense prospects that are addressable defense prospects in the country is coming down. Incidentally, as I told you, the Q3, we had the benefit of very large that Vajra, Vajra one repeat order is almost 6,500 odd crores. So this year we have always managed to get a print of 12,000 crores of orders in the nine months for the PES business, which is the defense part of the business, we don't see any immediate prospects for the next time.

For the next time, it depends on the tech side to control. Okay. If I can squeeze just one more in. So, what I see is we have a happy order book with the data. So, going forward, I guess the international share in the revenues will also rise up as we go into the subsequent markets.

So what should be the general direction you can take the margin and the working capital trajectory from here on?

I think I have answered this kind of a question for the previous people who were asked. Let me tell you the margins what we are giving is for the current year update. As we get into next year, in the month of May, we will be giving you the outlook of margins of the P&M portfolio after we complete this year. and the budgets for the next year.

Okay, sir. That's all for now, sir.

Thank you. The next question comes from Hatul Tiwari from J.B. Morgan. Please go ahead.

Yes, thanks a lot.

Just one question on the pace of execution in Zulu. So, lately we have seen some top-down reports about budget constraints in Saudi Arabia and some of the projects being deferred. For your projects, have you seen any discussion on the customer's part about deferral, delays, delays in payment or anything of that sort? You're referring to only Middle East, no? Yeah, only for the areas. Yeah, I mean, no, I'm not seeing that. In fact, we continue to see a good pipeline. There have been some slowdown and maybe non-priority projects.

and I think there is some amount of reprioritization of capital allocation, but in the sector we are in, which is oil and gas and carbon capture and petrochemicals, I mean, those remain, continue to remain top priority.

And we have a pretty large presence in gas development, which is the highest priority for the country, for the kingdom. So we are not seeing slowdown. In fact,

We have not seen any slowdown in payments. And I was going to comment on the previous question, that the difference in the international and domestic is that the payments are much more prompter and working capital is generally better compared to domestic.

But we have not seen any slowdown on those. Yes, good to know. Thanks, sir.

Thank you. The next question comes from Srinidhi Karlekar from HSBC. Please go ahead. Hi. Thank you for the opportunity and congratulations on strong performance.

First question is in the carbon type business. Here we see that order inflow for the segment is about 234 billion. Does that include entire 4 gigawatt of ultra mega plants that you book or is there some person that's not included in that? It includes everything. All right. So, in that case, is that right that ordering per megawatt is about 5.5 crores, which looks quite aggressive? No, I don't think so. Your calculation is right. It is higher than that. When the results are being declared, I think it was... It is upwards of 6. I don't remember the exact number, but you can take that. This is only for 4 gigawatts, yeah. So, gigawatt and the ordering source is 23,000, right? In the segment. So, some of the portion like boilers, JVs. But this is only for the BGT, right? This is only for BGT. You have to see this. This is not full EPC. Normally, maybe you are more used to using entire EPC because balance of the plants is still not included in this. Right, right. So, it's just the BTG part, right? Correct. Okay, okay. Understood. And so, in the same model, How should one think about the EBITDA that will be captured in the consolidated business considering and presuming that some of the EBITDA will be captured in the JVs as well. These orders have been procured by Larsen and 2Pro Limited as their BTG EPC contractor and in force to the boiler and the turbine JVs. A large part of the margin will come to the group level only. But it is I mean, it will have to go later. I mean, now this job has just been awarded, so it will take some time for it to reach the threshold. Understood. Sir, one question on the Middle East. Would it be possible to comment on what are typical retention money clauses are there in the oil and gas order that the company is running? Typically, I think the retention is not much. I mean, I think we have been negotiating... all our commercial terms in such a manner that we maintain either neutral or slightly positive cash flow across the board, and we have been quite successful in doing that. But sometimes you have maybe 2.5%, 5% of the contract linked to that end milestone. But overall, the cash flow situation is pretty good.

I mean, I think most of them we are running at positive cash flow.

This is the contract that we have got, no? Simidhi, I want to tell you that we don't expect, as in when the projects get complete, in the balance sheet, there will be a large amount of retention. It is not the case, like, in any other segment, possibly in India or any other country. So the payment terms are favorable. Favorable. Right. At the start, they are definitely favorable. They are also favorable at day in, day out, right? Yeah, yeah. Generally, I mean, across the project timeline.

Understood. Nice to know that, sir.

And thank you and all the very best. Thank you.

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

Yeah. Congratulations on a good quarter. So earlier in the call, you mentioned there are some slow-moving orders where there was an execution issue because of collection. So in which segment are you facing these challenges and how much would have been the revenue impact of this? Okay, so in the infrastructure segment, we have had, I mean, there has been, because of the funds that had been stopped for some time with respect to water projects funded under the Jaljivan mission. So there was some amount of stoppages, but now we expect the fund flow momentum to start through from, I think it has already started from December onwards, and we'd expect a revival in momentum to happen. it would be very difficult to compute how much, because of delay in payments, how much of revenues we have lost. That won't be, it won't be an accurate answer to put it across like that. Okay. And so, in this quarter, were there any one-offs in the beta line? Because we have seen decline in margins both quarterly and sequential as well as YOY. So, I know you touched upon some NPAs and something on IT. So, So there is no one-off in the entire P&L portfolio as far as Q3 margins are concerned. It is normally as what is in any project part of the business in terms of stages of execution. We have not had any one-offs. So what explains the decline in the EBITDA margins Q1, Q2, and May 1? No, on a YOMI basis at the P&M level, we have kept it at 7.6, 7.6. Okay. At the group level, I think I did cover when you talked about the EBITDA margin at a group level, the drop is because of two reasons. The one is the revenue is tilted, the composition of revenue is tilted towards a lower margin P&M portfolio as compared to in the previous year, a higher margin ITTS portfolio. So that is one, that is contributing to almost 30 basis points in the drop of the group operating margin. And the second one is the operating user age of the ITTS company, that is in terms of their margins, has come down. That has another 40 basis points impact. Am I clear? So the fall in the EBITDA margin at the group level is for two reasons. a larger share of revenue growth coming from a lower margin trajectory of the P&M portfolio, which is almost 30 basis points, and the lower margins in the ITTS portfolio, which is attributing to us as 40 basis points. So, basically, the growth rate of ITTS has been less than the core business, and their margins have also fallen. Our revenues for the quarter at a group level has grown by 17%. Okay? Whereas I did say that in the ITTA segment, the revenues have grown up to 8%. So, there is a relative rebalancing there, no? That's the reason for the drop in the EBITDA margin at the group. Right. Okay. And so, the other thing is you mentioned on the reducing losses in the metro. So, and you attributed it to loan repayments. Did you receive any software support from Telangana government So what has been the quantum any change versus last quarter? So the last time we received was almost last year. So the cumulative support that we have received under the 3000 crore loan support, which was approved by the government of Telangana, we have received 900 crores all in the last year. We do expect some things to come up in the near term, the balance portion of 2100 crores. And the And the other part is that we also are looking at very, very aggressively a further amount of some transit-oriented development monetization. Hopefully, the approval should be coming up in the near term, possibly even in Q4. Let us do that wait and watch. So an aggregate of this 2,100 crore of additional loan, the soft loans from the government, And it's also theory monetization will enable us to reduce the current debt levels. The third-party debt levels in the metro is almost 12,600 crores. We do expect over a period of time that to come down to, say, 9,000 crores or so, which will enable a further reduction in the interest cost. This is the last question on the realistic business side. So how much has been the new sales booking or three sales for nine months and per third quarter of 2021? So the total nine months booking has been in the range of 2,500 crores of ordering flow and nine months revenue for reality is almost $1,500.

Thank you.

Thank you. The next question comes from the line of Farhanidhar Vijayakumar from Avengers Park. Please go ahead.

Yeah, good evening.

Sir, can you tell us what proportion of order book is fixed priced in nature at this point in time?

Forty-five percent is fixed price. Balance is variable. Okay.

And some of these recent large orders, both in renewables or in the hydrocarbon or in the thermal style, they would all be on a cross-passing basis?

Most of the orders in hydrocarbon and also in thermal are fixed price.

Okay. Okay. Okay. That is very difficult. Okay.

Thermal is a price adjustment, but for a very selected commodity. When in hydrocarbon, it's all fixed price. In thermal, we have some price adjustment for a particular component. Okay. Okay. Got it. Just to clarify on the bid-back margin expectation for the 3-year FI 25 in the core business or in the PLM business, that's 8.2 is what you mentioned, right?

Correct, correct. Okay.

My final question is on the NABAR power. So what is the status of the asset monetization there? The asset is doing well, Barani. So the asset is doing fairly well. It keeps us almost 100 to 110 crores of profits every quarter. Every quarter. And it is one of the best performing plants. And, of course, we are looking at, but the point is, it should be something which we believe should be a fair valuation. We can look at it. Otherwise, at this juncture, it is a part of our portfolio.

Okay. No, because it would be good to, you know, get the kids when it is doing well. So, you know, plus we have the idea of monetizing with that way.

Correct. So, we are not saying that we are not looking at options, but we are looking at valuations which we feel should be appropriate considering that it is one of the best performing plants in the country and having some sort of a clear visibility on earnings and profitability. Wonderful, sir.

Thank you all the day. Thank you.

Thank you. The next question comes from Amit Mahawar from UBS. Please go ahead.

Yeah, I have two quick questions for Mr. Sarna.

On Middle East particularly, we had a very strong, you know, ordering that we saw in the last two years.

Incrementally, seemingly, infra is more a bigger pipeline than hydrocarbon for us where a lot of Chinese,

and non-Korean, non-European competition comes for us.

So do you think the incremental returns on capital employed in incremental Middle Eastern orders might be, I'm not saying not great, but relatively inferior to what we saw in the last two years? That's my first question, sir. No, I think we have not seen much change in the terms of bidding pipeline or in terms of competition. Yes, of course, sometimes in certain infrastructure projects, or even hydrocarbon projects with seed Chinese, but we are also quite selective, and those which we are targeting, I think we believe that we have a peer competition, and we are able to secure jobs with levels what we would like to have.

I mean, that's how we play it out. I mean, the bid addressable market is quite large for everyone to have their share, so I don't see that as a big issue. Very comforting.

And the second and last question is, you know, the Korean companies like Hyundai, Samsung, you know, we talk to, you know, people in the market, them taking 20, 30% more orders in the Middle East region, you know, on the current base that they're executing, you know, you need man and material, and man is the most critical part in that region, right? Man and material is easy to get, relatively.

Do you think L&T in 26 can back 20-30% higher orders in the Middle East in terms of is it possible you have capacity to execute there in terms of if I go by the manpower ability because your execution run rate in 25 is very heavy.

26 even will be heavy, the book you have. So can we take 25%, 30% more orders in the Middle East?

You will decide that will be part of our budget planning exercise now and when we are completed with this and when we approach the first quarter, then we will share more details. But in principle, I think these two markets are becoming our important markets. So we look at every opportunity available to us very seriously, critically, our ability to execute and And we have also strategies in place, like if there are constraints, we work continuously in overcoming those constraints. Maybe like Manpower you spoke about, we also have a great relationship with some of the large subcontractors in our ultra mega projects. One of the ultra mega projects, we have a very good subcontracting strategy, and we are working with one of the largest construction contractors who have access to large number of pools. So we do a bit of a blend here, hybrid models we follow, So we generally see through these issues and work through those issues and prepare ourselves. But at the end of the day, I mean, we'll have to balance it and we'll have to be selective and at the same time, you know, chase those opportunities which will provide us the required growth rate.

Good luck.

Thank you. Ladies and gentlemen, that will be the last question for today. I would now like to hand the conference over to Mr. P. Ramakrishnan for closing comments.

Thank you, everyone, for attending this call. It was our pleasure to interact with all of you. Good luck and wishing you all the very best. Thank you once again.

Thank you. On behalf of Larsen & Tubera Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.