Ladies and gentlemen, good day and welcome to the L&T Q2 and H1 FY 2027 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. P. Ramakrishnan from Larsen & Toubro. Thank you, and over to you, Mr. P. Ramakrishnan.
Yeah. Thank you, Sagar. Good evening, ladies and gentlemen. A warm welcome to all of you to the Q2 FY 2027 earnings call of Larsen & Toubro. The earnings presentation was uploaded onto the stock exchange almost an hour back. Hope you had a chance to have a quick look at the numbers. As per past practice, I will first walk you through the important highlights for Q2 FY 2027 in the next 20-25 minutes. 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 the website a while back, 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 two of our earnings presentation that we have uploaded. India's economy has remained resilient despite a difficult global backdrop, supported by domestic demand and investment activity. Policy measures remain focused on maintaining macroeconomic stability. However, the outlook continues to be influenced by the trajectory of external developments, which are likely to remain important factors shaping growth outcomes.
The recent re-escalation of the conflict in West Asia and the resulting volatility in oil prices have contributed to increased uncertainty in the global economic environment. More broadly, volatility in energy markets, logistics and trade disruptions, rising input and financing costs, and the continued uncertainty surrounding a resolution to the West Asia conflict remain relevant considerations for the operating environment. Having covered the macroeconomic landscape, let me now turn on a few developments and achievements for L&T. First is on hydrocarbons. The L&T hydrocarbon business has been selected as one of the four contractors under a six-year EPC framework agreement with Petroleum Development Oman. The agreement positions the company to participate in major EPC opportunities under PDO's capital investment program. The framework further strengthens our presence in Oman's hydrocarbon sector and provides a platform to pursue future project opportunities. The next one is on data centers.
The data center business of the company is being reorganized under Vyoma.AI Limited, a wholly-owned subsidiary. While this subsidiary will house the co-location business, the AI compute operations are being developed through its wholly-owned subsidiary, LTN Compute Private Limited. The LTN Compute is establishing an AI factory at its Chennai campus with a planned capacity of over 10,000 NVIDIA B300 GPUs. It has entered into a long-term deployment agreement with Together AI for a significant portion of the GPU capacity. The commissioning is targeted in January 2027. I move on to semiconductor business. This business is housed in a wholly-owned subsidiary called L&T Semiconductor Technologies. This subsidiary continues to strengthen its semiconductor platform through product innovation and strategic partnerships. The company unveiled 40 semiconductor products and platforms across power, compute, connectivity, and analog technologies, including its first 1,200-volt silicon carbide MOSFET platform.
The silicon carbide expands the company's presence in the high-efficiency power semiconductors serving applications such as electric mobility, renewable energy, industrial systems, and data centers. During the period, the company partnered with Azuremoto Technologies to advance SiC and power semiconductor solutions and with Tata Electronics to support indigenous manufacturing of semiconductor products for domestic and global markets. I move on to the electronics business. The electronic products and systems business continued to expand its capabilities across power electronics, industrial automation, and mobility. During the period, the business secured an initial BESS order and commenced capacity expansion at the Kanchipuram facility to support the assembly and integration of battery energy storage system solutions. The business also progressed product development and commercialization initiatives in industrial automation.
In mobility, it achieved production readiness for EV traction motors with commercial production scheduled to commence in Q3 FY 2027 while continuing to advance opportunities in ADAS and e-powertrain systems with leading automotive OEMs. I move on to development project segment. As previously communicated, the company signed a share purchase agreement in Q1 of the current financial year with Hyderabad Metro Rail Limited, a wholly-owned enterprise of the Government of Telangana, for the divestment of its entire stake in L&T Metro Rail (Hyderabad) Limited. The expected completion date for this transaction has been revised from September 30th to December 31st, 2026. I now move on to the group performance for the quarter ended September 30th, 2026.
We recorded our highest-ever quarterly order inflow at INR 1.48 trillion, registering a growth of 28% year-on-year, led by receipt of ultra-mega and mega orders across offshore, onshore hydrocarbons and CarbonLite businesses within the energy conventional segment. Within the Projects, Product and Manufacturing, that is PPM portfolio, the order inflows reached a record high of INR 1.26 trillion, registering a robust 32% year-on-year growth. The growth was broad-based across both domestic and international markets, with order inflows rising 49% and 24%, respectively. International orders accounted for 62% of the portfolio mix, compared with 66% in the corresponding quarter of the previous year. Turning on to the prospects pipeline. The prospects pipeline for the PPM core business for the balance six months of the current financial year remains healthy at approximately INR 10.3 trillion, which is almost at the same level like last year.
The broad composition of this overall prospects pipeline is as follows. Infrastructure utilities has a share of INR 5.84 trillion as compared to INR 5.81 trillion last year. Energy Conventional, the order prospects is for INR 2.07 trillion vis-à-vis INR 3.35 trillion last year. Energy Green, the order prospects is INR 2.04 trillion as compared to INR 0.93 trillion last year. Manufacturing and Products, the order prospects is INR 0.33 trillion vis-à-vis INR 0.29 trillion last year. Moving on to the order book. The total order book, including the realty segment, stood at INR 8.54 trillion as on September 2026 and was up 28% vis-à-vis September 2025. In terms of portfolio composition, 42% of our total order book is from Infrastructure Utilities, 34% from Energy Conventional, 17% from Energy Green, 5% is from Manufacturing and Products, and 2% from Realty.
In terms of the geographic mix, 46% of this order book is domestic, while 54% is international, reflecting the increasing share of international orders secured over the past year. The average execution of this order book is 33 months. The total domestic PPM order book stood at INR 3.72 trillion. The share of private sector orders increased to 39% from 30% as of September 2025, driven by order wins across the CarbonLite Solutions, residential, commercial buildings, factories, and the Metals and Minerals business, along with select awards in heavy civil infrastructure, transmission lines and airports. Within the public sector portfolio, the combined share of central and state government orders declined to 30% of the domestic order book, comprising 11% from central government and 19% from state government as compared with 38% a year ago. The PSU exposure remains largely stable at 31%.
Of the international order book of INR 4.62 trillion, the Middle East accounts for 73% of the portfolio, underpinned by our long-standing presence in the region. Europe contributes to 13%, reflecting the growth in our offshore wind business over the past few quarters. The balance 14% is distributed across other international markets, including Central Asia, ASEAN, and the SAARC regions, providing further geographic diversification. With respect to the additional details on the order book, 7% of the total order book is funded via bilateral and multilateral agencies. In addition, as of September 2026, slow-moving orders constituted around 1% of the overall order book. During the quarter, orders were deleted for less than INR 10 crore.
Turning to revenues, supported by strong execution progress across energy-related projects that comprises both conventional and solar, and healthy growth in the Financial Services segment, the group revenues rose to INR 787 billion, registering a robust 16% growth. International revenue contributed to 58% of the total revenues during the quarter. The revenues from the PPM portfolio stood at INR 584 billion, reporting a robust growth of 20% year-on-year. The performance was driven by strong execution across the energy portfolio, supported by the progression of recently secured ultra mega projects and the continued conversion of the expanded order book into revenues, despite continuing logistics and supply chain challenges during the quarter. Moving on to EBITDA margin. Our group level EBITDA margin, excluding other income for Q2 FY 2027, is 8.7% as compared to 10% in Q2 of the previous year.
The EBITDA margin was primarily impacted due to lower margin across the group's portfolio and change in the revenue mix. When I mean revenue mix, I am referring to a higher share of the PPM portfolio in the overall revenue stack-up. Our PPM manufacturing business EBITDA margin for Q2 FY 2027 was at 7% and declined by 30 basis points compared to the corresponding quarter of the previous year. The decline in PPM margin is primarily due to cost pressures in the WET projects, that is Water & Effluent Treatment, increased supply chain costs, and a higher proportion of projects yet to reach the margin recognition threshold. Our group PAT for Q2 FY 2027 stood at INR 52 billion, registering a strong growth of 33% year-on-year.
The growth was primarily driven by a significant pickup in activity levels across the products in the manufacturing portfolio, coupled with higher treasury income supported by the release of funds through improved working capital management within the PPM portfolio. The detailed insights on the group's performance, the P&L composition, and key drivers of variances across the business segments and functional heads are provided in the earnings presentation. You may refer to the same for further details. Moving on to working capital. Our focus on working capital efficiency and the changing underlying nature of the order book has continued to yield positive results during the quarter. The NWC percentage improved to a record low of 1.7% as on September 2026, as compared to 4.1% as of March 2026.
The improvement of NWC percentage was supported by a reduction in the gross working capital percentage from 51.7% as on March 2026 to 48% as on September 2026, along with customer advances received against the recently secured large orders. Our group level collections, excluding financial services for Q2 FY 2027, stood at INR 740 billion as compared to INR 600 billion in Q2 of the previous year. The cash flow from operations, excluding financial services, increased to INR 128 billion during the quarter as compared to INR 48 billion in the quarter of the previous year. Our group cash flows, excluding the financial services business, has been provided in the annexures alongside reported cash flows to enhance the clarity on the cash flow movements. Finally, the trailing 12-month ROE for Q2 FY 2027 stood at 16.7 vis-à-vis 17.2 in Q2 of the previous year.
As this metric has been calculated on a trailing 12-month basis, it continues to reflect the impact of the one-time Labour Code provision, which was recognized in the Q3 of the previous year. Very briefly, I will now comment on the performance of each business segment before we give our final comments on the outlook. We start with the infrastructure and utility segment. Following a robust Q1, order inflows for this segment stood at INR 355 billion during the quarter, declining by 13% year-on-year. The major orders were secured in the airports and power transmission distribution business in India and UAE, along with the orders in ferrous metal plants, data centers, and central and state government-funded public buildings. Private sector orders to contribute meaningfully at 59% of the domestic order inflows, same as previous year, reflecting the continued strength in private funded CapEx.
The segment order book stood at INR 3.61 trillion as of September 2026, providing strong revenue visibility with an average execution cycle approximating to 29 months. As I mentioned earlier, the infrastructure and utilities prospects pipeline for the remaining six months is approximately INR 5.84 trillion. The pipeline comprises domestic prospects of INR 4.59 trillion and international prospects of INR 1.25 trillion. The sub-segment break-up of the total order prospects is as: the transportation infra 24%, heavy civil infra 19%, buildings and factories around 18%, power transmission distribution 17%, metals and minerals at 14%, and Water & Effluent Treatment at 9%. Revenues for the quarter grew by 6% year-on-year, driven by a pickup in execution momentum across domestic private sector projects, supported by strong activities in the residential, commercial factories, transportation infra, and the Minerals and Metals business.
The international business witnessed steady execution in select core civil infrastructure projects as the business continued its selective expansion in this space, while the Middle East-focused power transmission distribution business saw a marginal moderation in the activity level. The EBITDA margin for the infrastructure and utility segment was at 5.7% in Q2 of the current year, as compared with 6.2% in Q2 of the previous year. The margin for this segment has been impacted by continuing cost pressures in the Water & Effluent Treatment portfolio, and a higher proportion of jobs yet to cross the margin recognition threshold. Moving on to the Energy Conventional segment, which comprises the hydrocarbon, CarbonLite Solutions, and the modification revamp and upgrade of the process plants business. The segment witnessed robust order inflows of INR 784 billion during the quarter, more than doubling year-on-year basis.
The hydrocarbon business witnessed strong traction in the Middle East as well as India, particularly in the offshore business, while the CarbonLite Solutions business secured a mega order from NTPC for the main plant package of the two into 800 MW Lara stage three thermal power project. The order book of the Energy Conventional segment stood at INR 2.87 trillion as on September 2026, with the hydrocarbon order booked at INR 2.13 trillion and CarbonLite Solutions at INR 0.71 trillion. The Energy Conventional segment continues to see a healthy opportunity pipeline led predominantly by the hydrocarbon opportunities across international markets, while CarbonLite Solutions prospects remain largely domestic in nature. The order prospects pipeline for the remaining six months of FY 2027 stands at approximately INR 2.07 trillion, comprising hydrocarbon prospects of INR 1.67 trillion and CarbonLite Solutions prospects of INR 0.40 trillion.
The Q2 FY 2027 revenues for the segment stood at INR 173 billion, registering a strong growth of 29% year-on-year basis. The growth was driven by sustained execution momentum in off-site activities in the hydrocarbon business and increasing execution intensity in the CarbonLite portfolio, with BTG orders secured in recent quarters now translating into higher revenue recognition. The hydrocarbon margins improved from 6.7% to 7.5% during the quarter. The CarbonLite Solutions and MRU margins, however, declined from the elevated levels seen in the corresponding quarter of the previous year, which had the benefit of favorable customer price variation claims. Segment margins were further impacted by certain large CarbonLite Solutions projects remaining below margin recognition thresholds. Consequently, the overall segment margins stood at 7.4%, down 80 basis points year-on-year basis. Moving on to the next segment, which is Energy Green.
The segment comprises a relatively mature solar business with a strong presence across GCC markets, complemented by growth platforms in the onshore wind and the developed market-focused offshore wind business. The order inflows in this segment stood at INR 66 billion during the quarter, declining 45% year-on-year, primarily due to deferral of certain solar projects in the Middle East. The order book in this segment was INR 1,436 billion, comprising of solar projects of INR 703 billion, onshore wind projects of INR 168 billion, and offshore wind projects of INR 565 billion. The prospects pipeline for this segment is INR 2.04 trillion, comprising of solar EPC prospects of INR 1.47 trillion, onshore wind prospects of INR 0.19 trillion, and offshore wind prospects, which is primarily in Europe, of INR 0.38 trillion.
The segment revenue for Q2 FY 2027 stood at INR 115 billion, registering a strong growth of 43% year-on-year, aided by commencement of large value projects in solar and ramp-up of offshore wind projects. With the first set of offshore wind orders having been secured late last year, the segment is now transitioning from order booking to execution, driving higher revenue recognition as the project activity gains momentum. The margin for the segment was largely stable for the quarter. Moving on to the Manufacturing and Product segment business. The segment order inflows during the quarter was aided by receipt of export orders in the precision engineering and systems business.
The order book of the segment is INR 429 billion as of September 2026, with the precision engineering order book at INR 218 billion, heavy engineering segment order book at INR 81 billion, electronic product and systems order book, which currently includes the defense-related electronics as well, at INR 65 billion, and the construction equipment and industrial product and design and development order book at INR 65 billion. Our order prospects pipeline for the remaining six months in the segment is around INR 325 billion, comprising of INR 284 billion of precision engineering and electronic prospects, and the remaining INR 40 billion is from the heavy engineering business. The segment revenue at INR 45 billion registered a growth of 34% year-on-year and is reflective of the strong execution momentum in the precision engineering and the electronic product systems businesses.
The margin improvement in the segment is primarily reflective of execution cost savings and improved job mix. Moving on to the next segment, technology platforms and services, which comprises the two listed entities, LTM and LTTS, as well as the new businesses of digital platforms, data centers, semiconductor design, and as well as a small portion of the divested Smart World & Communication portfolio. The segment revenues stood at INR 148 billion for Q2 FY 2027, registering a growth of 11% year-on-year, led by growth in both LTM and LTTS. The salary hike and adverse ForEx variation LTM impacted segment margin, partly offset by a one-time gain on the Smart World & Communication divestment by LTTS. 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 available in the public domain.
Now we move on to L&T Finance Limited. Here again, the detailed results are available in the public domain. But very briefly, the Q2, it witnessed a robust growth in retail disbursements and improved collection efficiency as well as asset quality. The return on asset remained healthy at 2.6% for Q2 FY 2027. Moving to the Realty segment, which is now being reported as a separate segment following the segregation from the erstwhile projects and manufacturing portfolio. The order inflows for Q2 FY 2027, which mainly represents L&T's share of pre-sales, stood at INR 13 billion. The segment order book representing unrecognized revenue stood at INR 184 billion as of September 2026. Revenue and margin are primarily reflective of the lower handovers of residential units and the sales mix.
Supported by the strength of our order book, healthy prospects pipeline, and continued focus on execution, let me now turn to the guidance that we have provided for the current financial year. I start with order inflows. The group order inflows recorded a robust 22% year-on-year growth in H1 of the current year, with growth across domestic and international markets, notwithstanding bid deferments, particularly in the Middle East solar business. The prospects pipeline for the remaining six months remains healthy at INR 10 trillion, with a marginal bias towards domestic opportunities, providing confidence in sustaining order inflow momentum for the next six months of the current financial year. Given the strength of the opportunity pipeline across the key sectors, we are confident of achieving our order inflow guidance of 10%-12% for FY 2027.
Coming on to revenues, the domestic execution continues to gain traction across the residential, commercial, precision engineering and the CarbonLite Solutions business. In the Middle East, despite the ongoing logistic disruptions, the project execution continues to progress well. Working closely with our clients, our teams continue to implement alternative logistic arrangements and execution plans to mitigate the impact of these challenges. In addition, the offshore wind business, which is now in its full year of execution, is also expected to meaningfully contribute to the growth relative to FY 2026. Considering the overall operating environment, we are confident of achieving our FY 2027 revenue growth guidance of the 10%-12% band. Moving on to the margin for the PPM portfolio. In line with our revenue growth guidance, we are reasonably confident of meeting our EBITDA margin target of 7.8% for FY 2027.
Closing with working capital, the collections remain on track across the key markets, including international markets. As mentioned earlier, the group net working capital stood at a record low of 1.7% as of September 2026, supported by significant working capital improvements in the Energy, Green and Hydrocarbon segment. Based on the current trajectory and improved volume of execution, we now expect the group net working capital to close below our earlier guidance of 10% for the year. With this, I have given an overall synopsis of the performance for the quarter and the way we look the next six months. We can now get into question answer. Thank you.
Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and then one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and then two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Your first question comes from the line of Aditya Bhartia with Investec. Please go ahead.
Hi, good evening, sir. Just wanted to understand a bit more on the solar business. We are seeing deferral in project awards, but at the same time, we are seeing very strong execution in international green projects. What is really happening over there, and do you anticipate these projects to get bunched up and maybe ordering to be picking up in second half of the fiscal?
Mr. Sarma is there. He will answer this question.
Yeah. Hi. The solar business, I think we have a very strong presence in the Middle East and, of course, also a bit in the domestic. There was some delay in the first two quarters in terms of award. But now we see that we have bid for many jobs and the bidding activities have picked up quite a bit. We hope to pick up momentum in the quarter three and quarter four, in the second half. Of course, also under that division, we have offshore wind business. There we had a very good run. We picked up additional contracts under the framework. That project business is now doing well. That's where we stand.
Aditya, just to add to what Mr. Sarma just now spoke. The first half for solar was a little subdued insofar as ordering is concerned. As I talked about the order prospects of the various segments, the prospects continue to remain strong. Hopefully, I think the ordering momentum for this segment from outside of India will regain traction in the second half.
Sure. But in terms of execution, we have not seen any major slowdown. Given that there were a lot of logistic challenges with some of these solar projects also, we have not even seen any impact on margin fee.
Let me put it like this. Yes, there has been to the extent, wherever we have been able to supply into the site, we have tried to do that, despite all the logistic challenges. So far, we have done well. Now it looks to be seen, depending on the situation, how we see in the next six months or so.
Sure. My second question was on margins in the CarbonLite business, and the way the CarbonLite business gets recorded. Now, given that a part of the business is being done through MHI JVs, and earlier we used to split certain orders, as in margins in certain orders, getting largely recorded in MHI JVs, and only a small part getting recorded in the main consol books. How is it being carried on right now? Is it fair to assume that bulk of the margins from here on would be seeing a line-by-line consolidation as opposed to a single line MHI JV consolidation?
The projects have been secured by the Larsen & Toubro entity only. And this in turn has been subcontracted some portions of it to the JV companies. The EPC margins will continue to reside in the parent CarbonLite segment.
Understood. But higher margins are likely to be equipment-related margins are likely to be recorded in the JVs.
I would say it will be a combination in both, but EPC margins, since BTG has an opportunity as an EPC, the EPC margins will be taken at the segment level. There will be some portion of margins because of efficiency and fuller state capacity utilization. The JV companies also is expected to be profitable on this particular order.
Perfect, sir. That is helpful. Thank you.
Thank you. Your next question comes from the line of Mohit Pandey with Citi. Please go ahead.
Yeah. Good evening, sir. First question is on the Energy Green segment. If you could give some color on whether the growth was driven more by the offshore wind ramp-up or by the Middle Eastern solar with regards to execution. Also how the supply chain here in the Middle Eastern solar differs from that for the infrastructure segment, where growth has been slower. Yeah.
The segment revenues for the quarter, which I talked about, is driven more by solar. Offshore wind is just now started. Offshore wind will pick up execution in the following quarters.
Understood, sir. On the second part, how does the logistics supply chain differ any particular with the WET Middle Eastern infrastructure projects?
Yeah. Sarma here. Logistics is more relevant for renewable business in the Middle East and to some extent for power transmission, less for hydrocarbon. At this point in time, the infrastructure projects are in very early stage, so they do not have that much of impact of the logistics. On the renewable side, yes, I think it is taking a little longer for us to get the materials, and there is an extra cost. We are in discussion with customers. Some cases we are delaying the material dispatch, and some cases we are incurring the cost and agreeing to get that reimbursed from the customer. The combination of that is happening.
With some delays here, I think we expect some deferment of revenue on the renewable business. But we will try to make it up with other projects in the domestic market in other countries. If not, there could be some shortfall on that particular business.
Yeah. And sir, on hydrocarbon book, what percent of the order book would be still in the relatively early stage of execution, meaning getting executed from our India facility? Would it be 70%-80% odd percent?
I think, yeah, we picked up quite a few large orders in hydrocarbon between onshore and offshore in the last two, three quarters. I would say, maybe I have not done the maths, but maybe But a major part of the order book 60%-
All will be under new-
60% could be under the-
New ones.
Yeah. It will achieve that threshold maybe-
In the Q4.
Yeah. Q4 and beyond.
Understood, sir. Last question is on precision engineering. Our presentation mentions we won some export orders. Possible to give some color around these. This year there has been large DAC approvals. Any key projects you want to highlight that we have been framed for? Yeah.
This is an order from Vietnam.
Understood, sir. With regards to the DAC approvals that we have seen this year, any key projects that we might be in fray for?
On defense?
New orders. Precision, we will get this time.
Yeah. There is a possibility. The prospects pipeline look more reassuring, and hopefully some order inflow conversion should be happening in the segment.
Third quarter.
Possibly, most likely by the end of this year.
Understood. Thank you so much, and wish you all the best. Yeah.
Thank you.
Thank you. The next question comes from the line of Puneet Gulati with HSBC. Please go ahead.
Yeah, thank you so much, and great performance, I must say on all fronts. On order inflow side, if you can help us understand, how are you managing the risk there? What is the certainty on order execution timeline and cost? Some color would be very useful.
Will you take it? Yeah.
You go ahead, start.
So let me put it like this. I think in the first six months, what we have seen, especially on the international side, a majority of the order inflows outside of the offshore wind has been largely led in the hydrocarbon segment. We have seen some project deferments insofar as solar is concerned, but as far as hydrocarbons is concerned, especially in the Middle East, we have seen the bidding activity to be quite robust, and we have also benefited from many of these orders that we have secured. Competitive intensity continued to be there. It is quite strong. But the fact is, a major part of the international orders is coming from the hydrocarbon segment, primarily. Despite the fluid situation in Middle East, this segment continues to witness bidding.
As far as not only bidding, I would also like to emphasize here, and Mr. Sarma can allude to the fact that execution momentum also, until now, has not been disturbed. So that momentum continues to be reasonably strong.
Also, solar will have a pickup in the momentum in the order inflow in the-
Correct
second half.
Solar will pick up order inflow momentum. As I mentioned, responded to earlier question, that is a second half story.
Okay. But in terms of cost, you are not seeing any escalation when you are bidding for the project. How are you factoring that?
I think there is a cost escalation on the logistics and insurance, as we have been saying. We are very hopeful that a good part of it will get compensated by the customer. We have had good discussions with them. There is good traction. There could be a bit of a timing issue that when we recognize the cost and when we get compensated, that we will have to see how it develops.
Okay. On the working capital, it is extremely good at 1.7%. How should one think about this? You have guided for less than 10%.
Feel good about it.
Exactly.
What we should say. It is great. We should feel great about it. This is something we are breaking the record every quarter. I hope that we break the record again.
Puneet, I think as far as the PPM portfolio is concerned, it has been a favorable negative 4% as of September. But at a group level, I did talk about that we are going to be below the guidance of 10%. Now, one of the important points which I also talked about when I gave the working capital closing remarks on the guidance part, given that the volume of operations and the target revenue that we are talking about is quite a tall ask or steep ask for the next six months. So obviously, we do believe that this could have some amount of toning down or moderating the overall working capital trend. So it's quite possible that we may be better than what we have given, but we are going to be below 10%. We started the year with 10%. Now we'll be below 10% for the full year.
Understood. And just lastly on your commitment of CapEx on the AI side, you talked about buying 10,000 NVIDIA chips, et cetera. Is there a plan of how much you want to commit on data center AI for next one year, two year, and also on the semiconductors side?
So as it stands now, as far as the 10,000 GPUs are concerned, this is close to maybe around $750 million of investment. Okay? And this is getting invested in our current data center of 30 MW near Chennai. We plan to put up another 50 MW of AI data center adjoining the 30 MW in Sriperumbudur, that is Chennai. And looks like over the next two years, we may be putting up data center capacity using AI, as a AI factory, a 30 MW plus 50 MW plus another 30 MW. So 100 MW plus is what we are looking for in the next one and a half to two years. Including the chip cost?
Yeah.
Yeah, correct. So as I said, these 100 MW, I'm referring to AI data center. Out of it, 30 MW is already set up. The structure is set up. We may have to only invest in the AI chip. By the balance 70 odd megawatts, it is a combination of taking a new debt, investing in a new data center, which is the civil part of it, along with the related investment in the then prevailing GPU series, whatever is prevalent then. But in the near term, 1.5- 2 years another total will be 100 MW of AI capacity.
Understood. So for 30 MW, you spend $750 for just the chips. For another 70 MW, we should think of at least $1.8 billion, somewhere close to that.
Depending on the chip value, Puneet, it is not right to mention that, but another 70 MW will also have the construction cost of those data centers.
Understood. And the semiconductor side?
As far as the semiconductor side is concerned, I think given that when I spoke about the various products that they have developed, semiconductor should be getting into business now in terms of started selling the designs along with the chips in the very near future. Until now, the investment was happening more on creation of the intellectual property across the various domains that they are focusing on. In the next one or two quarters, this business also will see revenue traction.
Understood. That's all from my side. Thank you so much.
Thank you.
Thank you. Your next question comes from the line of Sumit Kishore with Axis Capital. Please go ahead.
Good evening. Phenomenally strong execution and working capital performance. PR, on your comments that you mentioned PPM net working capital to sales is -4% as of September quarter, how should we look at the domestic PPM working capital situation here, which traditionally used to be what, 15% plus on net working capital to sales? When you talked about collections, still this is 46% of your order book and a significant percentage of your revenue. Is something changing there dramatically as well? That's my first question.
Okay. Sumit, when I was speaking on infrastructure utilities and the CarbonLite business, these were largely domestic orders. Okay. As far as CarbonLite is concerned, some of the recent orders have come from the private sector. So the earlier 15% of domestic working capital is actually moving more favorably to, it's not below 10%, it is around 12%-13% odd percent. But definitely because of a composition of private sector investment or private sector orders and run up into the residential, commercial buildings, factories and all these kind of prospects converting to higher share of orders, the domestic working capital intensity is also going favorably. If I have to take -4% as the overall PPM portfolio, the international portfolio obviously will be almost more than -4% to compensate for the 10%-12% of the working capital intensity. It should be around, say, -8% or -9%.
So -8% or -9% means there are a lot of advances or what is it, that they are paying you before you do the work.
Yeah. More important, that's why when I also spoke about that, just not the net working capital is not the only measure, because the gross working capital also has improved favorably from 52% to 48%, September over March. So that also is equally important because otherwise one can always think about, since we have been securing good amount of orders over the last six months, orders is usually backed up by an advance from the client. That obviously is there. But the fact is the billing milestones have been quite frequent and the payments also coming on time.
Sure. When we read the news flow, Strait of Hormuz is shared, global mandate has its problems, logistics supply chain issues. Procuring solar modules, it seems it's not proving that much challenging for you. Execution is going fine. Hydrocarbon, is the entire supply chain sort of localized? You have local fabrication facilities. So, what is the impact? Middle East revenues have grown 13% year-on-year in this environment. So could you give a slightly more detailed explanation as to what really the challenges are if you have already found alternate supply chain and your margins are also not impacted.
Yeah, go ahead if you want to.
Okay. I will take the first part, Sumit. The revenue upturn, and I did mention during the July call also, a major part of the execution that is happening for the international projects are actually happening in offsite locations, which means we are doing the work in the fabrication yard. The fabrication yards, be it in Kattupalli in Chennai or in Sohar in Oman. That has helped us to ensure that the revenue clip doesn't move down. Given the logistic constraints and given also moving consignments from other parts of the globe into Middle East is a challenge. The revenue uptick, despite as we spoke about the Q2 PPM revenue growth has been 20%, but we are still maintaining the revenue guidance of 10%-12% for the full year.
That is primarily because we have to also take into account the supply chain disruptions in terms of logistics. That is going to impact some of the actual equipment or this fabricated moving to site in the Middle East geography.
Okay.
Good.
Sumit, sir, do you have any further questions?
Basically, then, the margin impact is also not there because the customers are paying the extra logistics cost that you are incurring, and hydrocarbon margins have improved by 80 basis points year-on-year in Q2. Is the stage of execution also advancing on the margin that we were waiting for in hydrocarbon?
Yeah. More or less, your understanding is correct.
Okay.
Only thing, Sumit, last year, I am sure you are aware that we had some challenges, one of the projects in hydrocarbon, that has got tapered off. Okay?
Yeah.
That is obviously, the margins are also moving up.
Sure. Thank you.
Thank you. Your next question comes from the line of Rahul Gajare with Macquarie Capital. Please go ahead.
Yeah. Hi. Good evening, sir. Regarding the six-year EPC framework agreement that you have with PDO, can you throw some light on the quantum and the mix of opportunity? The reason I am asking this is because for the last five years, the budgets of Oman have been flattish in the range of $30 billion-$32 billion. Given that there are four players who are selected, is it fair to expect that margin will be better than the overall hydrocarbon business?
Okay. So this framework agreement with PDO covers for a period of six years, and we believe that the order prospect that we may be targeting, basis what PDO will be spending, is in the range of $6 billion-$7 billion over the next four or five years. Some of these projects they have secured. Apart from us, there are three other companies. One is Egyptian EPC company, one is Chinese, and other is a Korean. We do believe that it gives us a passport to bid for those jobs. But again, the competitive intensity being there, it depends on how well we are placed. But at least it gives us the right to bid for opportunities, which I said $6 billion-$7 billion over the next three to four years for a hydrocarbon from Oman.
We will not bid if they don't get differentiated margin. Sir, and the second question is on the realty business. Can you talk about your portfolio, the land bank, and how do you intend to ramp up over the next three to four years? I think in your annual report, it mentions 71 million square feet of potential development portfolio. Is there any change to this particular number?
There is no change from the last time what we have communicated, Rahul. It is basis this, what we indicated during the May call when we talked about the plan for this business as part of our Lakshya 31 strategy. Those numbers remain unchanged. We are still targeting that kind of a portfolio, and we continue to look at good opportunities for buying real estate and then getting into a combination of residential and commercial developments. So the plan is on, there is no change in terms of development or investment.
My last question is on the defense. Now, we've seen pretty good traction on your precision engineering, both on revenue and order intake. I want to know where is AMCA project in terms of bidding, what has happened? Is there any particular project that you all are looking forward to, given that we've seen a very strong traction in the DAC approvals from the government in the last two years?
I will take that in sequence. The AMCA project is coming up for bid by the month end. Okay?
Okay.
Insofar opportunities are concerned, we see a more-
October end you mean? October end?
This October end.
Okay.
End of this week, that is coming up for bidding. As far as the opportunities from MoD or Defense India is concerned, for us, I think we will see a larger share of the marine opportunities as compared to land. As land is concerned, as you are aware, that L&T has been working on different land-based platforms. Some of these platforms we will see depending on the localization content that we demonstrate to the customer. Many of these large orders are expected in the pipeline, but too early to comment on the timelines. To put it, AMCA is for month-end bid. Opportunities for defense for Larsen & Toubro seems to be quite robust than ever it was before, largely led by on the marine side and land-based armored systems.
Yeah. Sir, my last question is, you did talk about revenue uptake in the hydrocarbon. Because of this disturbance or logistical arrangement or out of inventory in the solar business, is the infra related or power renewable related execution been slight impacted?
I think we answered that question. We have three main businesses in the Middle East. One is hydrocarbon, second is power transmission distribution, and third is the renewable, solar. In that, the least impact is on hydrocarbon, because like PR mentioned earlier, either the projects are so advanced that we have almost everything secured already locally or already available in the sites, or it is getting done in yards which are not affected by this logistic.
The second one is power transmission and distribution. There is some impact, but we are managing that, and we do not expect much impact to come through on that business also in the second half. The one where we have a significant impact is the renewable business, because like you said, solar modules and everything has to come from China. There, we are calibrating it in consultation with customer. There is a possibility that some of these materials may be delayed because the cost is very high. Customer is not agreeing that we will delay. Because of that, there could be some deferment in the revenue.
Okay. Thank you very much, sir.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, we request you to limit to one question per participant and rejoin the queue for any further follow-up questions. Thank you. We have our next question coming from the line of Atul Tiwari with JPMorgan. Please go ahead.
Yes, sir. Just one question. What is the degree of dependence on the Strait of Hormuz for the hydrocarbon business, especially to transport large platforms, et cetera? If it remains contested, then is there an alternative or how will you negotiate that situation?
Some of this work which we have done in our yards in Oman and other places, it has to cross the Strait of Hormuz. It is not that the Strait of Hormuz, nothing is moving. Even oil barrels are moving through the Strait of Hormuz. 70% of the pre-war barrels are still moving through the Strait of Hormuz, though it is not publicly declared. We were successful in moving one large consignment, and now we are exploring possibility to move the balance. I think we are quite hopeful. It should happen. Maybe there will be some delay, but we are still optimistic that we will be able to move through the Strait of Hormuz.
Okay, good to know. Thank you.
Thank you. The next question comes from the line of Amit Anwani with PL Capital. Please go ahead.
Hi. Thank you, sir. My question pertains to the infra margin, which are impacted by 50 basis points, and you did highlight it. There was an impact because of the Water & Effluent Treatment business. Wanted to understand, is there more impact expected? If we normalize that, how the infra margins are shaping up? Basis the current order book which you have, what is the kind of sense we should make for infra margins in medium to long term? Because the other business is somehow stabilized or picking up, but infra still remains concern on the margin front.
Okay. I will take that, Amit. Infra margins actually have been moving northward in terms of our, as I said in response to a previous question, the share of private sector ordering is going up, especially in minerals and metals and the buildings and factory segments. The L1 basis would be in transportation, infra, and heavy civil. The infra margins has been what they are is primarily because of the WET, that is the Water & Effluent Treatment business that we are executing. For whatever it is, if I were to just take out the Water & Effluent Treatment from this portfolio, the margins would have been better by almost 40-50 basis points. This is what has impacted to be the softness in the entire infrastructure and utility segment.
Now we have to, of course, we are ensuring that because that's a very important point is we should also get paid. Given some of the projects are getting funding now, funding has started resuming. But time overruns and cost overruns, given that these are long-dated projects, our ability to convert into actionable claims from the customers will take time. Until then, this segment will have some amount of, I would say, execution pressure and margin pressure. It is this which is actually bringing down. I did tell you the amount of margins that we are losing because of, in this segment, the difficulty in the execution.
All right. Sir, quickly, if I can squeeze in on the developmental asset where you have highlighted green ammonia, data centers, and other assets. I was just thinking, basis your strategy in past four to five years where we highlighted that we want to only do EPC, the other developmental assets have kind of given troubles. What is the rationale to get into the developmental assets in these new areas? Is there better risk profile? What is the strategy to get into this developmental assets in green ammonia, data centers, and other areas?
Okay. So Amit, one clarification. The data center investment is coming under our TPS segment. Okay? So it is not under development project segment. That is one. Secondly, when we talked about the development project segments earlier, it used to be in assets like IDPL and Nabha Power, Hyderabad Metro, and so on and so forth. We had IDPL and all. Okay? Now where we are now looking to invest in green hydrogen, green ammonia, do not expect L&T to do sizable investments in the absence of a take or pay arrangement.
Market risk is not there.
So what happens when we are invested in Hyderabad Metro, the investment amount was quite high, the exposure was quite high, but we did not have visibility of the revenue stream. So consequently, the return stream is also not visible. Here again, we will be investing only, and you know the quantum of investment because we already communicated that in May when we covered the Lakshya 31 blueprint. So the important thing is here the returns are assured under long-term take or pay. So obviously this is not going to be dilutive of the L&T ROE that we had last year. Because the last year L&T ROE had the negative aspect of the development projects portfolio of the previous, that is the Hyderabad Metro and Nabha Power. Those kind of return dilutive kind of investments may not be there.
Thank you, sir. Thank you so much.
Thank you. Your next question comes from the line of Aditya Mongia with Kotak Securities. Please go ahead.
Yeah, thank you for the opportunity. I will go ahead with my questions. Somewhere there is a divergence between the goodness of growth in EBITDA at a core level, which is solid at 15%-16% year-over-year, and the growth that is reported in the overall EBITDA of the company. I do understand nuances of reality and so on so forth, but there is a very large difference and it has happened for the second time. On the flip side, other income is moving in a direction that magnifies the effect. Could you give us a little bit more sense of how to think through this divergence that is happening right now?
Yeah. So Aditya, let me put it like this. If you see the earnings fact sheet, now we also after EBITDA we have the other income. Some part of the other income is getting allocated to the segments while we declare the PPM margin, because such of those are specifically relating to the segments are getting loaded in the PPM EBITDA. What you see in the financial EBITDA is going by functional or nature classification. Some part of our other income specifically attributed to segments get loaded to those segments while we give the segment EBITDA or the PPM EBITDA or whatever we are talking about infrastructure utilities and all. What you see in the P&L is the EBITDA at the nature level. Number one.
Number two is insofar as the nature level, the EBITDA has dropped from 10% to 8.7% is also a question of some of the timing mismatches costs that we have incurred at the corporate segment level itself. So that is also related partly attributed to the drop in EBITDA from 10% to 8.7%. If I had to keep it very simple, 10% to 8.7% you can take around 80 basis points is arising because of the segment related margin compression, but getting compensated for other income and the balance, 40-50 basis points coming at the timing mismatch of costs that we have booked in corporate.
Just to supplement, I think you have to also see it in the context of what is happening in the external world. We are operating under extremely difficult and challenging environment. You cannot take the EBITDA margin at that stage and try to extrapolate. I think it should be appreciated that despite this extremely challenging environment, we are maintaining the EBITDA margin. That is A. Basically, you don't have to too much scrutinize the divergence in the growth versus EBITDA margin growth versus revenue growth, because any revenue growth is always positive because that gives an opportunity to look upside. I think we have to see it in a very different light.
Understood that part. Just the second part over here, and this is on cash flows, which have been fairly strong, as in just the core is generating more than INR 10,000 crore in the first half. Since this is higher than your expectation that you had said otherwise, how to think through this being used by L&T? Does it mean that they start allocating this more as a working capital and start growing their core business faster? Or does one have to think through whatever quantum of CapEx has been classified in newer businesses start to see a big meaningful fill-up?
Yeah, so some part of the, of course, at a group level, if you see our overall balance sheet at a group level, our cash and cash equivalents along with temporary surplus all put together is almost touching INR 1 lakh crore. Okay? Of course, it includes day-to-day cash balance also. But we are sitting on, I would say, a really good amount of surplus that will be partially used for our Lakshya 31 plan of investments, either into combination of data centers, into green energy, our share of equity. All these businesses will have their due levels of leverage. It's not that the entire thing will get invested at a gross level.
Only one thing I would like to add, Aditya, is, I think we have taken a lot of effort to improve the working capital discipline for the core business, and we don't want to let loose that. So we will do execution in line with the progress in the customer level itself, which means timely payments by customers within the terms of the contract will also enable us to ensure execution happens. We don't want to get into that path of, again, trying to show revenue without at the same time compromising on cash.
Understood. I'll get back into the queue and thank you for the response.
Thank you. Ladies and gentlemen, we would take that as the last question for today. I now hand the conference back to Mr. P. Ramakrishnan for closing comments.
So thank you, ladies and gentlemen, for a patient hearing. It was a pleasure to interact with all of you. Good luck and good night, and wishing you all the very best. Thank you.
Thank you. On behalf of Larsen & Toubro Limited, that concludes this conference. Thank you everyone for joining us. You may now disconnect your lines. Thank you.