Scale wards off volatility, keeps us steady: L&T's Shankar Raman

The scale and diversity of Larsen & Toubro’s ₹8.5 trillion orderbook helps it absorb the impact of external events and deliver steady financial performance, a top executive said.

The company is engaged in diverse businesses in multiple markets, allowing it to spread risk and be present wherever an investment cycle is active, according to R Shankar Raman, L&T’s president and whole-time director for finance. He was speaking to the media a day after the company declared its Q2FY27 earnings on Tuesday.

“So, the wheel is so large with ₹8.5 trillion of order book; we have sort of come to a zone where there are several compensating factors at play,” he said. “And to that extent, I think unless we do something dramatically well or dramatically stupid, I don’t think there will be a huge volatility in our outcomes.”

Quick answers to key questions

•5 QUESTIONS

1

How does L&T’s ₹8.5 trillion orderbook help reduce business volatility?⌵

L&T says its large orderbook and mix of businesses and markets help absorb the impact of external events. The company believes these compensating factors support steadier financial outcomes.

2

Why does L&T expect relatively steady performance despite the West Asia conflict?⌵

L&T’s business spans multiple sectors and geographies, which helps spread risk. The company reported steady earnings and strong order inflows despite tensions in West Asia, although disruptions affected costs and project timelines.

3

How is L&T planning to diversify beyond India and the Middle East?⌵

L&T plans to develop a third major market, with Europe and Central Asia among the leading candidates. Its projects in these regions include offshore wind work in Europe and airport, solar and data-centre projects in Central Asia.

4

How does L&T manage project cash flow and working capital?⌵

L&T seeks timely payments as work progresses and slows or stops work when a project’s cash flow turns negative. It said this focus helped bring working capital to 1.7% of revenue in the September 2026 quarter.

5

Why does L&T avoid high-risk projects, and how does that affect its margins?⌵

L&T avoids projects when it considers the risk-return balance too high, including risks related to technology, social unrest, supply chains or war. Shankar Raman said the company’s margins have narrowed from around 10–12% to 7–8% as it takes less risk.

Also Read | L&T bets on five boards to keep growth humming

His comments came a day after the company reported relatively steady earnings and a sharp growth in order inflow despite persistent hostilities in West Asia, the company’s most important geography outside India.

To maintain its growth rate, the company will soon have to pick a “third front” besides India and the Middle East, he said. Today, L&T gets half of its business from India and half from overseas. In the overseas business, about two-thirds comes from the Middle East, with Saudi Arabia and the UAE being the top markets in the region.

If the company manages to maintain its current growth rate in getting new business, its orderbook could reach $15 trillion by 2031, when its new five-year plan called Lakshya 31 ends.

By then, about two-fifths of L&T’s business could come from India, two-fifths from the Middle East, and a fifth from the rest of the world, Shankar Raman estimated. The ‘third front’ that the company opens will start featuring prominently in this final fifth of the orderbook, he said.

The top candidates for the company’s third key market are Europe and Central Asia. L&T has started expanding in both regions. In Europe, L&T last year bagged its largest-ever order worth nearly ₹50,000 crore as a subcontractor for a large offshore wind energy project off the shore of the Netherlands and Germany. In Central Asia, the company is building the new Tashkent international airport, a solar project, and a data centre, among other projects.

“The strong pipeline across domestic infrastructure, hydrocarbons, CarbonLite Solutions and renewable energy provides robust revenue visibility and supports management’s FY27 order inflow and revenue growth guidance of 10–12%,” analysts at ICICI Direct said in a note on Wednesday. They have pencilled in a compounded annual growth rate of 13.8-15.5% between FY26 and FY28.

Even as the company expands across geographies and business segments, it will maintain a tight leash on capital and risk, Shankar Raman said.

On the capital front, the company was pushing for timely payments as work progresses to reduce its working capital requirements.

For instance, the company stopped working on water infrastructure related projects in India under the Jal Jeevan Mission after the Centre, which is part-funding the scheme, stopped releasing payments in several states for conducting an audit, Shankar Raman said.

“We want to progress on jobs so long as the project stays cash flow positive, and we are willing to slow down on projects when cash flow goes the other way,” he said.

The focus on cash helped the company report a multi-decadal low working capital ratio of 1.7% to its revenue during the quarter ended 30 September 2026. The return on equity ratio for the company also improved by 20 basis points compared to the previous year to 15.7%.

Meanwhile, on the risk front, the company today takes lower risk than it did two decades ago, Shankar Raman said. It does not bid for projects where it feels the risk-return ratios were high due to numerous reasons like technology, social unrest, supply chain, war, etc, he said. The direct result of it has been that the company’s margins have narrowed from being around 10-12% to 7-8%, he said.

Nehal chronicles India’s top conglomerates for Mint. From navigating the complexities of big-bang mergers and large-scale fundraises to decoding high-profile recruitments and seemingly inexplicable corporate pivots, Nehal focuses on unpacking the long-term strategies of the country’s most influential business houses. He aims to provide readers with a clear-eyed view of how these corporate titans shape the broader Indian economy.<br><br>His professional journey began at The Economic Times in 2018, where he spent over five years before joining Mint in 2023. Over his career, he has tracked diverse sectors like automobiles, metals, cement, power, infrastructure, and renewable energy. He also keeps a close watch on the intricacies of corporate finance and corporate governance. This wide-ranging sectoral experience allows him to better understand India’s large conglomerates that sit at the confluence of these vital industries.<br><br>Nehal studied mechanical engineering from the Pune University and graduated with distinction in 2017. Driven by a passion for storytelling, he pivoted to journalism immediately after, attending the Asian College of Journalism in Chennai. While his time in the newsroom has made him a healthy sceptic, his engineering roots keep him perpetually inquisitive about how things work—and why they fail.<br><br>He actively encourages readers to reach out for feedback, collaboration, or news tips. Nehal can be reached via LinkedIn or directly at nehal.chaliawala@livemint.com.

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