War in West Asia was a cloud over L&T. The company has come out shining

Mumbai: Infrastructure giant Larsen & Toubro Ltd shrugged off geopolitical headwinds to report record order flows in the September quarter, calming concerns over shocks from the West Asia conflict.

Escalations such as the Houthi militia attacks in West Asia, L&T's most important geography outside India, have not had a significant effect on project execution, said Subramanian Sarma, L&T's deputy managing director & president. Employees were safe and work continued at its project sites, he said at a post-earnings media call on Tuesday.

However, L&T was not unscathed by the war either—delays in material shipments to the region lengthened project execution timelines and costs for India’s largest infrastructure player. This reflected as margin erosion during the July-September quarter.

"Business tendering activity is pretty much on the normal course; may be some delay of a couple of weeks in terms of decision-making, but otherwise, we're still seeing a reasonably good pipeline of business," Sarma said about the situation in West Asia.

Quick answers to key questions

•5 QUESTIONS

1

How did L&T perform in the September quarter despite the West Asia conflict?⌵

L&T reported ₹1.48 trillion in new orders, up more than a fourth year-on-year, and revenue of ₹78,750 crore, up 16%. Profit rose by a third to ₹4,878 crore.

2

How did the West Asia conflict affect L&T's project execution?⌵

L&T said the conflict had not significantly affected project execution or employee safety at its sites. However, delayed material shipments lengthened timelines and raised logistics costs.

3

Why did L&T's Ebitda margin decline in the September quarter?⌵

L&T's Ebitda margin narrowed by 1.3 percentage points to 8.7%. The company attributed the decline to cost escalations and execution delays in West Asia, along with higher logistics costs.

4

Will L&T recover the margins eroded by higher project costs?⌵

L&T said some cost escalations can be passed on to clients under its contracts, but reimbursements will come with a lag. Management expects some of the eroded margins to return in subsequent quarters.

5

What is L&T's business outlook amid the West Asia conflict?⌵

L&T pointed to a pipeline of about ₹10 trillion in projects to bid for and described its outlook as positive, citing opportunities in AI data centres, infrastructure and energy transition. It also flagged inflation and the West Asia conflict as risks.

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

L&T is often considered a bellwether for the state of the Indian economy, given its large revenue share from India’s public and private infrastructure expenditure.

“The multiple disruptions, both local and overseas, have created some execution headwinds during the quarter. We’ve also been faced with escalations in input costs and delays and spike in logistics costs, etc, which have had an effect on margins,” said R. Shankar Raman, L&T's president & whole-time director, finance, said during a post-earnings media call on Tuesday.

The Mumbai-based company reported ₹1.48 trillion in new orders during the quarter, over a fourth more than the same period last year, taking its consolidated orderbook to a record ₹8.5 trillion. This included high contributions from its onshore and offshore hydrocarbon businesses, public spaces and airports, power transmission and distribution, and its CarbonLite Solutions unit. Nearly two-thirds of the business came from overseas.

L&T reported ₹78,750 crore revenue during the quarter, 16% higher year-on-year. Profit grew by a third to ₹4,878 crore. However, earnings before interest, tax, depreciation and amortization (Ebitda) were flat at ₹6,845 crore. Ebitda margin narrowed 1.3 percentage points to 8.7%, something the company blamed on cost escalations and execution delays in West Asia.

The management reassured investors that some of the cost escalations would be contractually passed through to clients, but that will happen with a lag; so, some of the eroded margins should return in subsequent quarters.

The company outlined a pipeline of about ₹10 trillion of projects that it plans to bid for. Typically, between a fourth and a fifth of the company’s bids turn successful, giving sufficient business visibility.

"The numbers are definitely better than expected, given the geopolitical context. We were expecting revenue growth to be slower, but the company maintained its execution, resulting in good topline growth. The margins are under pressure, but that is largely restricted to the infrastructure segment," said Amit Anwani, vice-president and lead analyst for capital goods, industrials and defence at brokerage PL Capital.

"It can be called a broadly stable to good quarter. We have maintained our projections," he said.

The L&T management noted that execution in its water segment, with orders worth about ₹40,000 crore, had slowed down due to the weak finances of Indian states. The company was only proceeding with work when it was assured of payments getting cleared, resulting in frequent start-stop in execution.

Overall order flows from the domestic market remained strong, the management said, with over a third of its new orders during the quarter coming from India.

Clients, especially in the Middle East, were amenable to reimbursing the company for some of the cost escalations, Raman said, which would be captured in future margins. “The margins that you don’t see today are margins deferred than margins lost,” he said.

The company painted a sanguine business outlook given India’s resilient macroeconomic indicators despite a plethora of global crises. AI data centre demand and fresh investments in infrastructure and energy transition across geographies were highlighted as opportunities for the company.

It flagged inflation as a concern. The conflict in West Asia posed additional downside risk.

Shares of Larsen & Toubro Ltd closed 0.19% lower on the BSE at ₹3,670 on Tuesday, while the benchmark Sensex closed flat.

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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