Larsen & Toubro Earnings Call Highlights Robust Momentum

Larsen & Toubro Limited ((IN:LT)) has held its Q3 earnings call. Read on for the main highlights of the call.

Larsen & Toubro’s Earnings Call Signals Strength Despite One-Off Hit to Profits

Larsen & Toubro’s latest earnings call painted a broadly upbeat picture, with management emphasizing record order inflows, a much larger order book, double‑digit revenue growth, better recurring margins and profit, and sharply improved working capital and cash flows. While a one‑time charge related to new Labour Codes and margin pressure in the Energy business weighed on reported profit and some project segments faced delays or cancellations, management’s tone remained confident. The company underscored that operational momentum, a stronger balance sheet and strategic moves in new growth areas more than offset these temporary headwinds.

Record Order Inflows Underscore Strong Demand

L&T delivered its highest ever quarterly order inflows at INR 1,356 billion, a 17% year‑on‑year jump that signals robust demand across its core businesses. The Projects & Manufacturing (P&M) segment drove most of this, with inflows of INR 1,164 billion, up 18% YoY. Domestic P&M orders surged 30% to INR 620 billion, while international inflows grew 7% to INR 544 billion, reflecting a healthy mix of domestic infrastructure and overseas project opportunities. These record inflows position the company for sustained revenue growth in the coming quarters.

Order Book Swells, Backed by Healthy Prospects Pipeline

The company’s order book expanded to a hefty INR 7.33 trillion, up 30% YoY, providing strong visibility on future revenues. Near‑term prospects remain promising, with a pipeline of INR 5.92 trillion, up 7% YoY. Management highlighted particularly strong traction in CarbonLite and Hi‑Tech Manufacturing opportunities, indicating that L&T is increasingly tapping into energy transition and advanced manufacturing themes. This enlarged opportunity set supports the company’s medium‑term growth narrative and cushions against localized delays or cancellations.

Double-Digit Revenue Growth Maintains Momentum

Group revenues in Q3 FY’26 rose 10% YoY to INR 714 billion, sustaining double‑digit growth despite execution hurdles in select sectors. The Projects & Manufacturing segment reported revenue of INR 523 billion, up 11% YoY, confirming solid execution on the robust order book. For the first nine months, revenue growth stood at around 12%, and management reiterated its confidence in delivering 15% growth for the full year, suggesting a stronger finish as project execution ramps up.

Underlying Margins and Recurring Profits on an Uptrend

L&T’s profitability trends were positive on an underlying basis. Group EBITDA margin (excluding other income) improved to 10.4% from 9.7% a year ago, while P&M EBITDA margin rose to 8.1%, roughly 50 basis points higher YoY. Recurring PAT climbed 31% YoY to INR 44 billion, underscoring the strength of the core operations before one‑offs. These improvements indicate better cost control and execution discipline, even as certain legacy and competitively bid projects continue to exert pressure in pockets of the portfolio.

Working Capital Discipline Drives Cash Flow Surge

A standout positive was the sharp improvement in working capital and cash generation. Net working capital as a percentage of revenue fell to 8.2%, from 12.7% a year earlier—a roughly 450‑basis‑point improvement. Group collections (excluding financial services) rose to INR 642 billion in Q3 from INR 591 billion in the prior year, while operating cash flow (ex‑FS) jumped to INR 79 billion versus INR 21 billion a year ago. This enhanced cash profile strengthens the balance sheet, supports growth capex and reduces dependence on debt in a capital‑intensive business.

Return on Equity Holds Firm Despite One-Off Impact

Return on equity remained robust despite the one‑time Labour Codes provision. Trailing 12‑month ROE stood at 16.5%, 40 basis points higher YoY. Adjusted for the INR 11.9 billion Labour Codes charge, ROE would have been 17.6%, nearing the company’s 18% target under its Lakshya strategic plan. This resilience in returns, even as the company invests in new ventures and navigates project‑level challenges, is a key positive for equity investors focused on capital efficiency.

Strategic Partnerships, New Platforms and ESG Momentum

L&T continued to expand its strategic footprint through partnerships and new business initiatives. It announced collaborations such as one with General Atomics for MALE RPAS and an MoU with Holtec for nuclear heat transfer equipment, deepening its presence in hi‑tech and defense‑adjacent areas. The company rebranded its data center business as L&T‑Vyoma, targeting hyperscale metro campuses, and initiated the transfer of its Realty business into L&T Realty Properties Ltd, which should improve strategic focus and structure. On the ESG front, the company’s MSCI ESG rating was upgraded from BBB to A, and it was recognized among the ENR Top 200 Environmental Firms, reinforcing its positioning with sustainability‑oriented investors.

Realty and New Ventures Show Strong Early Traction

The Realty and digital infrastructure platforms are emerging as meaningful growth drivers. L&T Realty posted its highest ever quarterly presales of around INR 50 billion. A new project, L&T Green Reserve Noida, achieved presales exceeding INR 40 billion in its very first week, underscoring strong demand and brand pull in the real estate market. In data centers, installed capacity stands at about 32 MW (14 MW live and another 18 MW slated for commissioning by year‑end), backed by roughly INR 1,000 crore of total capex so far. These ventures diversify earnings and tap into structural demand for quality housing and digital infrastructure.

Financial Services and Development Projects Inch Forward

L&T Finance, the group’s financial services arm, reported its highest ever quarterly retail disbursements, pushing retailization of its loan book to 98% and delivering a Q3 RoA of 2.31%. This reflects progress in the transition toward a more retail‑focused, higher‑quality lending franchise. In development projects, the Hyderabad Metro saw average fare rise to INR 47 from INR 38 YoY, and its net loss narrowed to INR 1.85 billion from INR 2.03 billion, indicating gradual improvement in economics even though the asset is not yet profitable.

Energy Segment Feels the Squeeze on Margins

The Energy portfolio—comprising Hydrocarbon and CarbonLite Solutions—was a key soft spot. Segment EBITDA margin fell to 5.9% in Q3 FY’26 from 8.3% a year earlier, mainly due to cost overruns on a handful of aggressively bid hydrocarbon projects. Management cautioned that this margin softness is likely to persist for the next two to three quarters as these stressed projects are closed out. The commentary indicates that while the order pipeline is strong, legacy project economics will temporarily dilute the otherwise improving margin profile.

Labour Codes Provision Drags Reported Profit

Reported profitability was noticeably impacted by a one‑time provision linked to new Labour Codes legislation. Reported PAT came in at INR 32 billion, down 4% YoY, after absorbing an INR 11.9 billion charge. This adjustment also lowered reported ROE by about 110 basis points relative to the underlying performance. Management framed this as a non‑recurring accounting impact rather than a reflection of operational weakness, pointing investors instead to the strong 31% YoY growth in recurring PAT.

Execution Headwinds in Domestic Infrastructure and Water

Despite solid overall growth, domestic Infrastructure revenue rose only 5% YoY in Q3, as some Water & Effluent Treatment projects slowed due to funding delays. Slow‑moving orders now account for about 3% of the order book, and roughly INR 10 billion of orders were deleted during the quarter. While not material relative to the overall book, these issues highlight the execution and funding risks inherent in certain government and infrastructure segments, potentially affecting near‑term revenue recognition in specific verticals.

Kuwait Order Cancellations Highlight Timing Risks

The call also flagged order timing risks in the Middle East. Some Kuwait tenders where L&T had been competitive were cancelled due to budget constraints. Management expects these tenders to be relaunched, likely with modified scopes, but acknowledged the lost time and uncertainty such events create. While the broader international pipeline remains healthy, these cancellations underline that geopolitical and fiscal dynamics in overseas markets can affect the pace at which orders convert and execute.

CarbonLite and Hi-Tech Manufacturing: Growth with Delayed Margin Capture

Within the newer segments, CarbonLite Solutions is seeing muted margins because a sizable portion of its revenue is coming from projects that have yet to cross internal thresholds for margin recognition. Meanwhile, Heavy Engineering order inflows moderated and PES (engineering services) inflows declined against a high base last year. This indicates that while the opportunity set in low‑carbon and hi‑tech manufacturing is growing, reported profitability may lag as projects ramp up and cross key execution milestones.

Mixed Performance in Development Projects and Metro Operations

Not all development assets are on a smooth upward trend. L&T Nabha, a coal‑based power plant, saw revenue decline due to lower power demand. The Hyderabad Metro, despite higher fares, experienced a drop in average daily ridership to 4.14 lakh from 4.45 lakh YoY. Although the net loss has narrowed, the metro still remains in the red. These dynamics suggest that some legacy and long‑gestation projects will continue to weigh on consolidated performance even as core engineering operations and new‑age businesses strengthen.

Shift in Geographic Mix of Orders

The Projects & Manufacturing segment saw a slight shift in geographic mix, with international orders accounting for 47% of inflows in Q3 versus 52% a year earlier. The higher domestic contribution reflects strong order wins in India and may influence margin patterns, as international projects can sometimes offer different risk‑reward profiles compared to domestic ones. Management did not signal concern, but investors may watch this mix closely, given its potential bearing on execution risks and profitability.

Guidance Reinforces Confidence in Growth and Cash Discipline

Looking ahead, L&T signaled rising confidence by guiding that it now expects to exceed its FY’26 order‑inflow target of 10% growth, after achieving nearly 30% YoY growth in inflows for the first nine months. The company remains comfortable with its full‑year revenue growth guidance of 15%, supported by the 12% growth already achieved over 9M and a strong Q3 revenue base. For margins, P&M EBITDA stood at 7.9% for 9M against a full‑year target of 8.5% (Q3 P&M was 8.1%), suggesting scope for further improvement as stressed projects wind down. Group EBITDA margin has already improved to 10.4% from 9.7% a year ago. On working capital, management improved its March‑26 net working‑capital‑to‑revenue target to about 10% from 12%, after already reaching 8.2%, highlighting a structural push toward leaner balance sheet usage. With a 30% larger order book of INR 7.33 trillion and near‑term prospects of INR 5.92 trillion, management reiterated its ambition to keep ROE near the 18% Lakshya target over time, emphasizing that the Labour Codes provision is a one‑off.

In summary, L&T’s earnings call showcased a company in solid operational health, buoyed by record order wins, a swelling order book, improving margins and stronger cash flows, even as reported profit was temporarily hit by a one‑time charge and specific segments faced margin and execution challenges. The mix of infrastructure, energy transition, hi‑tech manufacturing, real estate and digital infrastructure offers diversified growth levers, while tighter working‑capital management supports returns. For investors, the key takeaways are that underlying profitability and cash generation are strengthening, the growth pipeline remains robust, and the main drags—legacy hydrocarbon jobs, selective project delays and the Labour Codes provision—appear transitory rather than structural.