Larsen & Toubro Q1 FY27 Earnings Call: Order Book Crosses Rs. 7.79 Trillion, Reaffirms 10-12% Growth Guidance (LT)

Larsen & Toubro Ltd held its Q1 FY27 earnings call on July 28, 2026. Here's a quick read of what management said — performance, strategy, and the outlook ahead.

Headline Financials and Key Metrics

• Group revenues of Rs.679 bn — up 7% YoY; PPM revenues at Rs.462 bn (+2% YoY), reflecting subdued execution amid Middle East disruptions.
• Group EBITDA margin of 9.0% — down 90 bps YoY from 9.9%, impacted by lower execution and higher ECL provisions; PPM EBITDA margin at 7.0% (down 20 bps YoY).
• Group PAT of Rs.41 bn — up 14% YoY, aided by better services performance and higher treasury income.
• Order inflows of Rs.1,080 bn — up 14% YoY, driven by strong international activity and private sector domestic demand.
• Order book of Rs.7.79 trillion — as of June 2026, up 27% YoY; international orders at 52% share; domestic private sector share rising to 40% from 27% a year ago.
• Net working capital to sales improved to 4.9% — from 10.1% in June 2025; cash flow from operations stood at Rs.43 bn for Q1 FY 2026-2027.

Record Backlog and Prospects Across Segments

• Total order prospects for FY 2026-2027 of Rs.15.07 trillion — domestic prospects at Rs.7.45 trillion (49% of total), with private sector expected at 45% of domestic.
• A multi-billion dollar Micron award and a ~$1 billion Kuwait oil & gas award — part of the order prospects but not booked in Q1 FY 2026-2027, per management.
• Group order book of ~Rs.8 lakh crores — representing nearly 3 years of revenue; management considers this a healthy backlog that does not necessitate aggressive bidding.
• Order inflow guidance of 10-12% growth for FY 2026-2027 reaffirmed — Q1 win (including Tennet) gives confidence in achieving the target despite a flat overall prospects pipeline.
• Domestic order pipeline increasingly balanced — between public and private sectors, led by residential/commercial real estate, industrial, and power segments.
• No sub-segment identified as having reached a peak order book ceiling — management sees leverage to quote across all segments.

Margin Bridge, Provisions, and Negotiation Dynamics

• Higher ECL provisions of Rs.2.5 bn in Q1 FY 2026-2027 — driven by aging receivables in the water and effluent treatment business and select Indian infrastructure projects; management indicated this is a one-off and not expected in remaining quarters.
• Hyderabad Metro loss of Rs.0.38 bn (Rs.38 crores) — booked for April in Q1 FY 2026-2027.
• Group EBITDA margin of 9.0% not comparable to segmental EBITDA margins of 11.2-11.5% — management clarified the latter include other income posted at the subsidiary level.
• Other income surged 75% YoY to Rs.23.7 bn — ~70% from L&T standalone (excluded from P&M EBITDA), ~20% from other listed entities, and ~10-15% included in P&M EBITDA; management indicated sustainability for 1-2 quarters before moderating.
• Cost escalation recognized only after formal client agreement to reimburse — otherwise costs are deferred by pausing project progress to avoid incurrence, as of Q1 FY 2026-2027.
• Depreciation declined to Rs.10.3 bn — from Rs.11.7 bn in Q4 FY 2025-2026, partly due to deconsolidation of metro rail from May 2026 (~Rs.75 crores per quarter no longer included).

Crisis Impact, Mitigation, and Project Timelines

• Approximately 50% of the order book is fixed price — management does not expect margin erosion, as the company is entitled to compensation for time and cost overstay if clients do not agree.
• In conventional hydrocarbon, 70-80% of projects are still in engineering and procurement phase — not impacted by the Middle East crisis; only projects in peak construction or beyond are affected.
• Offshore hydrocarbon projects (Qatar, Oman) not materially impacted yet — dispatch from Oman yard scheduled for Q1 calendar 2027 (Q4 FY 2026-2027), providing a “three quarters of cool-off period” before conflicts could become problematic.
• Local sourcing capabilities in the Middle East developed over the last 6-7 years — mitigating supply chain disruptions for civil materials and cables.
• Management noted a delay in conventional energy order awards expected in Q1 FY 2026-2027 — orders now anticipated in subsequent quarters of FY 2026-2027, pertaining to both domestic and international segments.
• Cost escalation negotiations underway for nearly all projects in the Middle East region — management could not quantify the exact order book percentage under negotiation, assessed month by month.
• Middle East crisis is only 4 months old — its impact on execution is limited; no cancellations have been observed, only supply chain delays and project deferments.

Offshore Wind, Water, and Energy Vertical Deep Dive

• European offshore wind HVDC platform order — execution primarily at the Kattupalli yard in Chennai, with only a small number of local European subcontractors for hookup and commissioning, minimizing large-scale labor mobilization risks.
• Tennet order (offshore wind HVDC) for 8 GW total — 6 GW to be executed at Kattupalli over 3-4 years; total secured offshore wind order book of ~Rs.57,000-60,000 crores, to be executed over 4-5 years with margins expected to be better than Middle East EPC business.
• L&T has qualified independently for European and UK offshore wind opportunities — will partner with OEMs (Hitachi, Siemens) on a case-by-case basis; near-term focus is delivering the secured order book.
• Water segment execution affected in Q1 FY 2026-2027 — timing lag between revival of JJM mission fund outlays and actual execution; credit provisioning based on aging caused a Q1 effect, with potential reversals later in FY 2026-2027 as collections resume.
• Green energy (energy-green business) facing intermittent supply chain disruptions — management communicating with clients on potential cost impact if conflict continues; material margin erosion considered unlikely.
• Nabha Power divestment completed — marginal gain recognized; tax outflow of ~Rs.110 crores on capital gains booked in Q1 FY 2026-2027 P&L.

Guidance, Outlook, and Key Risks

• FY 2026-2027 guidance reaffirmed — order inflow growth of 10-12%, revenue growth of 10-12%, PPM EBITDA margin of ~7.8%, and working capital around 10%.
• PPM margin guidance of 7.8% for FY 2026-2027 remains on track — management does not expect margin erosion from fixed-price contracts, and the company is entitled to compensation for time and cost overstay.
• Risks cited include Middle East conflict causing supply chain delays and project deferments — but no cancellations have been observed; management is dynamically managing the situation month-by-month with clients.
• Lakshya plan capex for FY 2026-2027 not finalized — management expects to provide details in Q2 FY 2026-2027.
• Agreement to sell stake in L&T Metro Rail Hyderabad — expected completion by 30 September 2026.
• New reporting segments effective 1 April 2026 — reflecting organizational changes.
• Management provided no update on the AMCA RFP and remotely piloted aircraft bidding process — stating the bidding process is ongoing with no further information to share beyond the prior call.