War-driven inflation dents L&T's margin, company warns the effects may persist in FY27

Engineering conglomerate Larsen & Toubro which has heavily diversified into West Asia in recent years reported minimal impact from the regional war on its revenues and order inflows, even as the knock-on effect of the conflict took a toll on its margins.

The input cost inflation in the March quarter “robbed” the company of its work on cost control, dragging down core segment margins below its guidance, R. Shankar Raman, the company’s president, whole-time director and chief financial officer said. The core segment includes all of L&T's businesses except information technology (IT) services, financial services, the Nabha power plant and the Hyderabad Metro.

India's largest engineering and construction company reported 8.3% Ebitda (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin across its core businesses against its guidance of 8.5%. Going ahead, the company could see persistent pressure on its margins due to the inflationary effect of the war, Shankar Raman warned, keeping the fiscal year 2027 (FY27) margin guidance at 8.3%. Ebitda stands for earnings before interest, tax, depreciation and amortization.

A brisk pace of project execution in West Asia should allay concerns over the war impacting the company’s ability to work in the region, he said. “Things are difficult, but we do find ways with client support to move on in many of these projects,” he said at a post-earnings media call on Tuesday.

The company reported a 3% dip in its profit for the quarter ended 31 March to ₹5,325 crore. Shankar Raman attributed this to a high base of the previous year when it made a one-off gain of ₹453 crore. Revenue for the quarter grew by 11% to ₹82,762 crore, while Ebitda grew by 5% to ₹8,610 crore.

L&T's order inflows are closely watched, indicating the volume of business it will be executing in the coming quarters. L&T recorded new orders worth ₹89,772 crore in the fourth quarter, unchanged from the same quarter last year. This was largely due to a 4% decline in international order inflows.

For context, for the full year FY26, the company logged new orders worth ₹4.36 trillion, 22% more year-on-year. This took its consolidated order book to a record of ₹7.4 trillion.

Shankar Raman attributed the slowdown in order inflows during the fourth fiscal quarter to heavy order booking in the previous quarter. The war in West Asia had no impact on order booking, he said. The key markets for L&T in the region are Saudi Arabia, the UAE, Kuwait, and Qatar, in that order.

For the full FY26, L&T logged revenues of ₹2.86 trillion, 12% more than the previous year. The company had guided revenue growth of 15% at the beginning of the year. Ebitda grew by a tenth to ₹29,150 crore, while profit expanded 7% to ₹16,084 crore.

“FY26 was a very eventful year for the company. Developments around geopolitics, trade disruption, tariff war, friend-shoring, military escalations - all of these dominated the year. And hence, volatility and uncertainty marked the business landscape,” Shankar Raman said. Rapid technological advancements and inflation due to the war made matters worse, he said.

The company has guided 10-12% growth in order inflows for FY27 compared to FY26. “We know that the base is very high and the ask is ambitious, but we don’t want to surrender ambition,” he said.

L&T also tamped down its revenue growth guidance for the year to a range of 10-12%. This is due to the stalemate between Iran and the US at the Strait of Hormuz, which has blocked the free movement of ships. Delays in the movement of material could impact the company’s ability to execute projects on time, affecting its revenues for the year, Shankar Raman said.

As part of its new five-year plan, dubbed Lakshya 31, the company is aiming for 12-15% compounded annual growth in its revenues between FY26 and FY31. That translates to a top line of ₹5.8 trillion by FY31 at the upper end, double of FY26.

Similarly, the company has aimed for 10-12% compounded annual growth in order inflow over this period, which translates into new orders worth ₹7.75 trillion by FY31 at the upper end of the target.

Lastly, L&T has guided for return on equity of 16-17% during this period. The company reported an ROE of 16.6% in FY26, short of its target of 18% under its previous five-year plan called Lakshya 26.

L&T beat the revenue and order inflow targets under Lakshya 26. The company's revenue grew at a compounded rate of 16% between FY21 and FY26 against its target of 15%. Order inflow grew at a compounded rate of 20% against its 14% target.

Shares of Larsen & Toubro Ltd ended 1.07% lower on the BSE on Tuesday at ₹4,056.15 compared to a 0.33% decline in benchmark Sensex. The earnings were disclosed after market hours.