Revenue from Larsen & Toubro’s core business of projects, products and manufacturing (PPM) increased by 20% year-on-year to ₹58,391 crore in the September quarter (Q2FY27). However, the PPM Ebitda margin narrowed 25 basis points (bps) to 7.03%.
Blame the projects segment, where the margin dipped 52 bps year-on-year to 6.3% even as revenue rose by 19% to ₹53,911 crore. In contrast, the product and manufacturing segment margin expanded by 226 bps to 15.8%. Thus, overall PPM Ebitda growth came in slower than revenue growth at 16% year-on-year to ₹4,104 crore. The management reiterated its margin guidance of 7.8% for FY27.
Project profitability suffered because of continuing cost pressures in water and effluent treatment projects. Mint’s calculations suggest that half of the margin drop, or 25 bps, in the segment came from such projects. Though there are some supply chain issues, they have been managed with existing inventory.
But the L&T management said during the Q2 earnings call that if the West Asia conflict continues, there could be some revenue deferment even if there is no revenue loss. A higher proportion of jobs below the threshold completion level in infrastructure and conventional energy segments also meant lower profit recognition.
It is likely that the influence of the product and manufacturing segment will continue to increase on overall profitability. Growth in L&T’s product business portfolio should get a boost when it begins semiconductor production over the next couple of quarters.