Management Discussion and Analysis: Larsen & Toubro Limited

1. Key Takeaways from Recent Management Discussions

• Strong performance in Q1 FY '25 with order inflows up 8% year-on-year.
• Rating agencies S&P and Fitch reaffirmed L&T’s BBB+ rating, highlighting financial strength.
• MSCI ESG rating upgraded to BBB, reflecting improvements in environmental and safety standards.

2. Insights from Conference Calls

• L&T’s order book stands at ₹4.91 trillion, with 19% year-on-year growth.
• International orders constitute 48% of revenues, with significant contributions from the Middle East.
• The prospects pipeline for the next nine months is ₹9.07 trillion, with ₹6.02 trillion from infrastructure projects.

3. Revenue and Growth Outlook

Group revenues for Q1 FY '25 grew 15% year-on-year to ₹551 billion, driven by infrastructure, hydrocarbons, and precision engineering. The company aims to maintain 10% growth in order inflows for the fiscal year.

4. Profitability Expectations

EBITDA margin for Q1 FY '25 is stable at 10.2%. L&T expects continued profitability improvements as order execution progresses, with a PAT growth of 12% to ₹28 billion for Q1. The company’s Return on Equity (ROE) stands at 14.7%, an improvement from 12.8% in the previous year.

5. Strategic Initiatives

• Expansion in green energy with an increasing order book in solar and renewable energy projects.
• L&T’s focus on digital transformation and IT services through LTIMindtree and L&T Technology Services remains strong.
• Acquisition of Silicon Systems to boost L&T's semiconductor capabilities.

6. Capital Expenditure Plans

L&T plans a capital expenditure of ₹4,000 crore for FY '25, focusing on infrastructure, renewables, and IT services.

7. Management's Commentary on Market Conditions

Management remains optimistic about India’s strong growth momentum and capex spending. The Middle East remains a key market for hydrocarbon and infrastructure projects, while global macroeconomic conditions are expected to stabilize, creating further opportunities for growth.

8. Operational Highlights

Q1 FY '25 saw strong execution across infrastructure and energy projects, with a significant share of international orders. L&T's order inflows from infrastructure were primarily in renewable energy, power transmission, and transportation infrastructure.

9. Production Efficiency

L&T improved margins through cost savings in execution and operational efficiency. EBITDA margins in infrastructure improved from 5.1% to 5.8% year-on-year, attributed to better project execution.

10. Technological Advancements

• Significant investments in AI, IoT, and cloud technologies through LTIMindtree and LTTS.
• L&T Semiconductor Technology is expanding capabilities in semiconductor manufacturing with key acquisitions.

11. Challenges and Opportunities Identified by Management

11.1 Challenges

• Skilled labor shortages in India, especially in infrastructure and construction projects.
• Competition in the Middle East from global players in the hydrocarbon sector.
• Cost pressures in fixed-price contracts, especially for international projects.

11.2 Opportunities

• Significant investments in infrastructure, renewable energy, and digital transformation.
• Expansion into green hydrogen and offshore wind projects.
• Growth in the Middle East, particularly in hydrocarbons and urban infrastructure.

12. Company’s Strategy to Address Challenges

L&T is focusing on strengthening its order book in high-growth sectors such as renewable energy and urban infrastructure. The company is also addressing labor challenges by investing in training programs and subcontractor management. With a focus on technology and operational efficiency, L&T aims to maintain its competitive edge.