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

Engineering company Larsen & Toubro, which has pivoted heavily to West Asia in recent years, reported that the impact of the regional war on its revenues and order inflows was minimal, although the knock-on effect of the conflict hurt its margins.

R. Shankar Raman, the company’s chairman, managing director and chief financial officer, said input cost inflation in the March quarter “robbed” the company of its cost control efforts and dragged core segment margins below target. The core segment covers all of L&T’s businesses except information technology (IT) services, financial services, Nabha power plant and Hyderabad Metro.

India’s largest engineering and construction company reported an EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) margin of 8.3% against its expectation of 8.5% across its core businesses. Shankar Raman kept the fiscal year 2027 (FY27) margin guidance at 8.3%, warning that if it continues, the company could see permanent pressure on its margins due to the inflationary impact of the war. Ebitda refers to earnings before interest, taxes, depreciation and amortization.

He said expedited execution of the project in West Asia should address concerns about war affecting the company’s ability to operate in the region. “Things are tough, but with customer support we’re finding ways to move forward on a lot of these projects,” he said on a post-earnings media call Tuesday.

The company reported a 3% decline in profit for the quarter ended March 31. ₹5,325 crore. Shankar Raman attributed this to the previous year’s high base from which he had made a one-off gain. ₹453 crore. Quarterly revenue increased 11 percent ₹82,762 crore, while EBITDA increased by 5% ₹8,610 crore.

L&T’s order flows are being closely monitored, indicating the volume of business the company will handle 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 entire FY26 the company recorded new orders worth. ₹4.36 trillion, or a 22% increase year-on-year. This pushed the consolidated order book to a record high ₹7.4 trillion.

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

For the entire FY26, revenues recorded by L&T are: ₹2.86 trillion, or 12% more than the previous year. The company had guided for revenue growth of 15% at the beginning of the year. EBITDA increased by one tenth ₹29,150 crore while profit increased by 7% ₹16,084 crore.

“FY26 was a very eventful year for the company. Developments related to geopolitics, trade disruptions, tariff wars, friendly support, military escalations – all these dominated the year. And hence, the business environment was marked by instability and uncertainty,” said Shankar Raman. He said rapid technological advances and war-induced inflation had made the situation worse.

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

L&T also lowered its revenue growth forecast for this year to the range of 10-12%. The reason for this is the deadlock between Iran and the USA in the Strait of Hormuz, which prevents the free movement of ships. Delays in moving material could impact the company’s ability to execute projects on time, impacting its annual revenues, Shankar Raman said.

As part of its new five-year plan called Lakshya 31, the company is targeting 12-15% compound annual growth in revenues between FY26 and FY31. This means: ₹5.8 trillion on the high end as of FY31, double that of FY26.

Similarly, the company is targeting 10-12% compound annual growth in order flow during this period; This means new orders worth. ₹7.75 trillion by FY31 is at the upper end of the target.

Finally, L&T has projected return on equity of 16-17% during this period. The company reported a ROE of 16.6% in FY26; This was below the 18% target under its previous five-year plan called Lakshya 26.

L&T exceeded revenue and order flow targets under Lakshya 26. The company’s revenue grew at a compound rate of 16% between FY21 and FY26, compared to its target of 15%. Order entry increased at a compound rate of 20% compared to the 14% target.

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