Larsen & Toubro Limited (LT.NS) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call hosted by Larsen & Toubro. [Operator Instructions] I now hand the conference over to Mr. P. Ramakrishnan, Chief Financial Officer from Larsen & Toubro. Thank you, and over to you, Mr. P. Ramakrishnan.

Thank you, Sagar. Good evening, ladies and gentlemen. A warm welcome to all of you to the Q1 FY '27 earnings call of L&T. The earnings presentation was uploaded on to the stock exchange and on our website around 6:25 p.m. Hope you had a chance to have a quick look at the numbers. I will first walk you through the important highlights for Q1 FY '27 in the next 20 to 25 minutes or so, post which we will be taking the Q&A. Kindly note that when the Q&A session starts, I will also have with me our Deputy Managing Director and President, Mr. Subramanian Sarma. Before I begin the overview, the disclaimer from our end, the presentation which we have uploaded on the stock exchange and our website today, including the discussions we may have on the call today may contain certain forward-looking statements concerning L&T's business prospects and profitability, which are subject to several risks and uncertainties, and the actual results could materially differ from those in such forward-looking statements. I would request you to go through the detailed disclaimer, which is available in Slide 2 of our earnings presentation that we have uploaded just now. India's economic growth remains resilient, supported by healthy domestic demand and continued expansion in manufacturing and service activity with high-frequency indicators remaining in the expansionary territory despite some moderation in momentum. The headline CPI increased from 3.4% in March 2026 to 4.4% in June 2026, largely driven by food and fuel inflation with underlying price pressures having firmed modestly. While domestic macroeconomic fundamentals remain supportive, developments in global energy markets and geopolitical conditions continue to influence growth, inflation and currency dynamics. Global growth is expected to remain moderate in the near term, reflecting softer growth in the U.S., weak domestic demand in China and persistent inflationary pressures in parts of Europe. Middle East growth is expected to moderate amid geopolitical uncertainty and energy market disruptions, although government-led infrastructure spending, energy investments and economic diversification programs will continue to provide support. The key investment themes include infrastructure and industrial development in Saudi Arabia, logistics, renewables and data center investments in the UAE and LNG, that is liquefied natural gas, petrochemicals and energy infrastructure expansion in Qatar. In the near term, the Middle East region continues to navigate logistical and trade disruptions arising from the incomplete normalization of traffic through the Strait of Hormuz, increasing reliance on ports along the Gulf of Oman and the Red Sea corridor. Having covered the macroeconomic landscape, let me now turn on to a few developments and achievements for Larsen & Toubro. The offshore wind business secured an ultra mega order under TenneT North Sea HVDC offshore wind program, taking the cumulative offshore wind transmission capacity secured over the past 3 quarters to approximately 8 gigawatts, reinforcing L&T's growing presence in the Europe energy transition infrastructure. The order further strengthens L&T's position as a global partner of choice for large-scale renewable energy transmission infrastructure and underscores its capability to deliver complex technology-intensive offshore projects. The divestment of Nabha Power was completed on 25th June 2026, in line with our strategy to exit the concessions portfolio. The company signed an agreement with Hyder Metro Rail Limited, a fully state-owned enterprise of the government of Telangana to divest its entire stake in L&T Metro Rail Hyderabad Limited. The estimated completion date for this transaction has been revised to 30th September 2026. The company entered a strategic collaboration with the French company, XI to deliver an advanced unmanned mine countermeasure suit for the Indian Navy's mine countermeasure vessels program. L&T Vuma, which is the data center business for Larsen & Toubro, entered into a strategic partnership with Photanix Inc., a U.S. headquartered global leader in data and AI security and a pioneer in confidential computing to jointly deliver sovereign secure Software-as-a-Service offerings for enterprises and government organizations in India. L&T Electronic Products and Systems business entered into a strategic partnership with EVR Motors to jointly develop and manufacture next-generation EV traction motors in India, combining indigenous manufacturing with advanced propulsion technology to support electric mobility, localization and the government Make in India initiatives. L&T also secured a Baa1 long-term issuer rating with a stable outlook from Moody's ratings, 2 notches above the sovereign, reflecting strong capacity to meet financial commitments and a low level of credit risk. Before moving on to the financial parameters, I wish to reiterate that effective 1st April 2026, pursuant to the company's Lakshya 2031 strategic plan, the group has realigned its portfolio to enhance strategic focus, improved capital allocation and enhance operational agility. As a result, the reporting segments are now classified as infrastructure projects has been renamed as Infrastructure and Utilities. Energy projects has been renamed as Energy Conventional. The Renewables business and offshore wind business previously reported under the infrastructure projects and energy projects, respectively, have been regrouped under the newly formed Energy Green segment. High-Tech Manufacturing has been renamed as Manufacturing and Products and now includes Construction Equipment and Industrial Product design and development businesses, which were previously reported under the Other segment. IT and Technology Services has been renamed as Technology Platforms and Services. The Realty business has been now classified as a separate reportable segment, which was previously included in the Other segment. Also, our Projects & Manufacturing segment has now been reclassified as Projects, Products and Manufacturing to better reflect the breadth of activities within the segment, including our forays into electrolyzer and electronics manufacturing. In terms of exclusions, the only material change to the reporting structure is the segregation of the realty business out of the Projects and Manufacturing segment that we used to report earlier. I now move on to the group performance. The order inflows remained positive momentum during the quarter, driven by strong international ordering activity, including large offshore wind awards in Europe and sustained private sector investment-led demand in the domestic market, particularly in the Metals and Minerals and the Buildings and Factories businesses. Reflecting this momentum, the group order inflows at INR 1,080 billion, registering 14% Y-o-Y growth. Within this, the projects, products and manufacturing, that is PP&M portfolio, recorded order inflows of INR 860 billion, also up by 14% Y-on-Y basis. In terms of the geographic mix, international order inflows grew 27% Y-o-Y, while domestic order inflows remained broadly stable with a 1% growth. As a result, the contribution of international orders to the PPM portfolio increased to 55% compared with 49% in the corresponding quarter of the previous year. Turning on to the prospects pipeline. The opportunity pipeline for the balance 9 months of the current fiscal FY '27 remains healthy at approximately INR 15 trillion compared with INR 14.81 trillion at the same time last year. The broad composition of the overall prospects pipeline is as follows: Infrastructure and utilities have a share of INR 7.82 trillion as compared to INR 6.85 trillion last year. Energy Conventional, the order prospects are at INR 4.37 trillion vis-a-vis INR 5.19 trillion last year. Energy Green, INR 2.43 trillion as of June '26 as compared to INR 2.46 trillion last June 2025. Manufacturing and Products, the order prospects is INR 0.46 trillion as compared to INR 0.30 trillion last year. Moving on to the order book. The total order book stood at INR 7.79 trillion as of June '26, up by 27% as compared to the June '25 level. In terms of portfolio composition, approximately 45% of our total order book is from infrastructure and utilities, 28% from Energy conventional, 19% from Energy Green. In terms of geographic mix, 48% of the order book is domestic, while 52% is international, reflecting the increasing share of international orders secured over recent times. The total domestic order book excluding Realty, stood at INR 3.54 trillion with the customer mix tilting towards the private sector over the past 12 months. The share of private sector orders increased to 40% from 27% as of June '25, driven by major order wins in the Carbon Light solutions, residential, commercial buildings and factories and the metals and minerals businesses, along with select awards in heavy civil infrastructure. Within the public sector portfolio, the combined share of central and state governments declined to 30% of the domestic order book, comprising 9% from central government and 21% from state governments as compared to 39% a year ago. The PSU exposure also moderated to 30% from 34% last year. Of the international order book of INR 4.07 trillion, the Middle East accounts for 71% of the portfolio, underpinned by our long-standing presence in the region. The Europe contributes 14%, reflecting the growth in our offshore wind business over the past few quarters. The balance 15% is distributed across other international markets, including Central Asia, Asian and the SARC regions, providing further geographic diversification to our infrastructure and utilities and the energy green segments. With respect to additional details on the order book, 8% of the total order book is funded by our bilateral and multilateral agencies, primarily covering the company's exposure to projects from state and local authorities and PSUs. In addition, as of June 2026, slow-moving orders constituted less than 1% of the overall order book. During the quarter, orders were aggregating INR 2.5 billion were deleted from the order book. Further details are available in the accompanying presentation. Turning on to revenues. The performance during the quarter reflected the execution stage of the order book across both domestic and international markets as well as supply chain and logistic constraints affecting select projects in the Middle East. As indicated during the Q4 FY '26 earnings call, the revenue growth in Q1 was expected to be relatively subdued, primarily due to disruptions arising from the ongoing conflict. Reflecting these factors, the group revenues for Q1 FY '27 stood at INR 679 billion, registering a 7% Y-o-Y growth with international revenues accounting for 51% of the total group revenues. The revenues from the PPM business stood at INR 462 billion, up 2% Y-o-Y. Moving on to EBITDA margin. Our group level EBITDA margin, excluding other income for Q1 FY '27 is 9% as compared to 9.9% in the Q1 of last year. The decline in EBITDA margin is mainly reflective of lower execution in the PPM business, ForEx variation in the IT company, IT subsidiaries and higher ECL or credit provisions. Our PPM business EBITDA margin for Q1 FY '27 was at 7% and declined by 20 basis points compared to the corresponding quarter of the previous year. The decline in margin was mainly attributed to lower execution and higher ECL provisioning. Our group PAT for Q1 FY '27 at INR 41 billion is up by 14% Y-on-Y basis. The increase in PAT is largely reflective of improved performance of the services business and higher treasury income aided by improved working capital levels of the PPM portfolio. The group performance, along with the P&L construct and the reasons for major variances under the respective function heads is provided in the earnings presentation. Turning on to working capital. Our focus on working capital efficiency continued to yield positive results during the quarter. While net working capital reflected the expected utilization of customer advances and settlement of vendor dues during the quarter, the gross working capital efficiency improved further. In terms of numbers, the NWC to sales ratio improved significantly to 4.9% in June 2026 from 10.1% in June 2025. As anticipated, the ratio was marginally higher than 4.1% that we reported for March '26. The GWC to sales ratio improved further to 51.1% from 53.9% in March 2026, driven by continued focus on working capital efficiency. Our group level collections, excluding the Financial Services segment for Q1 FY '27 stood at INR 658 billion as compared to INR 603 billion in Q1 of previous year. The cash flow from operations, excluding financial services remained healthy at INR 43 billion during the quarter. Our group cash flows, excluding the Financial Services business has been provided in the annexures alongside reported cash flows at the group level to enhance the clarity on the overall cash flow movement. Finally, the trailing 12-month ROE for Q1 FY '27 stood at 16.1% vis-a-vis 17% in Q1 FY '26. As this metric is measured on a trailing 12-month basis, it continues to reflect the impact of the onetime labor court provision recognized in Q3 previous year, which reduced the ROE by almost 100 basis points. Excluding this impact, the underlying ROE remains broadly stable year-on-year. Very briefly, I will now comment on the performance of each business segment as per the new segment definition before we give our final comments on the outlook. We begin with the Infrastructure and Utilities segment. The order inflows for the segment more than doubled year-on-year to INR 444 billion in Q1 FY '27. Major domestic orders secured during the quarter included [indiscernible] plant projects in the Metals and Minerals business and residential buildings and factories business International order wins were led by substations and transmission line projects in the power transmission and distribution business, along with select orders in the transportation infrastructure vertical. Notably, the Metals & Minerals business secured its largest ever domestic metal sector order during the quarter from a leading iron and steel company. Private sector orders accounted for nearly 77% of domestic order inflows in Q1 FY '27 compared with 52% in Q1 FY '26, reflecting the continued strength of private CapEx. The segment order book stood at INR 3.51 trillion as of June 2026, providing strong revenue visibility with an average execution cycle of approximately 29 months. As I mentioned earlier, the Infrastructure and Utilities pipeline for the remaining 9 months is approximately INR 7.82 trillion. The pipeline comprises of domestic order prospects of INR 5.47 trillion and international prospects of INR 2.35 trillion. The subsegment breakup of the total order prospects is as follows: Transportation Infra having a share of 24% heavy civil infrastructure, 22%, Power Transmission distribution at 17%, Buildings and Factories at 15%, water affluent and Treatment at 12% and Metals and Minerals at 10%. The revenue for the quarter declined by 3% year-on-year basis, primarily reflecting the early-stage execution of certain large projects within the order book. The EBITDA margin for the segment stood at 5.1% in Q1 current year as compared with 5.5% in Q1 previous year. The moderation in margin was largely driven by a change in revenue mix and higher ECL provisions. Moving on to the Energy Conventional segment, which comprises the Hydrocarbon and Carbon Light Solutions businesses. The order inflows for the segment stood at INR 31 billion in Q1 FY '27 compared with INR 314 billion in Q1 last year. The decline was primarily attributable to the deferment of certain anticipated order awards during the quarter, coupled with the high base effect of the previous year, which included the benefit of ultramega thermal BTG orders in the Carbon Light Solutions business. The order book of the Energy Conventional segment at INR 2.22 trillion as of June '26, with the Hydrocarbon order book at INR 1.59 trillion and Carbon Light Solution at INR 0.62 trillion. The Energy Conventional segment continues to see a healthy opportunity pipeline, led predominantly by hydrocarbon opportunities across international markets, while Carbonite solution prospects remain largely domestic in nature. The order prospects pipeline for the remaining 9 months of the current financial year stands at approximately INR 4.37 trillion, comprising hydrocarbon prospects of INR 3.67 trillion and Carbon Light solution prospects of INR 0.70 trillion. The Q1 FY '27 revenues for the segment stood at INR 142 billion, reflecting a growth of 14% growth and underscoring execution progress on a larger order book. The Carbonite Solutions business, in particular, continued to gain traction as execution on ultra-mega orders gathered space. The Energy Conventional margin was at 7.6% and is largely in line with the previous year, which was 7.5%. Moving on to the next segment, Energy Green. The segment comprises a relatively mature solar business with a strong presence across GCC markets, complemented by the newer growth platforms in offshore wind and onshore wind. The Energy Green segment witnessed strong ordering momentum during the quarter, driven by significant wins in the offshore wind business in Europe, supported by the receipt of ultra mega orders for HVDC platforms in the offshore wind business. Reflecting this momentum, order inflows for the segment at INR 330 billion in Q1 current year, registering a strong growth of 58% Y-o-Y. The order book in this segment was at INR 1,467 billion, comprising of solar projects of INR 740 billion, offshore wind projects of INR 568 billion and onshore wind projects of INR 158 billion. The prospect pipeline for this segment is INR 2.42 trillion, comprising of solar EPC prospects of INR 1.80 trillion, offshore wind prospects of INR 0.40 trillion and onshore wind prospects of INR 0.22 trillion. On revenues, the segment's performance during the quarter was impacted by supply chain disruptions in the GCC region, which affected execution in the solar business. The segment revenue for Q1 FY '27 stood at INR 56 billion, registering a decline of 11% Y-o-Y, while margins remained largely stable compared to the corresponding period of the previous year. Moving on to the Manufacturing and Products segment, which comprises Heavy Engineering, Precision Engineering and Systems, Electronic Products and Systems, electrolyzer manufacturing, construction equipment and Industrial Products and Design and Development. The segment order book -- order inflow during the quarter was aided by receipt of multiple refinery equipment packages in the Heavy Engineering business. The order book of this segment at INR 424 billion as of June 26, with the PES order book at INR 207 billion, Heavy Engineering order book at INR 87 billion, Electronic Products and Systems order book at I Order book, which is currently includes the defense-related electronic product system at INR 66 billion and the construction equipment and IPDD order book of INR 47 billion. Our order prospects pipeline for the remaining 9 months in this segment is around INR 460 billion, comprising of INR 368 billion of Precision Engineering and Electronics prospects and remaining INR 92 billion is from the Heavy Engineering business. The segment revenue at INR 45 billion registered a growth of 9% Y-o-Y. The segment revenue growth is reflective of strong execution momentum in the Precision Engineering and Systems and the Construction Equipment businesses. The segment margins were lower on a Y-on-Y basis, largely reflecting the sales mix across the businesses. Moving on to the next segment, which is the Technology Platforms & Services. This comprises of the 2 listed entities, LTM and L&T Technology Services as well as the newly incubated businesses of digital platforms, data centers and semiconductor design as well as the residual portion of the Smart World and Communications portfolio. The segment revenue stood at INR 146 billion for Q1 FY '27, registering a growth of 15% Y-o-Y, led by the growth in both LTM and LTTS. The decline in segment margin was primarily due to salary hikes and ForEx variations in LTM. I will not dwell too much on this segment as both the companies in the segment are listed entities and the detailed fact sheets are already available in the public domain. We move on to L&T Finance Limited. Here again, the detailed results are available in the public domain. But on a summary basis, the Q1 current year witnessed a robust growth in the retail disbursements and improved collection efficiency as well as asset quality. The ROA remained healthy at 2.48% for Q1 FY '27. Moving on to the Realty segment, which is now being reported as a separate segment following its segregation of the erstwhile projects and manufacturing portfolio. The order inflows for Q1 FY '27, which mainly represents L&T's share of presales stood at INR 13 billion, registering a strong Y-o-Y growth of 32%. During the quarter, the business further strengthened its presence in the NCR market through the acquisition of a 20-acre land parcel in Gurugram. The segment order book representing unrecognized revenue stood at INR 173 billion as of June 2026. During the quarter, L&T Realty launched 2 projects in the Mumbai Metropolitan region with a potential GSV of INR 50 billion revenue for the quarter -- for INR 50 billion. The revenue for the quarter more than doubled year-on-year to INR 10.1 billion, driven by a higher handover of residential units in the MMR region. The segment margins moderated during the quarter, primarily due to a change in sales mix with a higher proportion of JDA-led projects contributing to the revenue. Moving on to Development Projects segment. The performance of this segment for Q1 comprises the operations of Nabha Power up to the date of its divestment that is June 25, 2026. L&T Metro Rail Hyderabad Limited till April 30, 2026, in line with the terms of the share purchase agreement with HMRL that being the buyer. And it also -- the segment performance also includes the green energy business focused on building a portfolio of large-scale integrated green hydrogen and derivative projects, including green ammonia and green methanol. The business is presently in the investment and scale-up phase. Going forward, the financial performance of the segment will primarily reflect the green energy development portfolio. Before I conclude, I would like to highlight the financial year has commenced against the backdrop of heightened geopolitical uncertainty and economic volatility. Sustaining growth in such an environment requires a careful balance between pursuing opportunities and maintaining disciplined risk management. Our diversified presence across sectors and geography, coupled with a strong focus on cash flow generation and prudent capital allocation has enabled us to navigate these evolving conditions effectively. The performance for the quarter reflects the resilience of our portfolio and the strength of our diversified business model in an increasingly dynamic operating environment. This balanced approach enhances resilience and positions us well to deliver sustainable growth across market cycles. Against this backdrop and supported by the strength of our order book and healthy prospects pipeline and the continued focus on execution, I will now turn on to our guidance for FY '27. On order inflows, our order inflow recorded a strong 14% year-on-year growth in Q1 despite project deferments during the quarter. Looking ahead, our prospects pipeline for the remaining 9 months remains healthy at INR 15 trillion, providing strong visibility for the rest of the year. While the awarding activity in the Middle East witnessed some temporary slowdown, tendering and bidding momentum continues to remain robust, and we expect project awards to pick up from Q2. Importantly, we have not seen any project cancellations across the opportunities that we are actively pursuing and bidding for. In India, we see continuing investment momentum from both private sector and public sector enterprises. Given the strength of our opportunity pipeline and the underlying market dynamics, we remain confident of achieving our order inflow growth guidance of 10% to 12% band for the current year. On revenues, during the Q4 FY '26 earnings call, we had indicated for the first half FY '27 and Q1 in particular, could be relatively subdued given the conflict in the Middle East. While the operating environment remains dynamic, our teams are actively pursuing alternate supply chain solutions and execution strategies to manage these challenges. Considering the rapidly evolving situation, we believe it is prudent to wait for greater clarity before reassessing the full year outlook. For now, we remain committed to our FY '27 growth guidance of 10% to 12% revenue growth guidance. Coming on to margin. In line with our revenue growth guidance, we continue to target a margin of around 7.8% for FY '27 with respect to the PPM portfolio. Lastly, on working capital, we continue to witness strong collection momentum with no delays in customer receipts across Middle East despite the ongoing conflict and robust collections also from other geographies, including our parent geography of India. Factoring in the expected utilization of customer advances and increased vendor payments as execution accelerates in H2, we are maintaining our FY '27 working capital guidance of around 10%. With this, I complete the first part of our presentation. We can now get into Q&A.

Your first question comes from the line of Mohit Kumar with ICICI Securities.

My first question is on the Middle East. What would have been the impact of the revenue as per your assessment in the first quarter? And do you think that there will be a need to make a provision on the projects due to cost escalation if this continue for a slightly longer time? And have the things improved in terms of execution compared to last quarter as we talk?

So thank you, Mohit. Okay. Just to once again reiterate, we also have with us Mr. Subramanian Sarma, our Deputy Manager President, to take the questions. But I will take this first. So 2 parts to it. So in so far as cost is concerned, as you are aware that L&T is engaged in the Middle East across select customers and select sectors and the customers are virtually the country's sector specialists. So -- and the order book that we have, we have multiple projects with them. There are only certain sectors, I would say, where some amount of execution momentum has slowed down. But otherwise, for major part of the order execution momentum, as I elaborated specifically while explaining the hydrocarbon, the energy conventional performance, the momentum has continued. I don't think it has impacted that much in the first quarter, barring for certain projects, especially the projects that we are executing in Qatar, which fortunately for us at early stage, the major part of the execution is actually -- the fabrication is happening in Oman for those projects. So we have not had that kind of a situation in Q1. But going forward, in segments like renewables and all, which is forming part of the Energy green segment, supply chain challenges have happened and there are intermittent supply chain disruptions are happening. The company is ensuring that we are trying to find out alternate routes. While we are doing this, we also keep -- we are ensuring that the client is informed of our next actions. And because of this kind of a force majeure situation, we are in close touch with the clients in so far whenever there is a change in the project scope in terms of the execution momentum. So for Q1, especially for hydrocarbons, we are not seeing that kind of a challenge. But going forward, if the conflict continues to persist, there can be implications there, but we are working very closely with clients. Insofar as the extended time line is concerned, it will obviously have some amount of cost implications, but we are in touch with the clients and the clients are appreciative enough. It's not only with Larsen & Toubro, it is also with other contractors. They know the issue. And hopefully, some major part of these cost increases because of time extension and supply chain disruption will get compensated at a later stage.

Understood. My second question is, of course, the YSC ongoing. How is the conversations progressing on finalization of the Middle East prospects, especially the large hydrocarbons? Do you think that the increased risk to this prospect list may shift to the next calendar year?

Yes. This is Sarma here. Let me chip in. No, I think the prospect list still holds good and many of the projects are progressing as per the plan. And very soon, you will see some announcements coming from our side with respect to new awards in the Middle East.

Is there any risk that some of the prospects would shift to? Or do you think that most of the prospects will get finalized as you envisage?

No, I'm not expecting much delay in the finalization of [indiscernible]

Your next question comes from the line of Atul Tiwari with JPMorgan.

Congrats on a pretty good set of numbers in a challenging environment. Sir, my question is on -- would you be able to share any color on the progress of Aka RFP and as well as the remotely piloted aircraft bidding process for which I think you have a JV with General Atomics.

So Atul, I think what we -- I think this question came up during our May call as well. I don't think we have anything more to say what we stated in the previous call. So the bidding process is on. I think we don't have anything further to state at this juncture.

For both of them, there is no further...

Your next question comes from the line of Mohit Pandey with Citi.

Sir, my first question is on the margins. Sir, while we have highlighted robust collections and cash flow improvement and working capital guidance has been maintained, we have also mentioned margin impact due to ECL provisions. So just if you could help reconcile -- so the ECL provisions not linked to receivables in this case? Or how to read this? Yes, that would be question number one.

Okay. So Mohit, it is like this, that what happens is ECL provisions are basis the aging of the receivables. As you are aware, we have been mentioning even in the previous year, there has been some amount of collection shortfall that we have been witnessing in the water and effluent treatment business. So because of the delays and in some projects which -- where we are about to get completed those legacy projects which are getting completion, mostly coming from this -- from India-related projects. So the revised, what to say, aging analysis typically creates a little bump up in the ECL provisions in first quarter. But this is not something I don't think is going to happen in the balance 3 quarters of the year. So specifically, if you talk about sector-wise, it is to do with the water and effluent treatment and in some select projects in the infrastructure segment in India or projects in India.

Understood, sir. That's very clear. Sir, second question is on the prospect pie. So across the board, we have seen companies and I assume including us take price hikes, which has also helped with the order inflow numbers for some companies. So when we get the prospect pie of INR 15 trillion, have we factored in price hike that we might need to take to factor in input cost pressures? Or yes, yes, how to read that?

So when I talked about that INR 15.07 trillion of order prospects, it is basis the current pricing, okay? Current pricing of those prospects.

Okay. So possibly, there could be some upside possibly if there are [indiscernible]

Any time I talk about prospects pipeline is basis the current prospect the way they are currently priced today. It is not that what we took as a prospect pipeline in the month of, say, June '25, it is still coming as prospects or something which happened in December '25. They always get reset or revised -- this is the current way we would like to see if you were to quote it tomorrow, say. So it is basis that this is the number that looks like.

Okay, sir. And last question, basically on margins again. So while we have 9.9% going to is, I think, Slide #31, which suggests an increase in EBITDA margin in the segmental breakup. So is that to do with the other income, which has seen a sharp increase?

So the 9% that you see, if you see in the next slide, the other income comes there. So this EBITDA margin is before other income.

Yes. But on Slide 31, the segmental breakup shows the overall margins going from 11.2% to 11.5%, right? So that is where my confusion was basically.

So what happens now? Wherever other income is getting posted in the subsidiaries which are executing the projects in the segment slide, that other income features in the respective margin trajectory. So when I'm commenting upon each of the segments, the EBITDA margin, when I'm giving the commentary, it includes the segment's other income there. But in the -- when I talk about the overall financial construct, that goes at 99.9%, the slide which is starting with top line and ending with EBITDA and the second slide starting with EBITDA and ending with PAT, that is 9% is without the other income. They are not exactly comparable because when we talk about margins, we are referring to margins for the segment at the PPM level, whereas the 99.9% is at the overall group level, which includes the IT company margins, the financial services net contribution and net interest margin, everything.

The next question comes from the line of Amit Anwani with PL Capital.

So first question pertains to -- you've highlighted about the water-related impact on execution. I recollect, I think in 4Q, we were talking about the water project getting improved and probably the clearances are now getting better and the collection can improve. So what went wrong with respect to the Waters business? And what is the kind of order book collections, which is there? Any update on this side?

Okay. So like what -- last time when we spoke about, we spoke about last year, the impact on execution on water was because of the fund outlays around the JJ emission orders. I wish to tell you that the JJ mission order since then from the current year has revived. But it takes some time now before the execution starts whereas the credit provisioning is based in the aging metrics. So as I mentioned earlier, this is sort of a Q1 effect over with the execution momentum continuing in the -- improving from now onwards because collections have started coming in. Some of these reversals of credit provisions will happen as we progress bill and collect.

Right. So second question on the order inflows. One, on the European win. So are we -- what is the nature of this order, the time lines and the margins, working capital? And second, amid the Middle East conversions probably slightly delayed, are we looking for pipeline in European markets? Any country, any specific areas we can think of apart from this mega order which you have won?

Okay. This is Sarma here. This European order is an extension of what we had already announced last year, the 2 contracts. We had, at that time, told you that we are looking at signing a framework agreement for total 12 gigawatts. And then last year, we had secured 4. And now again, this quarter, we have secured additional 4. So it is an extension of that. And hopefully, if everything goes well, we'll have to wait and see. Maybe they go ahead with additional 2, then it may materialize sometime in the future. But that is something which I cannot be very sure about it. But today, we have almost close to 8 gigawatts of offshore wind and adding up to almost close to INR 57,000 crores, INR 60,000 crores of order book. And this will get executed over 4 to 5 years period. I mean that's the time line of this. These are long projects, and it requires a considerable amount of effort in procurement and fabrication and then installation. So the 4 to 5 years is the time line. And the margin will be better than what we have normally in our EPC business in the Middle East, but it's too early to commit on the exact numbers. But hopefully, it should deliver better results. Now we will continue to pursue offshore wind prospects in the region in Europe and also in other parts of the world because that is the model and that is the business we want to grow. But other than that, specific offshore wind, we are -- our other rest of our EPC business will be still mostly centered around India, Middle East and maybe some selected business in CIS countries. That's how -- we have no plans to diversify in terms of geography for EPC business, except for the wind -- offshore wind farm business. Now talking about the prospects line, I think I mentioned earlier to previous question that we are not seeing any significant delay. There could be a month here and there. But our order pipeline from the Middle East for the businesses we are present there, which is primarily hydrocarbon and renewables looks quite healthy.

Right. And sir, domestic market, wanted to understand the inflows, have the conversion rates impacted amid what is happening and probably that could have impact on the government finances also. Anything you sense that probably the domestic pipeline, which you have highlighted could be at risk of some deferments or some curtailments and the conversion rates can also be impacted?

I mean we have delivered very good order inflow in the quarter 1, better than what anybody had expected. And overall guidance given by TR is still very much consistent with what we had indicated earlier. I don't know why you keep getting doubts about the domestic market. It will continue to go as we have planned.

So Amit, it is like this. I did tell that the share of domestic prospects as the 15.07%, it is almost 50% is domestic. And the most important thing over the last 2 years that we are looking at is a major share slowly of domestic orders is also getting into private sector, largely led by residential, commercial real estate, then other industrial sectors and last but not the least, power. So a combination of these 3 is still -- those kind of prospects are still going on strong for us in so far as domestic visibility of order inflow is concerned. I think it is getting more balanced in terms of both public and private.

Understood, sir. Sir, lastly, how the Nabha Power is accounted in P&L that?

Nabha Power results are accounted as a subsidiary until the date of its sale, okay? And thereafter, we have taken into effect the sales consideration minus the total value that is lying in the consolidated statements. So it is a marginal gain that we have accrued on the sale because of the fact is Nabha has been consolidated as a profit all these years. So the carrying value in the consolidated statement is beyond the total investment that we made. And we have not had a major change in terms of additional consideration over and above this carrying value. So marginal gain on the divestment, but because of the tax related, there is a tax outflow of almost INR 110-odd crores, which we have booked in the P&L, the tax arising out of the capital gains of the transaction.

Your next question comes from the line of Renu Baid Pogadia with IIFL Capital.

Just a couple of quick questions. One on the hydrocarbon, we did mention that we did not get materially impacted because quite a few sites, including Qatar were in the early design engineering phase and fabrication was still continuing at Oman. So in your view, based on the project time lines, when do we hit the milestones of supply starting from Oman? And do you think if the current conflicts continue to persist, like Qatar, a couple of other projects which are due for the project milestone in terms of design and supplies could get impacted?

See, the offshore large number -- the large mega projects in offshore, they will be ready for dispatch from our Oman yard sometime -- scheduled to be ready for dispatch sometime in first quarter of next year, calendar year.

We had 3 quarters of cool-off period [indiscernible]

The conflict extends to next year, then yes, then it will become a problem for us. But until that time, for the offshore, we should not. On the onshore projects, I mean, like we are overcoming that month by month. It's not that nothing is affected, we have logistics issues, but we are managing that, as PR said, and making sure that the projects sites are not impacted because of the disruption because you are managing alternative routes.

Right. And more than the hydrocarbon, specifically if you look at renewable solar projects that we have seen supply chain disruptions in the region. These are also short-cycle projects. So how do we look not just on the revenue execution time lines, but the profit margins that these projects were carrying? Do we see that getting materially eroded? And I'm sure that would have already been a part of the guidance, but do we see a material erosion and probability of any provisions arising from that?

No, I think material erosion is unlikely because if that scenario happens, then we will not break. So only reason why we will have material erosion in the margin is that we incur the cost, exorbitant cost of bringing the material, which we are not doing. I mean, as PR mentioned earlier that whatever we are bringing, we are doing it in consultation with customer, and there is a kind of a general understanding and agreement that cost will be compensated. I mean if there is no agreement on that, then we will not incur that cost. And in that case, some revenue impact will happen. And therefore, the project time line might get extended, and we'll have to recover that cost at a later stage.

The next question comes from the line of Sumit Kishore with Axis Capital.

My question is in relation to other income, which is up almost 75% to INR 23.7 billion on a year-on-year basis. Even on a quarter-on-quarter basis, there is a steep increase from INR 15.8 billion. So how much of this -- is there any item that we should know about? Or is this the new recurring other income level that we should be sort of factoring in with the cash and cash equivalent position that you have? And in the PP&M EBITDA of INR 32.11 billion, how much is the other income component in case you were to attribute to that in the way you report your segmental EBITDA? That's my first question.

Okay. So Sumit, it is like this. The other income is primarily on account of the higher cash generation that we have. okay? This is all on account of the group surplus, which is across all the entities, be it Larsen & Toubro parent, be it LTM, LTTS, even L&T Finance and also the other unlisted subsidiaries that we have within India and outside India, okay? So a major part of this is arising out of that. And yes, the spend, pending their spend, as you may be aware, I did articulate during our May call about the L31 Lakshya plan. Some part of this cash also will get into newer investments as they shape up. They are all at initial stages. So at the current trajectory, this is the yields that we have done because we believe that our yields also have been ahead of in terms of typically markets the way they earn surpluses, we have been at least 1.5% to 2% more. And consequently, you get that additional kicker. But it would be unfair for me to say this is a new norm because as we start investing into the green energy segment that I voiced over when I took the development project segment and some of the other investments like data center business and all. So some amount of drop-down will happen, okay? But for the next 1 or 2 quarters, this seems to be a reasonable assumption one can take. Number two is the other part is insofar as the subsidiaries which are overseas to the extent their other income because that cash is not coming back to the parent in any form, and hence, it is specifically related to that business or where the project is getting executed, that part of other income is featuring in our PPM EBITDA.

I'm just wondering, I mean, given your operating cash flow, the Q1 is a relatively smaller quarter, but your operating cash flow on a full year basis is certainly going to lead to an increase in cash even after the CapEx commitment that you do under Ls. So directionally, is the other income still going to become significantly larger versus where we ended up in the previous year? So what could you quantify your CapEx for the Lakshya plant this year 1?

So the Lakshya plant CapEx for the current year would be -- of course, I did mention about different businesses having different models, which we will pursue. Hopefully in Q2, I think we will be able to finalize and let you know. So it will be a little, I would say, ahead of time if I have to put a number for that. But taking into account the treasury income that we have overall at the entire group level, so the overall treasury income is in the range of almost, if you say, roughly around 70% of the other income could be lying in L&T stand-alone, which means it does not feature in the PPM EBITDA. Almost 20% could be coming from the other listed entities. Again, that goes directly into their performance. The balance 10% to 15% will be possibly the treasury income that is featuring in the PPM margins.

Just one small bookkeeping question on depreciation. Depreciation for the quarter is INR 10.3 billion, down from INR 11.7 billion at the end of Q4 FY '26. Sequentially, why has the depreciation come down?

So it is a question of any particular plant and machinery getting commissioned in the later part of last year, we will have the full share of the quarter, okay? And consequently, some of the older plants and equipment possibly have also run down. So it has got nothing specifically for us to say why depreciation is down. And secondly, Nabha -- sorry, one more aspect is Nabha, the metro part, which is almost INR 75 crores per quarter, where depreciation is also not included because Metro is -- I mean, we have not consolidated Metro from May onwards.

Your next question comes from the line of Aditya Bhartia with Investec.

Sir, you mentioned that there have been certain cost escalations and you are in discussions with customers and with clients on how to kind of recoup that. Just wanted to understand how does the accounting work? Do we get a proper kind of an arrangement with the customer that they are going to repay us for the increased cost only then we are going ahead and therefore, there are no provisions that are required? Or is it that there is a kind of a rough understanding we make certain provisions, they may get reversed or they may stay the way they are? Just wanted to understand on that aspect.

No, no. Actually, like what you said, I mean, if we are having prior consultation with customer and there is an agreement that they will reimburse us the cost and then there is a formalization of that, then it gets captured in our accounting. But if there is no agreement, then we cannot. I mean, then we will recognize only when the agreement happens. And like I said, we are trying to avoid incurring additional costs as much as possible by deferring the project if there is no agreement.

Understood, sir. So from that perspective, it's fair to assume that results are correctly reflecting the impact of the war as well as costs that have gone up for various raw materials?

Yes, so far. Yes, whatever we have incurred so far, yes.

Aditya, let me tell you and for the benefit of all, I mean, just to -- see, at the end of the day, the revenues and margins are basis not actual cost that we incur. It also includes the future costs that we are expected to complete the job. B is that the percentage completion is being determined. And so when we are doing this, it is not only current procurements. We also know what are the future procurement basis the current prices to the extent the purchase orders have been placed to vendor, okay? So all these discussions in this kind of environment happens with very active discussions with the client. And if the client says, okay, you can decide not to take this item at this juncture because they can afford to take a 3 months delay or a 6-month delay in the project. So we don't take that now and the hope that the projects will come. The prices will come down in the future. But wherever there are procurements which are required as per the critical part of the project, those kind of procurements are happening. Some prices are in line with our own estimates. If there are some additional prices, discussions are on with the client to ensure that the client is aware that -- last Toubro is placing at this price given the peculiarity of the -- given the situation. So some amount of pass-throughs will happen. Some amount may not happen, but that is something which you need to evaluate every period.