Larsen & Toubro Limited

welcome to the Q2 H1FY26 earnings conference call hosted by Larsen and Tobler. 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. I now hand the conference over to Mr. P. Ramakrishnan from Larsen and Tobler. Thank you and over to you, Mr. Ramakrishnan.

Thank you, Rutaja. Good evening, ladies and gentlemen. A warm welcome to all of you into the Q2 H1 FI26 earnings call of Class 102 Pro. The earnings presentation was uploaded on the stock exchange and in our website around 6.20 p.m. Hope you had a chance to take a quick look at the numbers. I will first walk you through the important highlights for Q2 FI26. in the next 20 to 25 minutes or so, post which we will take questions. Finally note that when the Q&A session starts, I will also have with me our Deputy Managing Director and President, Mr. Subramanian Sharma. Before I begin the overview, the disclaimer from our end. The presentation which 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 L&T's business prospects and profitability, which are subject to several risks and uncertainties, and the actual results could materially differ from those in such forward-looking statements. I would request you to go through the detailed disclaimer, which is available in slide 2 of our earnings presentation that we have uploaded today. I will start with a brief overview on the economic conditions in India and the Middle East, which are key markets for the company, especially for the projects and manufacturing businesses. The countries, that is India's economic outlook, continues to remain optimistic. The domestic conditions are favorable, with GDP growth for FY26 projected between 6.5% to 7%. largely driven by retail consumption, resilient services sector, and steady capex. The new private sector capital expenditure plans are also being driven by increased investments in manufacturing, renewables, real estate, digital infrastructure, and power generation projects, even as the public infrastructure continues at a steady pace. The economic growth in the Middle East is expected to remain stable, supported by a rebound in oil output, controlled inflation, and continued diversification into non-oil sectors. However, flat oil revenues, as lower prices offset the higher production, may lead to a renewed focus on efficient and prioritized spending. Countries in the region are increasingly prioritizing natural gas and renewables over oil for domestic power generations as part of their long-term economic diversification strategy. This shift supports their transition to clean energy while enabling higher oil exports and greater value capture through petrochemicals production. Having covered the macro landscape, let me share some few important highlights for the quarter. The L&T's onshore and offshore hydrocarbon businesses have secured each ultra mega orders in the Middle East. The onshore order involves the setting up of a natural gas liquids plant and allied facilities while the offshore order involves multiple packages including EPC, installation of offshore structures and upgradation of existing facilities. During the quarter, we have entered into strategic MOUs and partnerships across our renewables, green energy, defense and semiconductor businesses, strengthening the foundation for our future growth. The renewables business within the infrastructure segment has entered an MOU with AquaPower for the renewables and grid scope of the Yanbu Green Ammonia project in Saudi Arabia. The scope involves multiple facilities including solar photovoltaic, wind and battery energy storage system plants along with associated substations and transmission lines. The cooperation involves a commitment from L&T to enter an EPC contract once the final proposal is accepted. L&T Green Tech Limited, a wholly owned subsidiary, has entered into a joint development agreement with Itochu Corporation of Japan to develop and commercialize a 300 kTPA green ammonia project at Kandla in Gujarat. Under the agreement, L&T Energy Green Tech and Itochu will collaborate on the development of the facility with Itochu planning to update the product for bunkering applications in Singapore. The company has formed a strategic partnership with Bharat Electronics to support the AMCA program of the Indian Air Force. The consortium has submitted an expression of interest in response to a notification issued by the government of India's Aeronautical Development Agency. L&T Semiconductor Technologies, another Bullion subsidiary, acquired the power module design assets of Fujitsu General Electronics of Japan. As part of the transaction, the semiconductor company has acquired Fujitsu's R&D equipment, design patents, and various intellectual properties related to power module technologies. Additionally, the semiconductor subsidiary has signed an MOU with the Indian Institute of Science, Bangalore, to jointly develop a national 2D innovation hub. The envisioned hub will serve as a world-class facility focused on next generation semiconductor innovation beyond silicon chip technologies, placing the country at the forefront of global semiconductor research and development. Besides this, the company has reached an in-principle understanding with the government of Telangana, wherein the government will take over the Hyderabad Metro SPV by refinancing the current debt and acquiring the entire equity stake in Helendi Metro Rail Hyderabad Limited. The contours of the final agreement are being finalized. and we expect this transaction to get consummated by the end of the current fiscal F526. The company has secured a sustainability linked trade finance facility from a commercial bank worth USD 700 million. The facility is aligned with internationally sustainability standards and ties its terms to the KPIs such as greenhouse gas emission intensity and fresh water withdrawal, which are critical to L&T's operations. I will now cover the various financial performance parameters for Q2FY26. We continue to witness strong ordering activity in Q2FY26 across India and the Middle East, with order inflows growing 45% Y-on-Y. Supported by this sustained momentum, the order book expanded to Rs. 6.67 trillion as of September 2025, reflecting a 31% Y-on-Y increase and providing a strong revenue visibility in the near future. Our group revenues grew 10% Y-on-Y in Q2 FY26. The execution levels remain broadly in line with expectations, barring a few sector-specific challenges. The projects and manufacturing portfolio margin improved from 7.6% in Q2 of the previous year to 7.8% in Q2 of FY26. As of September 2025, the net working capital to revenue ratio remained healthy at 10.2% and improvement of almost 200 basis points Y on Y. Our continued emphasis on capital efficiency also translated into a further improvement in the return on equity, which rose to 17.2% of 110 basis points Y on Y. I now move on to the individual performance parameters. During the quarter, the group order inflows stood at Rs. 1,158 billion, registering a Y&Y growth of 45%, reflecting the continued traction across our key businesses. Within this, the projects and manufacturing, that is the P&M portfolio, delivered a strong performance with order inflows of Rs. 968 billion, up 54% Y-on-Y, underscoring the broad-based demand environment across both domestic and international markets. The growth in the P&M portfolio was broad-based, with domestic order inflows growing 40% Y-on-Y and international inflows up 62% Y-on-Y. The order inflows during the quarter were driven by strong activity across hydrocarbon, buildings and factories, heavy civil and the renewable sub-segments. During the quarter, the share of international orders in the P&M portfolio stood at 65% as compared to 62% in the Q2 of the previous year. Moving on to the prospects pipeline for the near term, we have a overall prospects pipeline of rupees 10.4 trillion vis-a-vis 8.1 trillion at the same time last year. This represents an increase of 29% on a Y on Y basis. The increase in the prospects pipeline is mainly led by infrastructure and hydrocarbon segments. The broad backup of the overall prospects pipeline for the near term is as follows. Infrastructure rupees 6.50 trillion vis-a-vis rupees 5.42 trillion last year representing an increase of 20%. Hydrocarbons rupees 2.93 trillion vis-a-vis rupees 2.25 trillion last year representing an increase of 30%. Carbon light solutions, the prospects pipeline as of September 25 is Rs. 0.46 trillion as compared to Rs. 0.24 trillion last September 2024. The green and clean energy opportunities aggregate to Rs. 0.18 trillion as compared to Rs. 0.01 trillion last year. The increase is primarily because of gas to power related opportunities outside of India. The heavy engineering and the precision engineering systems which aggregate to what we call the high-tech manufacturing segment, the order prospects as of September 25 is at Rs. 0.31 trillion as compared to Rs. 0.16 trillion last year. Moving on to the order book, the order book as of September 2025 stands at Rs. 6.67 trillion, up by 31% as compared to September 24 last year. The projects and manufacturing order book has the balanced geographic mix with 51% of the order book coming from domestic markets and 49% from outside India. Out of the international order book of Rs. 3.27 trillion, around 84% is from Middle East and the balance 16% is from other parts of the world. The client-wise composition of the domestic order book of Rs. 3.4 trillion as of September 25 is as central government constitutes 14%, State government and local authorities, the order book share is 24%, public sector corporations, 32%, and the private sector composition is at 30%. As you may note, the share of the private sector in our domestic order book has increased from 21% as of March 25 to 30% as of September 25. This growth reflects improved activity in the residential and commercial real estate, power generation, and data storage solutions, as well as the minerals and metals sector. Approximately 12% of our total order book of Rs. 6.67 trillion is funded by bilateral and multilateral funding institutions. Again, 91% of our total border book is from infrastructure and energy. You may refer to the presentation slides for further details. No major orders were deleted during the quarter, and as of September, the share of slow-moving orders is around 3%. Coming to revenues, the group revenues for Q2 FY26 at Rs. 680 billion registered a Y&Y growth of 10%. the international revenues constituted 56% of the revenues during the quarter. The strong execution momentum in the energy and high-tech manufacturing segments drove the overall group revenue growth for the quarter, while execution in the infrastructure project segment was a little subdued during the quarter. Within the overall group revenue, the P&M businesses recorded revenue of Rs. 490 billion, for Q2FI26 marking a 10% growth over the corresponding quarter of the previous year. Moving on to EBITDA margin, the group level EBITDA margin without other income for Q2FI26 is 10% as compared to 10.3% in Q2 of the previous year. The decline in EBITDA margin is primarily due to the margin compression in our IT and TS segment. The detailed breakup of EBITDA margin business-wise, including other income, is given in the annexures to the earnings presentation. Our EBITDA margins in the P&M business portfolio has improved from 7.6% in Q2 FY25 to 7.8% in Q2 FY26. The segment-wise EBITDA percentages will be shared in detail during the discussion on the segment performance. Our consolidated PAC for Q2FI26 at Rs. 39 billion is up by 16% as compared to Q2 of the previous year. The increase in PAC is reflective of improved activity levels and efficient treasury management. The group performance, the P&L construct along with the reasons for the major variances under the respective function heads is provided in the earnings presentation. You may go through for further details. Coming on to working capital, our group NWC to sales ratio has improved from 12.2% in September 24 to 10.2% in September 25, mainly due to an improvement in the GWC to sales ratio backed by strong customer collections during the last 12 months. Our group level collections excluding financial services segment for Q2 of 5-26 is Rs 600 billion as compared to Rs 620 billion in Q2 of the previous year. The year on year dip is primarily timing related as we had witnessed a very strong collection growth in the first quarter of the current financial year. With the continued focus on customer collections, our cash flow from operations excluding financial services segment between April to September 2025 is at Rs. 106 billion as compared to Rs. 61 billion in H1 of the previous year. We have added a slide on group cash flows excluding L&T finance in the annexure alongside the reported cash flow slide to give more clarity on the cash flow performance. Finally, the trailing 12-month ROE for Q2 FY26 is 17.2% as compared to 16.1% in Q2 of the previous year and improvement of 110 basis points. 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 part of F526. The first would be infrastructure. This segment order inflow grew 6% in Q2 F526 on a Y-on-Y basis driven by strong domestic private sector demand spanning residential, commercial buildings, airports, data centers, pump storage projects, ferrous and non-ferrous facilities, solar PV manufacturing plants, and semiconductor fab facilities that were witnessed during the quarter. These together account for nearly 60% of the domestic orders for the quarter. Like I mentioned earlier, our order prospects pipeline infra for the near term is around 6.50 trillion. as compared to Rs. 5.42 trillion during the same time last year, representing an increase of 20%. The intra-prospects pipeline of Rs. 6.5 trillion comprises of domestic prospects of Rs. 4.25 trillion and international prospects of Rs. 2.25 trillion. The sub-segment breakup of the total order prospects in intra-segment is as The share of transportation infrastructure is 21%, heavy civil infrastructure is 16%, water and effluent treatment 15%, power transmission and distribution 14%, buildings and factories 13%, renewables at 11% and minerals and metals at 10%. The order book of the segment is at Rs. 3.95 trillion as of September 25, with the execution period around three years. The revenues for the quarter in the infrastructure segment registered a marginal decline of 1% y on y, largely attributed to an extended monsoon season and slower progress in the rural water supply projects. which continue to face sector-specific challenges. In addition, a few large renewable projects are in the initial execution phase. Our EBITDA margin in the segment was at 6.3% in Q2 FY26 as compared to 6% in Q2 FY25. The margin uptick has been driven by improved execution efficiency. Moving on to the next segment which is energy projects which comprises of hydrocarbon and carbon light pollutions. The order inflows in this segment were robust at Rs. 382 billion in Q2FI26 as compared to Rs. 78 billion in Q2FI25. The segment order book was held by receipt of ultra mega orders across onshore and offshore verticals of the hydrocarbon business in the Middle East. We have a strong water prospects pipeline of rupees 3.57 trillion for the segment in the near term, comprising of hydrocarbon prospects of rupees 2.93 trillion, carbon light solutions of rupees 0.46 trillion, and a clean energy prospects of rupees 0.18 trillion. The hydrocarbon prospects remain predominantly international with approximately 93% of the opportunities is overseas while carbon light solution prospects are primarily domestic and clean energy is largely driven by gas to power opportunities. The order book of the energy segment is at Rs. 2.14 trillion as of September 25 with the hydrocarbon order book at Rs. 1.66 trillion and carbon solutions, carbon light solutions at Rs. 0.48 trillion. The Q2FI26 revenues for the segment at Rs. 131 billion registers a robust growth of 48% driven by the execution ramp-up in international hydrocarbon projects and commencement of execution in the carbon light solution orders secured in the recent past. The energy segment margin in Q2 FY26 is at 7.3% vis-a-vis 8.9% in Q2 of the previous year. The margin decline for the quarter in the hydrocarbons business was primarily due to cost overruns in some few domestic and international projects. These projects are in the final stages of execution and are expected to conclude over the next few quarters. We do anticipate soft margins in the segment to persist in the near term. As already communicated during our Q1 FY26 earnings call, this is factored into our FY26 P&M margin guidance. The carbon solutions margin improvement benefited from a favorable customer claim. The clean energy businesses within the energy segment is in the incubation stage and is yet to meaningfully contribute to the segment numbers. We will now move on to the high-tech manufacturing segment which primarily comprises of precision engineering systems and the heavy engineering business. The lower order inflow in Q2FI26 used to order deferrals in both the businesses. The order book of the segment is Rs. 391 billion as of September 25 with the precision engineering order book at Rs. 328 billion and the heavy engineering order book at Rs. 62 billion. Our order prospect pipeline for the near term in this segment is around Rs. 315 billion, comprising of Rs. 251 billion of precision engineering prospects and the remaining Rs. 64 billion from the heavy engineering business. The segment revenue at approximately Rs. 28 billion registered a strong growth of 33% Y-on-Y with robust execution momentum across both the businesses. During the quarter, operational efficiencies aided margin improvement in heavy engineering, while lower margin in PES, that is the precision engineering systems, is largely reflective of larger share of early stage jobs and costs incurred on certain development projects. Moving on to the next segment, IT and technology services, which comprises two listed entities, LTI Mine Tree and LTTS. and as well as our newly incubated business of digital platforms, data centers, and semiconductor design. The revenues of this segment at Rs. 133 billion in Q2 FY26 registered a growth of 13%. The segment margin variation vis-a-vis previous year is largely due to the subdued margins in LTTS and costs incurred towards the newly incubated businesses. I will not dwell too much on this segment as both the companies in this segment are listed and the detailed fact sheets are already available in the public domain. We move on to L&T Finance Limited. Here again, the detailed results are available in the public domain. But to sum up, Q2 for L&T Finance witnessed the highest ever quarterly retail disbursement and improved collection efficiency. The financial services business achieved 98% retailization of its loan book in September 25, well ahead of its Lakshya 2026 targets. The ROAs remain healthy at 2.4% for Q2 FY26 and adequate capital is available on the balance sheet to pursue growth in the medium term. Moving on to development project segment, which primarily includes Navapower and Hyderabad Metro. The higher average fares post the fare hike that we did in the current year has led to the revenue growth and massive improvement of Hyderabad Metro. The average fare per passenger has increased from Rs 38 in Q2 FY25 to Rs 46 in Q2 FY26. The average ridership during the quarter was at 4.39 lakh passengers per day as compared to 4.68 lakh passengers per day in the same period of the previous year. At the pack level, the Metro Hyderabad Metro posted a loss of rupees 1.75 billion in the current quarter as compared to a loss of rupees 2.07 billion in Q2 of last year. As I stated earlier, we have reached an in principle understanding with the government of Telangana where the government of Telangana will take over the debt and the equity of L&T from the concerned SPV which is L&T Metro Rail Hyderabad. The EBITDA margin of the segment was impacted by a litigation related provision in respect of NAVA power. Moving on to the others of the last segment, this segment comprises reality, industrial walls, construction equipment and mining machinery, rubber processing machinery and the residual portion of the smart world business. The segment witnessed healthy order inflow growth driven by higher pre-sales in the reality business and increased orders in the construction equipment business. The segment revenue at Rs. 14.2 billion declined by 14% while primarily driven by the lower handover of residential units in the reality business. The segment margin improvement was primarily due to sales of commercial space in the reality segment. We have given the segment breakup between reality and other businesses within the segment as part of our annexures in the presentation. Before I conclude, let me cover the guidance on the various parameters for FY26. Ordering flows. We witnessed a strong ordering momentum in H1 of the current financial year and we see a robust prospects pipeline for the near term. We are confident of exceeding our full year F526 guidance of 10% growth in group ordering flows for the current year. As we speak, we are also well placed to secure a few ultra mega opportunities. On revenue, the group revenue grew by 13% in H1-FI26 in line with our expectations. As highlighted during the Q4-FI25 earnings call, we expect a stronger revenue visibility in the second half of the fiscal year, driven by a ramp up in the execution. Accordingly, we maintain our full year revenue growth guidance at 15%. Coming to the EBITDA margin for the P&M business, As you may have seen, the EBITDA margin for the P&M business has improved by 10 basis points in H1, FY26. With the execution momentum expected to pick up in H2, we are reasonably confident to achieve our full year EBITDA margin target of 8.5%. On working capital, our guidance for working capital for FY26 remains unchanged at around 12% by March 2026. With this, I conclude. Thank you, ladies and gentlemen, for the patient hearing. We can now begin the Q&A part of the call. In the interest of time, I would encourage all the participants to stick to the broader questions on strategy and outlook to take full advantage of the presence of our Deputy Managing Director and President, Mr. Subramaniam Sharma. The bookkeeping questions can be taken up by the IR team at a suitable time. Thank 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 1 on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mohit Kumar from ICICI Securities. Please go ahead.