Strong order pipeline and execution momentum to drive gains for L&T

Strong growth in international projects, lower working capital, and a robust order pipeline position L&T for outperformance in FY26

Larsen & Toubro’s (L&T) Q1FY26 revenue and net profit came in slightly ahead of estimates. There was strong core engineering and construction (E&C) order inflows at ₹76,600 crore, with order wins in energy and infrastructure in domestic and international markets. There was a ramp up in international projects, and net working capital (NWC) came down to 10.1 per cent of sales and return on equity (RoE) rose to 17 per cent. The operating profit margin was flat year-on-year (Y-o-Y) for core E&C.

 

The order prospect pipeline grew 65 per cent Y-o-Y to ₹15 trillion for the next nine months of FY26. Historically, L&T manages a “hit rate” of 20-25 per cent in the pipeline, and if it manages this, it will easily beat its FY26 guidance of 10 per cent Y-o-Y growth.

 

On a consolidated basis, revenues grew 16 per cent Y-o-Y to ₹63,700 crore, while operating profit rose 13 per cent Y-o-Y to ₹6,300 crore for Q1FY26. The net profit  increased 30 per cent Y-o-Y to ₹3,600 crore. For core E&C, revenue growth was at 19 per cent and operating profit grew 19 per cent while operating profit margin was flat Y-o-Y at 7.6 per cent. There was 37 per cent Y-o-Y growth in international projects, while domestic revenue growth stood at 6 per cent Y-o-Y. NWC to sales improved Y-o-Y to 10.1 per cent of sales and RoE improved to 17 per cent. Order inflow grew 41 per cent Y-o-Y to ₹6.1 trillion, thanks to international (up 25 per cent Y-o-Y) and large order wins in power. The international segment now forms 46 per cent of the order book, with 92 per cent from  West Asia. 

 

Segment wise, infrastructure margins stood at 5.7 per cent while in energy, order inflow was up with large order wins from boiler, turbine & generator or BTG packages. This segment’s revenue growth was at 47 per cent Y-o-Y, and margins stood at 7.7 per cent (8.7 per cent in Q1FY25). In hitech manufacturing, order inflow declined Y-o-Y due to a high base. Revenue growth was strong at 75 per cent Y-o-Y, while margins declined Y-o-Y to 15.1 per cent in Q1FY26 (17.4 per cent in Q1FY25). In the other segment, revenue growth was flat Y-o-Y at 1 per cent, while operating profit margin was high at 32.9 per cent in Q1FY26 (23.4 per cent in 1QFY25) with higher sales from realty.

 

The prospect pipeline for the next three quarters stands at ₹15 trillion, up 63 per cent Y-o-Y. The domestic prospect pipeline is at ₹6 trillion, while international is at ₹9 trillion. Growth in international is driven by onshore, offshore, renewable, transmission and infrastructure. In the domestic market, there are prospects in renewable, power transmission, buildings and factories, metals and mining among others.

 

L&T has secured the largest green hydrogen supply tender in India. It has a build operating transfer or BOT contract with IOCL Panipat for supplying green hydrogen. International markets, particularly West Asia, account for a bulk of these opportunities, including offshore wind and decarbonisation-linked projects.

 

International projects have improved the NWC cycle to 10.1 per cent by 1QFY26 (20 per cent in FY22). Lower NWC has led to a better RoE of 17 per cent from 14.7 per cent in Q1FY25. Key risks include slowdown in orders, delays in completion of projects, rise in commodity prices, an increase in working capital, and increased competition.

 

For FY26, management maintains its guidance of 10 per cent growth in order inflows and revenue growth of 15 per cent Y-o-Y, while the core E&C margin is targeted at 8.3-8.5 per cent. The company expects to maintain a net working capital-to-revenue ratio of 12 per cent, and anticipates stronger execution momentum in the second half. Analysts remain ‘positive’ on the stock as international prospects seem to be strengthening.