Larsen & Toubro Limited ((IN:LT)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Larsen & Toubro Limited’s recent earnings call painted a picture of robust performance and strategic foresight, despite facing some sector-specific challenges. The company reported strong order inflows and strategic partnerships, alongside improved working capital management. However, it also acknowledged hurdles such as subdued infrastructure revenues, margin compression in the IT&TS segment, and losses in the Hyderabad Metro. Nevertheless, the overall sentiment was positive, buoyed by a strong prospects pipeline and strategic initiatives that indicate a promising future.
Strong Order Inflows
The earnings call highlighted a remarkable 45% year-on-year growth in order inflows, reaching INR 1,158 billion. This surge was primarily driven by a 54% increase in the Projects & Manufacturing portfolio, showcasing the company’s ability to secure significant contracts and expand its market presence.
Robust Prospects Pipeline
Larsen & Toubro reported a 29% year-on-year increase in its overall prospects pipeline, now valued at INR 10.4 trillion. This growth was mainly fueled by opportunities in the infrastructure and hydrocarbon segments, indicating a strong future outlook for the company.
Improved Revenue and Profitability
The company achieved a 10% year-on-year growth in group revenues, with consolidated profit after tax (PAT) rising by 16% to INR 39 billion. These figures reflect Larsen & Toubro’s effective strategies in enhancing profitability and revenue generation.
Strategic Partnerships
Larsen & Toubro has entered into several strategic partnerships, including memorandums of understanding (MOUs) in renewables, green energy, defense, and semiconductor sectors. Notably, a joint development agreement with ITOCHU Corporation was highlighted, underscoring the company’s commitment to expanding its footprint in these critical areas.
Sustainability Initiatives
The company secured a sustainability-linked trade finance facility worth USD 700 million, aligning with international standards. This move underscores Larsen & Toubro’s dedication to integrating sustainability into its financial and operational strategies.
Improved Working Capital Management
Larsen & Toubro has improved its net working capital to revenue ratio to 10.2%, a 200 basis point improvement year-on-year. This reflects the company’s enhanced capital efficiency and effective financial management.
Subdued Infrastructure Revenues
The infrastructure segment experienced a 1% decline in revenues year-on-year, attributed to extended monsoon conditions and slower progress in rural water supply projects. This segment remains a challenge for the company, impacting overall growth.
Margin Compression in IT&TS Segment
The group’s EBITDA margin declined slightly to 10% from 10.3%, primarily due to margin compression in the IT&TS segment. This indicates some pressure on profitability within this business area.
Challenges in Hydrocarbon Margins
Margins in the hydrocarbon segment decreased due to cost overruns in certain domestic and international projects. This challenge highlights the need for careful cost management in these complex projects.
Hyderabad Metro Losses
The Hyderabad Metro posted a loss of INR 1.75 billion for the quarter, facing ongoing challenges in ridership and operational efficiency. This continues to be a concern for the company, affecting its overall financial performance.
Forward-Looking Guidance
Looking ahead, Larsen & Toubro has set ambitious targets for FY ’26, including exceeding a 10% growth in group order inflows and maintaining a revenue growth target of 15%. The company expects the EBITDA margin for the Projects & Manufacturing business to reach 8.5%, with a working capital target of around 12% by March 2026. These projections reflect the company’s confidence in its strategic direction and market opportunities.
In conclusion, Larsen & Toubro’s earnings call conveyed a positive sentiment, driven by strong order inflows, strategic partnerships, and improved capital management. While challenges persist in certain segments, the company’s robust prospects pipeline and forward-looking guidance suggest a promising outlook for the future.