L&T sees FY25 as six-month period, tempers order intake, revenue expectations

New Delhi: Engineering and construction major Larsen & Toubro (L&T) pragmatically views FY25 as a six-month period due to disruptions in businesses from the ongoing general elections, and expects order intake and revenue to grow 10% and 15%, respectively, in the current fiscal year, chief financial officer R. Shankar Raman said.

“This has been factored on the fact that the activity in the domestic market would be second-half oriented and not first-half oriented, and it looks to me more like a six-month year than a nine-month year. So, it’s safer to assume that we will have a lesser intake of orders during the current year and 25-26 would be the take-off in terms of higher growth trajectory,” Raman told Mint.

In light of the general elections in 2024, the company undertook a similar approach during FY24, as it focused on achieving the maximum output during the first nine months. It had secured around 75% of its order inflow for FY24 during the first three quarters, Raman said.

In the fourth quarter of FY24, L&T experienced a dip of 5% in order inflows over the corresponding quarter last year ahead of the Lok Sabha polls, but for the entire 12 months of FY24, the company recorded a 31% growth in order inflows to cross ₹3 trillion. “In our five-year plan, we provided the guidance for the order intake threshold in FY26 to be around ₹3.5 trillion and we are already at the ₹3 trillion mark, so, we are two years ahead,” he said.

Consolidated order book stood at ₹4.8 trillion as of 31 March, 20% more than a year ago. More than a third, or 38%, of these orders were from international markets. Profit for the full year surged 25% to ₹13,059 crore, while revenue grew 21% to ₹2.2 trillion.

Despite having a positive outlook on the opportunities provided by the international markets, Raman says that the company remains cautious about the current year. The company’s international order inflow dipped from ₹36,046 crore in Q4FY23 to ₹25,217 crore in Q4FY24. However, “April to March International has grown by 89%,” he noted.

Citing Saudi Arabia and its plans to reallocate capital from oil and gas extraction to solar, Raman said that the company sees this as an opportunity given that they are also in the solar space. Additionally, Saudi Arabia continues to build new cities and the associated infrastructure, which presents an exciting opportunity to the company.

“Based on this, we see the potential of the international order book to grow to 50% (of the total) in due course, as we believe that according to its growth trajectory over the years, it has the potential to go north in the next few years,” he added.

By strengthening its presence in the international market, it will boost the delivery of its order book and continue building on it, helping it focus on resetting the margins. But the focus on margins shouldn’t deprive us of the value creation we have provided through improved capital employed and will aim to achieve a return on equity (ROE) of 18%( currentl15%), added Raman. According to him, ROE is determined by the utilization of funds and the profitability margins, highlighting the critical link between margin performance and achieving the target ROE.