Larsen & Toubro Q2 FY27 Earnings Call: Record Rs. 1.48 Trillion Order Inflow, Margin Compression Flagged (LT)

Larsen & Toubro Ltd held its Q2 FY27 earnings call on October 27, 2026. Here's a quick read of what management said — performance, strategy, and the outlook ahead.

Record Orders and Strong PAT, But Margin Compression

• Revenue Rs.787 billion (+16% YoY) — Q2 FY 2026-2027 group revenue, with international at 58% of mix; PPM revenue Rs.584 billion (+20% YoY) despite logistics and supply-chain challenges.
• PAT Rs.52 billion (+33% YoY) — driven by higher PPM activity, higher treasury income and working-capital release.
• Group EBITDA margin 8.7% vs 10.0% — hurt by lower portfolio margins and a higher PPM share in the revenue mix; PPM margin 7.0% (-30 bps YoY) on water/effluent-treatment cost pressures and more jobs below the margin-recognition threshold.
• Margin bridge quantified — of the 130 bps decline, ~80 bps is segment-related margin compression (compensated by other income under segment classification) and 40-50 bps from timing mismatches of costs booked at the corporate level; management cautioned against extrapolating the margin given an "extremely difficult and challenging environment."
• Net working capital at a record-low 1.7% of revenue (September 2026) vs 4.1% (March 2026); collections ex-financial services Rs.740 billion (vs Rs.600 billion YoY) and operating cash flow ex-financial services Rs.128 billion (vs Rs.48 billion).
• Trailing 12-month ROE 16.7% vs 17.2% — still reflecting the one-time labor code provision recognized in Q3 FY 2025-2026.

Highest-Ever Inflow; Mix Shifts Toward Domestic Private Sector

• Record Q2 order inflow of Rs.1.48 trillion (+28% YoY) — led by ultra-mega/mega orders in offshore and onshore hydrocarbons and carbon-light solutions; PPM inflow hit a record Rs.1.26 trillion (+32% YoY; domestic +49%, international +24%).
• Total order book Rs.8.54 trillion (+28% YoY) as of September 2026 — infrastructure & utilities 42%, energy conventional 34%, energy green 17%, manufacturing & products 5%, realty 2%; 46% domestic / 54% international; average execution 33 months.
• Domestic private-sector share rose to 39% of the Rs.3.72 trillion domestic PPM book (vs 30% at September 2025); central + state government share fell to 30% (11% central, 19% state) vs 38% year-ago; PSU exposure stable at ~31%.
• International book of Rs.4.62 trillion — Middle East 73%, Europe 13% (offshore wind-led), balance 14% other; 7% of the total book is bilateral/multilateral-funded; slow-moving orders ~1%; order deletions below Rs.10 crore in the quarter.
• PPM prospects pipeline ~Rs.10.3 trillion for the balance six months of FY 2026-2027 (broadly flat YoY): infrastructure & utilities Rs.5.84 trillion, energy conventional Rs.2.07 trillion (vs Rs.3.35 trillion), energy green Rs.2.04 trillion (vs Rs.0.93 trillion), manufacturing & products Rs.0.33 trillion.
• Sector detail — Energy Conventional orders Rs.784 billion (more than doubled YoY, incl. NTPC's 2x800 MW Lara Stage 3); Energy Green orders Rs.66 billion (-45% YoY) on Middle East solar deferrals; Infra orders Rs.355 billion (-13% YoY); Manufacturing & Products revenue Rs.45 billion (+34% YoY) on a precision engineering export order from Vietnam.
• PDO framework win — L&T Hydrocarbon is one of four contractors (alongside an Egyptian, a Chinese and a Korean EPC company) under a six-year EPC framework agreement with Petroleum Development of Oman; management estimates "$6-7 billion of PDO hydrocarbon spend that L&T may target over the next 4-5 years" (through ~FY 2030-31/FY 2031-32), with the agreement providing only the right to bid, and stated L&T will not bid unless jobs offer differentiated margins.

Disruptions Contained So Far, But Solar Revenue at Risk

• Middle East revenues grew 13% YoY in Q2 FY 2026-2027 — despite news flow of the Strait of Hormuz being shut and Bab-el-Mandeb disruptions, attributed to off-site execution at fabrication yards in Kattupalli (Chennai) and Sohar (Oman).
• Strait of Hormuz transit — management noted 70% of pre-war oil barrels are still moving through the strait (not publicly declared), successfully moved one large consignment, and is hopeful the remaining cargo will transit, though some delay is possible.
• Renewables/solar most impacted — solar modules must come from China; materials are taking longer at extra cost, with some customer reimbursement agreed; management expects some deferment of renewable revenue and will try to compensate with domestic and other-country projects, failing which there could be a shortfall in that business.
• Hydrocarbon least impacted — projects advanced, materials secured locally/on site, or execution in unaffected yards; power T&D seeing some impact that management does not expect to be material in H2 FY 2026-2027.
• Cost escalation on bids — management flagged logistics and insurance cost escalation and is "very hopeful" a good part will be compensated by customers, but a timing gap between cost recognition and compensation receipt may emerge.
• Solar ordering subdued in H1 FY 2026-2027 — bidding activity has since picked up considerably; management hopes ordering momentum (primarily from outside India) regains traction in Q3 and Q4 FY 2026-2027; no major execution slowdown or margin impact so far.

Lakshya 31 Bets: Data Centers, Chips, BESS and EV

• AI data center build-out — the 10,000+ NVIDIA B300 GPU Chennai AI factory represents ~US$750 million of investment (FY 2026-2027) into the existing 30 MW facility at Sriperumbudur, with commissioning targeted January 2027 and a long-term deployment agreement with Together.ai for a significant portion of the capacity.
• 100+ MW AI factory ambition — management plans another 50 MW adjoining the existing site and is looking to build 100+ MW (30+50+30) over the next 1.5-2 years (~FY 2027-2028 to FY 2028-2029); funding the balance ~70 MW requires new debt and construction, and management did not confirm the analyst's ~US$1.8 billion estimate, saying it depends on then-prevailing chip value.
• Structure — data center business reorganized under wholly owned Vyoma AI Limited (colocation), with AI compute under L&T N-Compute Private Limited.
• Semiconductors — L&T Semiconductor Technologies unveiled 40 products/platforms including its first 1200V silicon carbide MOSFET platform; partnered with Azure Moto Technologies and Tata Electronics; revenue traction from design-plus-chip sales anticipated over Q3-Q4 FY 2026-2027.
• New energy — initial BESS order secured with Kanchipuram capacity expansion commenced; EV traction motors production-ready with commercial production scheduled from Q3 FY 2026-2027.

Rs.1 Lakh Crore Cash Pile Deployed Selectively

• H1 FY 2026-2027 core cash generation exceeded Rs.10,000 crores — higher than management's earlier expectation, per the analyst; group cash and cash equivalents plus temporary surplus almost touching Rs.1 lakh crore as of Q2 FY 2026-2027.
• Deployment into Lakshya 31 — the surplus will be partially deployed into the Lakshya 31 plan of investments (data centers, green energy and the company's share of equity); these businesses carry their own leverage, so the entire corpus will not be invested at a gross level.
• Development assets rationale — management clarified the data center investment sits under the TPS segment, not the development projects portfolio; unlike Hyderabad Metro (high exposure with no revenue-stream visibility), returns on new investments are assured under long-term take-or-pay and will not dilute ROE for FY 2026-2027.
• Green hydrogen/ammonia — management does not expect sizable L&T investments in the absence of a take-or-pay arrangement; the investment quantum was already communicated in May.
• Working capital discipline preserved — management stated it will not show revenue while compromising on cash; execution will proceed in line with customer-level progress and timely client payments within contract terms.
• Hyderabad Metro exit delayed — divestment of the entire stake in L&T Metro Rail Hyderabad (SPA signed Q1 FY 2026-2027 with Hyderabad Metro Rail Limited, a wholly owned Government of Telangana enterprise) revised from September 30 to December 31, 2026.

FY 2026-2027 Guidance Reaffirmed Amid Uncertainty

• Order inflow growth of 10-12% for FY 2026-2027 — management is confident, with H1 FY 2026-2027 inflows +22% YoY despite Middle East solar bid deferments and an H2 pipeline of ~Rs.10 trillion with a marginal domestic bias.
• Revenue growth of 10-12% for FY 2026-2027 — reaffirmed; note PPM revenue grew 20% YoY in Q2 but management maintained the 10-12% PPM guidance primarily to factor in Middle East logistics/supply-chain disruptions; offshore wind, in its full year of execution, is expected to meaningfully contribute vs FY 2025-2026.
• PPM EBITDA margin target of 7.8% for FY 2026-2027 — management is "reasonably confident" of meeting it.
• Group NWC to close FY 2026-2027 below the earlier 10% guidance — upgraded on the record-low 1.7% print, though management cautioned the steep H2 FY 2026-2027 revenue target could moderate the trend.
• Defense conversion possible by end of FY 2026-2027 — following large DAC approvals in FY 2026-2027, the pipeline looks more reassuring, with inflow conversion possible in Q3 FY 2026-2027 and most likely by end of FY 2026-2027; the AMCA project comes up for bid by end-October 2026 ("end of this week" per management); L&T expects a larger share of marine than land-system opportunities from India's MoD.
• Infra margin pressure to persist — water/effluent treatment drove Q2 softness (margins would have been 40-50 bps better excluding it); funding on some affected projects has resumed, but time and cost overruns on long-dated projects mean conversion into actionable claims will take time.
• Macro risks flagged — management cited increased uncertainty from the re-escalation of the West Asia conflict, oil-price volatility, energy-market/logistics/trade disruptions, and rising input and financing costs, against a resilient domestic demand backdrop.