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Larsen & Toubro Ltd

| Q4 FY26 Earnings Conference Call

Report Source

⬤11th May 26

Summary : Larsen & Toubro reported strong order book growth and outlined an ambitious five-year strategic plan (Lakshya 31) focused on new growth engines and geographical expansion, despite short-term geopolitical and supply chain challenges.

Management Perspective positive : Management expressed confidence in strong order inflows, strategic plan Lakshya 31, and ability to manage challenges. They highlighted robust order book, successful divestments, and future growth engines.

Concall Report Analysis & Insights

Business Overview

  1. Q4 FY26 order inflows were Rs 898 billion, broadly in line with Q4 FY25 levels.
  2. The order book stands at Rs 7.40 trillion, a 28% YoY increase, providing strong revenue visibility.
  3. Group revenues grew 11% YoY to Rs 828 billion, with international revenues contributing 53%.
  4. Recurring PAT for Q4 FY26 was Rs 53 billion, up 5% YoY.
  5. Net Working Capital to Revenue ratio improved sharply to 4.1% from 11% in March '25.

Future Growth Prospects

  1. Lakshya 31 targets 10-12% order inflow CAGR and 12-15% revenue growth over five years.
  2. ROE is targeted at 16-17% under Lakshya 31, factoring in new business investments.
  3. Significant capital outlay planned for Data Centers, Green Hydrogen, Semiconductors, and Industrial Electronics.
  4. Realty business aims for 100 million sq ft development, with 25% CAGR in pre-sales.
  5. Geographical expansion includes Central Asia, Offshore Wind (Europe-centric), and Southeast Asia renewables.

Management Insights

  1. FY26 order inflow significantly surpassed guidance, driven by strong wins across multiple sectors.
  2. Revenue growth was 12% for FY26, below 15% guidance due to subdued execution and project delays.
  3. Middle East projects are functioning, employees are safe, and payments are received as per schedule.
  4. Discussions are ongoing with clients to seek relief for increased logistics and insurance costs.
  5. The company is strategically exiting concession assets, with Hyderabad Metro and Nabha Power divestments nearing closure.

Signs of Skepticism

  1. The 10-12% revenue growth guidance for FY27 anticipates a softer first half due to ongoing disruptions.
  2. PPM margins are guided to be stable at 7.8% for FY27, despite expectations of improvement in energy segment margins.
  3. The 16-17% ROE target for Lakshya 31 is lower than the previous 18% target, reflecting upfront investments.
  4. The full benefit of new investments in Data Centers may flow in the 2031-2036 plan, not the current Lakshya 31 period.

Risk Factors

  1. Geopolitical developments, global energy supply dynamics, and softer external demand pose external headwinds.
  2. West Asia conflict caused execution disruptions and increased logistics/insurance costs in Q4.
  3. Supply chain constraints are expected to cause a softer first half for FY27 revenue.
  4. Weather-related uncertainties, like El Nino, could affect agriculture output and food prices.
  5. Normalization of working capital levels is expected, guiding to 10% for FY27.

Good To Know

  1. L&T became the first Indian corporate to issue an ESG bond under SEBI's sustainability-linked framework.
  2. MSCI ESG rating was upgraded from BBB to A in November 2025.
  3. Ranked 2nd among Top 200 Environment Firms globally by Engineering News-Record in 2025.
  4. L&T Finance received debut international investment-grade ratings from S&P Global and Fitch.
  5. The company updated its segment-level reporting, consolidating Green Energy EPC and repositioning Development Projects.

Key Drivers

  1. Strong order book provides revenue visibility.
  2. Lakshya 31 plan drives long-term growth.
  3. Strategic investments in new growth engines.
  4. Middle East capex offers significant opportunities.

Key Analyst Discussions

Market Trends & Consumer Behavior

  1. Questions about client decisions on capex given current uncertainties and changes in capex outlook.
  2. Management noted a positive capex narrative, with major expansion plans announced in the UAE.
  3. Inquiries about the impact of the Middle East conflict on infrastructure vs. energy projects.

Financial Highlights

  1. Analysts questioned the Q4 revenue miss and margin improvement not materializing as expected.
  2. Management attributed revenue slippage to supply chain issues and project delays in Middle East and Water segment.
  3. Queries on the stability of PPM margins and potential for improvement post-normalization.
  4. Discussion on the ROE target reduction from 18% to 16-17% due to new business investments.

Product Composition

  1. Questions on the growth drivers for the 10-12% Lakshya 31 revenue growth, existing vs. new businesses.
  2. Details sought on the Data Center business, including capex, technology, and target capacity (200 MW).
  3. Clarification on the electronics manufacturing services foray, focusing on industrial and defense electronics.

Strategic Considerations

  1. Inquiries about selective geographical expansions beyond India and Middle East, including Europe and Southeast Asia.
  2. Discussion on the strategy to become geography-agnostic through modular systems and fabrication.
  3. Questions regarding the status of Kuwaiti projects, with three cancelled and one surviving.
  4. Inquiries about the availability and cost of manpower, especially for reconstruction opportunities.