Larsen & Toubro Limited (LT.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Larsen & Toubro Limited Q2 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference has been recorded. I now hand the conference over to Mr. P. Ramakrishnan, Head of Investor Relations, Larsen & Toubro, Limited. Thank you, and over to you, sir.

Thank you, Faizan. Good evening, ladies and gentlemen. A very warm welcome to all of you to the Q2 FY '22 earnings call of L&T. The analyst presentation was uploaded on the stock exchange and our website an hour back. I hope you all had a chance to take a quick look at the numbers. As usual, instead of going through the slide-wise the entire presentation, I'll try to summarize the key highlights for the quarter followed by our commentary on environmental outlook, which I believe will take the next 20 or 25 minutes. Post that, we will get into Q&A. Before I begin the overview, a brief disclaimer, the presentation which we have uploaded on the stock exchange and in our website today contains or may contain certain forward-looking statements concerning L&T's business prospects and profitability, which are subject to several risks and uncertainties, and actual results could materially differ from those in such forward-looking statements or statements made during this call. Q2 FY '22 can best be described as a comeback quarter for India. Not only did the COVID second wave in India abate faster than expected, but from the various published high-frequency economic indicators, it does appear that the dent created to growth by the second wave was shallower than the first. Green shoots were visible in various industry services investment and mobility indicators towards the later half of Q2. In a way, the widening price deficit -- trade deficit in September '21 is also an indicator for a more normalized India. The higher tax collections witnessed in Q2 also reinforces our growth process -- thought process. On the flip side, the supply side inflation challenges continues to remain us so worried. India completed more than 1 billion vaccinations. And as we speak, the daily infections -- COVID infections are already at an 8-month low. Going forward, a combination of pent-up plus festival demand should augur well for India recovery in Q3 FY '22 and beyond. Coming to our L&T group performance. Q2 FY '22 was about striking a balance between profitable growth and capital employed. Let me assure you that the return ratio at the group level are being pursued rigorously irrespective of the macroeconomic volatility. I will now cover the key financial indicators for Q2 FY '22. Our order inflows for Q2 FY '22 at INR 421 billion registered a growth of 50% over the corresponding quarter of the previous year. In the Projects & Manufacturing business, our order inflows for Q2 FY '22 at INR 301 billion registered a growth of 73% over Q2 FY '21. The order inflows in this Projects & Manufacturing business are fairly spread out across all the segments that comprises the P&M business, namely Hydrocarbon, Infrastructure, Heavy Engineering, Realty and the Industrial Machinery & Equipment businesses. Having said that, let me mention here that in Q2 FY '22, we did witness some delays in domestic awards finalization despite the robust pickup in tendering activity. Just to elaborate on that point further, whereas macro level domestic projects announced and tendering activity in Q2 FY '22 was up by 19% over Q2 FY '21, project award dropped 22% over the comparable quarter of the previous year. Moving on to our prospects pipeline. In the Projects & Manufacturing business, for H2 FY '22, our total prospects pipeline stands at INR 6.83 trillion as against the total prospect pipeline of INR 6.13 trillion that existed as of September 2020. This reflects an overall increase of around 12%. This overall prospect pipeline comprises of domestic prospects of INR 4.66 trillion and international prospects of INR 2.16 trillion. I am sure you would recall that our total prospect pipeline at the end of Q1 FY '22 was around INR 8.96 trillion. With the COVID second wave behind us and remote risk of a third wave, we do expect a very busy H2 in terms of tendering and awards finalization. Now moving on to order book. Our order book as on September 30, 2021 is at a record high -- a near record high of INR 3.31 trillion. A large and diversified order book gives us multiyear revenue visibility. As our Projects & Manufacturing business is largely India-centric, 77% of this order book of INR 3.31 trillion is domestic, and the rest 23% international. Around 89% of our total order book comprises of Infrastructure at 74% and Hydrocarbon at 15%. Within Infrastructure, our order book is well diversified across the various business segments like Heavy Civil, Water, Power Transmission & Distribution, Buildings & Factories, Transportation Infra and the Metallurgical & Material Handling businesses. Further breakdown of the domestic order book is as follows: central government, 10%; state government, 33%; public sector units of state-owned enterprises at 42%; and the remaining private sector at 15%. Again, around 31% of the total order book is funded through bilateral or multilateral institutions. Coming to revenues. Our group revenues for the quarter Q2 FY '22 was INR 348 billion registering a growth of 12% over Q2 FY '21. International revenues constituted 35% of the revenues during the quarter. The IT & Technology Services portfolio did report industry-leading growth in Q2. In the Projects & Manufacturing business, our revenues for Q2 FY '22 were at INR 228 billion, registering a growth of 12% over Q2 FY '21. The executions in the Project & Manufacturing business was calibrated in line with the cash flows that we realized during the quarter. Going forward, as cash flows improved in the second half, and if there are no major risks emanating from a possible COVID third wave, we should witness improved execution levels just like any normalized second half of the year. Moving on to EBITDA margins. Our group level EBITDA margin for Q2 FY '22 at 11.5% vis-a-vis 10.7% in Q2 FY '21 reflects an improvement of 80 basis points, largely on account of improved overhead recovery despite cost headwinds. It is important to note here that even on a sequential basis, our group level EBITDA margin has improved 70 bps. Kindly refer to the detailed breakup of the EBITDA margin business-wise, which is given in the annexes to the analyst presentation. Coming to Projects & Manufacturing business portfolio. Our Q2 FY '22 EBITDA margin is at 9.2% vis-a-vis 8.1% in the quarter of the second quarter of the previous year, again registering an improvement of 110 basis points. Even sequentially, there is an improvement of 30 basis points. As guided at the beginning of the year, we will maintain our Projects & Manufacturing business EBITDA margin at the same level as last year, that is the full year FY '21, which was around 10.3%. We have multiple levers in the businesses to offset the cost headwinds being experienced in the current year. We will -- I'll briefly explain that later. Our current composition of variable price contracts in the order book, it should be around 60% to 65%. That is one fact that gives -- as far as cost increases are gone, we do have a sort of a compensatory impact. Secondly, there are jobs that are expected to cross the threshold margin level in the current year. Thirdly, there will be cost contingency releases for the jobs nearing completion. And on top of them, we have overhead optimization initiatives, enhanced production -- productivity through digitization, value engineering and [indiscernible] control activities, negotiations with vendors and discussions on clients on use of alternate variates of inputs should see us through in terms of managing the cost pressures experienced in the current year. Moving on to PAT. Our operational PAT for Q2 FY '22 at INR 17.2 billion is up by 56% over Q2 of FY '21. The improved EBITDA due to better overhead recoveries as well as reduced finance costs due to lower borrowing at the parent level contributes to this PAT improvement. Our reported PAT at INR 18.2 billion for Q2 FY '22 has registered a decline of 67% over Q2 FY '21, mainly due to the 2 one-off items, one being the profits on the -- or the gain on the divestment of the Electrical & Automation business and 2 exceptional items that we took with respect impairments to of our exposure in the Forgings and the Power Development business portfolio. The group performance P&L construct along with reasons for major variances under the respective function heads is provided in the analyst presentation. The only place I would like to draw your attention is to the exceptional reported for the current quarter Q2 FY '22 that INR 1 billion exceptional net of tax for Q2 represents the gain on divestment of stake in our Uttaranchal Hydropower plant, which is at INR 1.44 billion. And at the group level, a tax outgo on transfer of the next digital business that happened on 1st of July from L&T to Mindtree at INR 0.47 billion as an outgo. Coming to working capital. Our group net working capital to sales ratio has improved from 26.7% in September '20 to 22% in September '21. One of the reasons for this ratio moving lower is due to the denominator moving higher. Secondly, as I mentioned earlier, we have tried to maintain a healthy balance between execution and working capital management during Q2. You would have noticed that the NWC to sales ratio has also improved from the March '21 levels where we had reported 22.3%. Customer collections have been good during the quarter. Our group level collections that excludes the financial services portfolio for Q2 FY '22 were at INR 322 billion vis-a-vis INR 296 billion in Q2 FY '21. If you glance through the cash flow statement given as part of the annexure to the analyst presentation, you will notice that the net cash from operations in Q2 FY '22 was at INR 40.4 billion, showing vis-a-vis INR 27.3 billion in Q2 FY '21, registering a smart growth of almost 48%. The CapEx for Q2 FY '22 was at INR 5.7 billion vis-a-vis INR 3.6 billion in Q2 FY '21. As we look at we are off to a good start in the first 6 months, now hopefully, we should consolidate and sustain this momentum. Finally, as we had mentioned at the beginning of this year, our endeavor is to maintain our group level net working capital to sales ratio in March '22 in and around the same levels that we reported for March '21, which was around 22.3%. Moving to balance sheet. If you glance through the balance sheet given in the annexure to the analyst presentation, you will notice that our group level gross as well as net debt ratios have improved vis-a-vis the March '21 numbers. This is primarily due to repayment of liabilities in our Financial Services business, around INR 37 billion; Power Development business, around INR 21 billion; and as well as at the L&T parent level around INR 17 billion. Finally, our trailing 12-month ROE as on September '21 is at 11.8% vis-a-vis 16.8% printed for September '20. As you are aware, the ROE in September '21 includes the benefit of a onetime gain on the sale of Automation business -- the ROE in September, I'm referring to ROE in the previous year, includes the benefit of a onetime gain on the sale of Electrical Automation business, net of the exceptional write-offs that we took in Q2 of the previous year. Further, you would also recollect that as on March '21, our ROE on the continuing operations is at 10.1. We are improving progressively. And as I said earlier, return ratios going forward will be pursued rigorously. Our robust business portfolio focused on cash generation, distribution, high on capital deployed and divestment of the noncore concession assets should hopefully lead to an improvement in ROEs in the near future. Very briefly, I will now comment on the performance of each of the business segments before we move on to the final comments on the environmental and outlook. Coming to Infrastructure. Order inflows in Q2 are fairly spread out across the various top segments. Having said that, let me mention that Q2 was a quarter of robust new project announcements at a macro level and even tendering activity happened at the brisk pace over we did witness delays in the awards finalization. Our order prospects pipeline in this segment for H2 for the current year remains healthy at INR 5.29 trillion vis-a-vis INR 4.40 trillion, same time last year, reflecting of increase of 20%. Of this INR 5.29 trillion of prospects, domestic prospects are at INR 4.0 trillion and international at INR 1.07 trillion. The prospects are well spread across various areas like buildings and factories, hydro projects and tunnel projects, ports and harbors, metros, nuclear power construction, roads, railways, water, power transmission and distribution and metal -- material -- Metallurgical and Material Handling. The order book in this segment is at INR 2.43 trillion as at September 2021. The average execution cycle of this order book is around 27 to 28 months. So the book-to-bill ratio is close to around 3 years. The Q2 revenues at INR 139.2 billion registered a growth of 7% over the comparable quarter of the previous year. We followed a calibrated execution approach in this segment in line with the cash flows during the quarter. To some extent, we suffered on the execution front due to supply chain bottlenecks overseas, largely due to COVID reasons, and also intermittent and incessant rains and finally, cyclone Tauktae which impacted project execution progress in Maharashtra and Gujarat sites. Our EBITDA margin in this segment improved from 6.4% in Q2 FY '21 to 8.3% in Q2 FY '22 due to a better job mix and improved overhead recovery despite commodity price headwinds experienced during the quarter. Even on a sequential basis, that is from Q1 FY '22 to Q2 FY '22, the margin has improved by 120 basis points. That is from 7.1% to 8.3%. Now moving to the Power segment. The subdued ordering environment continues. Having said that, let me mention here that we have a fairly good order prospect pipeline of INR 160 billion for H2 comprising a couple of domestic and international opportunities. The revenues for Q2 FY '22 for this Power segment at INR 11.1 billion was up by 62% over Q2 of FY '21. The large opening order book drives healthy execution for the quarter. The reported margin for this segment for Q2 FY '22 is at 2.7%, reflective of job mix and stage of execution. As you may be aware that the profits of boiler, turbine and other JV companies in all aggregate to INR 0.43 billion for Q2 FY '22 is consolidated at a PAT level under the equity method. We come to the Heavy Engineering segment. In Q2 FY '22, this segment had multiple order wins in the refinery, oil and gas vertical. Revenue for Q2 FY '22 is at INR 6.2 billion, up by 4% over Q2 of FY '21. The job specific challenges and slower execution impacted revenue in Q2. The Q2 FY '22 margin was at 15.7% vis-a-vis 5.1% for Q2 FY '21. The previous year Q2 margin was impacted by a onetime international customer settlement. I come to Defense Engineering segment. On the back of the government's thrust towards indigenization, we continue to remain optimistic on multiple order wins in the medium term. Having said that, the order inflows in Q2 FY '22 continues to be impacted due to award deferrals. The revenue for Q2 FY '22 for the Defense Engineering segment was at INR 8.4 billion, up by 10% over Q2 of the previous year. The job progress across multiple systems jobs that we have executed led to the improvement in revenue for Q2. The reported EBITDA margin at 13.7% for this quarter is a function, again, of job mix. At the same time, previous year Q2 FY '21 margins were aided by cost savings and contingency releases on job completion. At the cost of repetition, we once again reiterate that this business does not manufacture any explosives nor ammunition of any kind, including cluster ammunition or anti-personnel land mines or nuclear weapons or components for such munitions. Further, the business does not customize any delivery systems for such munitions. Now we move on to hydrocarbon. The receipt of high-value international order obviously buoys the order book. As per the standard protocols for ardent announcement concerning job and client description and other returning details will be made to the stock exchange post receipt of specific client approvals. The book-to-bill ratio in hydrocarbon is around -- currently around 2.5 years. H2 FY '22 prospects pipeline for hydrocarbon is around INR 1.2 trillion, which primarily comprises of international prospects of around 80%. Revenues for Q2 FY '22 is at INR 48.7 billion, up 20% on Y-o-Y basis, mainly due to peaking of execution activities on onshore jobs. There has been no major variation in Q2 -- margin variation in Q2 FY '22 vis-a-vis Q2 FY '21. Moving on to the Development Projects that is the concessions portfolio. This segment includes the Power Development business, comprising of Nabha Power plant and the Uttaranchal Hydropower plant up to the date of its divestment, which was August 30, 2021. It also includes Hyderabad Metro. As you are aware, the roads and the transmission line concession business part, which is the part of L&T IDPL is consolidated at PAT level that being under a joint venture. The revenues for this segment for Q2 FY '22 is at INR 11.7 billion, up 3% Y-o-Y. Majority of revenues in this segment is contributed by Nabha power. The lack of coal availability impacted Nabha revenue in Q2. And on the other hand, a subsiding COVID second wave led to improvement in the Hyderabad Metro ridership. In Q1 FY '22, the average metro ridership was around 55,000 passengers a day, which has improved to 146,000 passengers a day in Q2 FY '22. As we speak, in the month of October, we have been witnessing on an average around 190,000 to 200,000 ridership per day. Very recently, in Q3, that is what I just now said, it is now ranging between 180,000 to 200,000. The Q2 FY '22 margin in this segment is a combination of the Metro -- Hyderabad Metro and the Hydropower plant up to the date of divestment, which is, as I said earlier, August 30. As you are aware, we are not consolidating the Nabha margins from Q3 FY '21 onwards. The metro at a PAT level reported a loss of INR 4.47 billion in the current quarter. The operating and amortization costs are INR 0.75 billion each, whereas the interest cost of INR 3.7 billion to INR 3.8 billion was incurred during the quarter 4 Hyderabad Metro. At this juncture, I would like to give a quick status update on the divestments of our concessions portfolio. As I mentioned earlier, our stake in the Hydropower plant was successfully divested in this quarter. The gain on this transfer on this particular divestment is recorded as an exceptional item during Q2 FY '22. For Nabha, various divestment options are being explored, and we will make the announcement at an appropriate time. Coming to IDPL, we are exploring the possibility of divesting our remaining 51% stake in favor of third-party investors. For Metro, multiple options are in the works, currently ranging from seeking state government assistance to getting third-party investors and also refinancing of the existing debt. Further, a combination of improved traffic recovery as well as the transit-oriented development real estate that monetization that hopefully should augur well for Hyderabad Metro in the near future. Needless to mention that this asset is an operational asset and the residual concession period is almost close to 60 years. Coming to IT and TS portfolio. The revenues for Q2 FY '22 at INR 78.8 billion, that roughly translates to USD 1.05 billion is up by 9% on a Q-on-Q basis and 28% on a Y-on-Y basis, largely benefiting from the strong tailwinds in this sector. The export billing constituted around 93% of the total customer revenues for the quarter. The IT spends earlier focused largely on enablement and improving efficiencies, whereas the IT spends today are focused more on redefining revenue models and revenue maximization. There are a lot of spends that are happening in areas like cloud, data security and intelligence. The margins for this segment is a function of wage cost, utilization ratios, onshore/offshore revenue mix and operational efficiencies. I would not like to build too much on this as all the 3 companies in this segment are listed subsidiaries and the detailed factsheets are already available in the public domain. Moving on to the Others segment. This segment comprises real estate development, Industrial Machinery, Valves and Simart World & Communications. For Q2 FY '22, the revenues of this segment is at INR 13.8 billion, up by 4% over the comparable quarter of the previous year. The strong growth in Realty and Industrial Machinery business is offset by subdued revenues reported in Smart World & Communications as well as Industrial Valves. The margin by NC in Q2 FY '22 is mainly driven by Realty and Industrial Machinery. We move on to Financial Services. Here again, L&T Finance Holdings is listed, and the detailed results are available in the public domain. Q2 essentially revolved around pickup in the retail disbursement, strong collections, improved net interest margins and fees and maintenance of adequate liquidity on the balance sheet. I would like to emphasize here that this business continues to pursue the strategy of higher retailization of its loan book, diversification of liabilities, maintaining prudent ALM and targeting sustainable net interest margins. Finally, post the rights issue that happened in January '21, this business has sufficient growth capital. Before I will move on to the final section on the environment and outlook, let me talk about the ESG disclosures. We released the integrated report for FY '21 on the 21st of October, and that is already available in our website. This integrated report for FY '21 is the 14th consecutive year of sustainability disclosure by L&T. The various aspects starting from corporate governance to climate and environment coverage, various aspects of energy consumption, conservation, greenhouse gas emissions reduction, water consumption and recycling, material management and recycling, safety, green portfolio, improved sustained -- supply chain sustainability, employee engagement and well-being and community development programs are covered in detail in the report. Further, L&T is committed to becoming water and carbon neutral by 2035 and 2040, respectively. The next steps post release of the integrated report FY '21 will be to recommence our engagement with the lead ESG rating agencies in order to explain our ESG journey, which hopefully should translate into improved ratings for our company. Coming to the final section on environment and outlook. I would like to sum up, the narrative in 2 parts. One is our medium- to long-term view and other being a near-term view. I will talk about -- first, I'll talk about the medium- to long-term view. For various reasons, we believe that the current decade will be India's decade of inclusive growth. During the last decade, we witnessed multiple reforms like demonetization, GST, IBC, RERA, labor reforms, et cetera, which impacted growth in the near term. But all of these reforms were essential if India were to improve the quality of its growth. Needless to mention that the government followed up the reforms exercise with a sort of a booster dose during the current period to revise the economy, stating -- starting from direct tax cuts to introducing the PLI scheme, fiscal push, RBI monetary easing, national infrastructure pipeline, national monetization pipeline, Gati Shakti et cetera. The base is, therefore, set for India to grow from now on. India's current decade could therefore witness CapEx resurgence, which was absent in a meaningful way in the last decade. A combination of public and private CapEx resurgence is expected in the current decade. With PLI relating investments fortifying, India should possibly become an attractive manufacturing destination, which will alleviate pressure on imports and lead to exports from India. Along with physical infrastructure, we would see substantial investments in the digital infrastructure as well. Needless to mention that for a cleaner India, there could be -- there will be trust on renewables, green hydrogen, battery, et cetera, et cetera. The risk to this review could revolve around inflationary conditions across the world, geopolitical tensions and a possible return of the third COVID wave. Talking about near term. With the progressive weakening of the second COVID wave and the sustained vaccination efforts, the overall business environment is looking a lot more positive. As I mentioned earlier, there are a plenty of high-frequency economic indicators, evidencing a return to normalcy. Further, a near normal monsoon along with ongoing festive season, coupled with pent-up demand, could give a boost to demand led recovery across the various segments. Resources are generated through the national monetization pipeline could be utilized to fast track the investment program of the government. Further, the global economic outlook remains fairly strong, aided by respective government's extending fiscal support and central bonds offering monetary support. The elevated oil price will positively favor the economic prospects of the GCC nations and give a fill up to several investment programs. Although the global surge in commodity prices augurs well for capacity additions in the minerals and metals sector, but in the interim could pose headwinds to their consumption. Under this scenario, the company continues to focus on profitable execution of its large order book, leverage strong momentum in its IT and TS portfolio, cost optimization measures through automation and intensive use of digital technologies, release of funds through improved working capital management and a phased divestment of non-core assets. The company is confident of building on the current business momentum and is committed to creation of sustainable returns to all of its stakeholders. Finally, we remain -- we continue to retain our guidance of a low to mid-teens growth in order inflows and revenues for FY '22. The Projects & Manufacturing business in the current year, as I mentioned earlier, the margins would be maintained in and around the same levels that we posted for FY '21. And the same applies to NWC revenues at the consolidated levels at the same level -- and NWC to revenues for the consolidated group in and around the same levels that we printed for March '21 last year. Before I conclude, our 5-year strategic plan is in the final stages of completion. The timing and format for the same will be announced later. That completes my overall summary of Q2 performance. And thank you, ladies and gentlemen, for this patient hearing. We will now get into Q&A.

[Operator Instructions] The first question is from the line of Renu Baid from IIFL.

Sir, my first question is to understand a bit more on the execution side. Execution numbers still seem to be relatively weak. While you have given the explanation that your end, have we seen the active weakness in collections from government sector customers, which has led us to moderate the execution pace?

So Renu, in Q2, whereas our emphasis has been and right from the start of this financial year, we have been ensuring that there are certain sites where if the collections are not happening on time, we don't want to invest in further working capital to the extent of the become -- the asset buildup becomes more than the collections made. But the most important thing I would like to emphasize, which I mentioned in my speech earlier is that in Q2 because of the fact of 2 reasons that there has been supply chain bottlenecks, especially when it comes to imports of materials from other countries. So what was expected to come in the month of August, it doesn't come up and it comes almost in the month of September. For various reasons, it could be COVID reasons, it could be also the reasons of, as you are aware, the entire global free trades in terms of availability of vessels and containers that have had some impact. Secondly, the workforce availability, what we have now almost at 251,000 as of September is actually even more than what we witnessed in the Q2 of the previous year. I think Q2 of the previous year, we closed at on 240 -- 240,000. Unfortunately, what has happened this time, the mix of workforce also undergone a change. So what went out of the sites in the first half of the previous year and what came in the current -- first half of the current year, there is a change. And so to that extent, some amount of efforts have happened to reskill the workforce to the need of the specific sites. This was business in Q1. And in a way, it is also witnessed in Q2. Last but not the least, we are executing some major projects in Western India, mostly Maharashtra and Gujarat. So the cyclone Tauktae and also the rains which happened in the month of September, also impacted the third month execution. So we do believe that the execution in the second half of the current year, we should not be having any of such challenges. And that would be possibly optically you're seeing that what would have been expected a higher execution is because of reasons which I just now stated.

Sir, my second question is given that most of the inflationary trend seems to remain and in general, the inflation that have seen over the last 12, 15 months, so what would be the implication of this on the [indiscernible] Mumbai–Ahmedabad High Speed Rail Corridor project that we have won? Do we plan to make any provisions in terms of potential cost overruns? Or you think it would be adequately provided in the contractual terms while this is a 3- to 4-year contract in terms of execution pricing?

So Renu, this was a project that was bid out sometime in Q2 last year. We secured the project in October 2020. And as you rightly mentioned, it is a 4-year project. But I would -- I wish to assure you that the cost parameters or assumptions that have been taken, including the contingency assumptions. Everything -- we do believe that what we estimated the margins at the time of project bid, there has been no substantial change to that as we speak now. The project today is achieved only around a 3% to 4% completion. And we would see a substantial completion -- progress happening in the next, I would say, 12 months, you could see a buildup. But we do not expect, considering the way the project has been bid out and the assumptions that we have considered, we do not expect at this juncture any major dent in the margins which was at the time of bidding with respect to this project.

Got it. And lastly, if I can ask one more on some of the newer areas; a, we have emerged as one of the contenders in the solar panel manufacturing PLI. What are the planned CapEx and investments? And also recently, there was a retail release on the education technology side. So what are the L&T's plans in terms of investing in these new and emerging areas and likely growth prospects?

Okay. So the 2, I would say, the new initiatives that L&T was undertaken in the last, I would say, 1 year or so, one which has been -- we have already launched that L&T EduTech. And maybe in the next 3 to 4 months, we will have another launch happening of sort of industrial e-commerce kind of a business. So these are initiatives that have been already incubated. But in terms of further investments into the other areas that we have been talking about, be it electrolyzers or be it batteries or be it, I would say, data centers and all these all features as part of our overall strat plan. At this juncture, it would be inappropriate for me to talk about numbers and figures. But necessary initial steps in terms of filing for approvals of schemes, that are being done. But in terms of the actual roadmap, maybe you have to wait some time in the end of Q4 of the current year, we will be able to articulate in each of these new ventures that we are looking ahead for as part of our next 5-year plan ending FY '26.

The next question is from the line of Sumit Kishore from Axis Capital.

My first question is if I look at the win ratio for orders in the Infra segment, I'm looking at the intra order wins divided by the reduction in the order prospect base for Infrastructure, the win ratio appears to be a single digit. While in hydrocarbons, it is a healthy double-digit number. So were there any message to competition in Infra segment? And could you talk about the competitive intensity? Particularly for hydrocarbons, what was the large order was not disclosed on the exchange?

Sorry, can you repeat the second question, Sumit?

Sir, I was saying that there was a large order in hydrocarbons, which apparently was not disclosed on the exchanges.

So I did talk about it in my -- when I was summing up the performance, okay? So that we will announce it the moment we have the client approvals, okay? So kindly bear until then. Coming to your first question, I will put it like this, that with respect to the Infrastructure segment, we have had opportunities coming across all the segments that we are present in the entire gamut of infrastructure. But consciously, we have been very careful in pursuing these bids in the sense that we are not bidding very aggressively for projects where we see plenty of competition coming up. And as you may be aware that we have been desisting to bid for and hand related projects in the Transportation Infrastructure. But definitely, the pipeline, as I mentioned, looks to be quite good. And if I have to go by past, our track record, the H2 performance and the conversions there on gives us the confidence at an overall level for the Projects & Manufacturing business, we still would like to retain the guidance of up to a low to mid-teens for FY '22.

Okay. And could you spell out the breakup of order prospects in Infra segment-wise? And for hydrocarbons, what is domestic and what is overseas?

So I was talking of Hydrocarbon the total order prospects was INR 1.2 trillion against which, the international prospect is almost INR 1 trillion, okay? Now coming to the Infrastructure side, I was talking about a total order prospects of INR 5.29 trillion, out of which, international was INR 1.08 trillion, okay? And when I take the total of INR 5.29 trillion order prospects, I would say that it is evenly spread out between Buildings & Factories, Heavy Civil, Transportation Infrastructure, Water, Power Transmission & Distribution. There is a small number which accrues on to the minerals and the metallurgical business as well. But for the sake of giving you a flavor, this INR 5.29 trillion, I would say, is fairly well spread out between the first 5 segments and a small amount to minerals and metals. Because we do believe that the private sector CapEx, especially in this segment, although it's seemingly very positive, but in terms of actual investment outlay, that should be happening sometime next year.

Okay. Just one last point. Your core business margins are tracking up 160 basis points year-on-year, and you have had a calibrated execution approach so far. So is the guidance seems to imply that in the second half of the year as your execution picks up, the margin gains will be evened out. Is there a possibility of beating your flat margin guidance for the core business?

Sumit, see, when we gave the guidance of 10.3 for core business EBITDA for FY '22 it was basis a lot of assumptions in a sense that we knew very well when we gave this guidance was in the month of May. We were in the middle of the COVID second wave, and we did expect that Q1 will be a little muted. And our guidance was basis that the revenue momentum or the execution momentum to be normalized from July onwards. So as it stands now, it is in line with our own internal estimates. And based with this internal estimates, and that is how we gave a guidance of 10.3, any update to this, maybe we will see at the end of Q3 how it is shaping up. At that point of time, we will try to communicate if there's a change at all.

The next question is from the line of Mohit Kumar from DAM Capital.

Congratulations on a very good quarter, especially maintaining the EBITDA margin or improving the EBITDA margin for the core business. So my first question is on the order prospects. This is slightly subjective question. Are you more upbeat about the prospect compared to less in May 2021? Or do you think it's a concern?

So we closed March and at the time when we gave in May, the order prospects pipeline was INR 9.06 trillion. And then when we closed June, our order prospect pipeline was around INR 8.96 trillion. So one good feature is that during Q2, the tendering activities has been almost in the range of 2 lakh crores, okay? And we do expect this momentum to impact the fast forwarded and basis the kind of order prospects project-wise that we have across all the subsegments and also basis our businesses assessment of the price point that the customer looking is at the intensity of competition and also the historic conversion to order prospects to actual orders, it gives us a confidence Mohit that with respect to order inflow, we should be in a position to maintain that guidance that you are talking about of low to mid-teen kind of a growth for FY '22 when compared to FY '21. When I talk about the strike rate, and this is again based on assessment and past statistics, very often we have seen that the conversion of order prospects to the actual orders ranges from a bad year between 15%, on a good year at 20%. So I will stay put here because at the end of the day, it's a question of tendering, bid submissions, competitive intensity, meeting the project estimates of the client and last but not the least the final ordering. So -- and this is what the -- our entire assumption construct is there, basis which we still are confident to retain our guidance of order inflow for FY '22.

Sir, a related question is, are we seeing improvement in order process on domestic order inflow, especially from private sector given the plethora of activities? I'm asking especially from the FY '23 perspective. Do you think the private sector CapEx will pick up, and we'll have a higher order inflow contribution as the FY '23.

See the way we are looking at FY '21, FY '22, the private sector composition in the order prospects and in a way in our order backlog also is around 20%, okay? The only one change that we are witnessing in FY '22 is that the share of public sector corporations or public sector units putting on the tenders and announcing awards, that has gone up. Whereas the share of -- the aggregate share of the central and the state government has actually come down. So it is in a way positive. But I do believe that in H2, given the fact the government's recent announcement of national monetization pipeline and also the Gati Shakti initiative announced by the government, by the Prime Minister, I guess, the next 6 months, you could see maybe a ramp-up of central government and state government-led ordering, I would say, prospects. As I said earlier, the share of private sector, which is today around 20%, maybe in FY '23, that could go up as I mentioned, that you could see substantial investments or outlays being announced by the major industrials -- core industrials, including the new businesses like data centers and even, I would say, some of the IT powerhouses are also now looking at investment in new campuses. But that would be something next year. It would be permissive for us to conclude in terms of giving a number of that share private sector to the total order prospects in -- for the next year at this juncture.

Sir, last year, there is a time line for Lakshya 2026 the strategic plan. When do we expect it to be announced by end of December? Or do you think it's a Q4?

As I said, it could be -- I think it could be a Q4 Mohit.

The next question is from the line of Ankur Sharma from HDFC Life.

A couple of questions. One, on the domestic ordering. And as you said that there have been delays in finalization despite good tendering. So just wanted to understand from you what's leading to this delay? And why should therefore change, say, in the next quarter or so? I mean what's your thoughts on that?

See, Ankur, it is like this. Again, I mean, I would take it in 2 parts. One is that FY '22 and especially the second half, the assumption contract that we are having is a pre-COVID normalized second half, okay, for the country, for economy and for L&T. And usually -- and given fact the government has kept up -- and come out with a record set of multiple announcements starting with NMP and Gati Shakti and so on, so it would be very -- I think -- and with the kind of order prospects, the projects that have been listed out, it gives us the confidence that like in any year in the past, pre-COVID, I'm talking of FY '20 and before, the H2 for the current year would see a lot of activity in terms of tendering, awarding -- and announcement of awards, and so the case with L&T with the respect to execution. So we are also -- as we speak, we believe we are well placed in various bids that we have submitted. But procedural delays which have -- we have witnessed in Q2, I think that should wane out, and we should see back to kind of a normal pre-COVID busy season second half of the country.

Okay. So it's that procedural delays and things will pick up as we get along, okay. Sir, would you also want to quantify your L1 order, say, as of September, October end...

Ankur, we are at any point of time, we are placfd -- well placed L1. But we have desisted until now to announce that because what happens is you may get placed L1, but there could be delays and so on. So it would be inappropriate for me to give a number to that.

Okay, fair. And just one last one on execution. As you said, as we also understand, there were rains, there were some labor issues, et cetera, in Q2. But now, as we head into the second half and of course, with the assumption that there's no big third wave, execution should kind of pick up in a meaningful banner so would you believe that second half, we could at least maybe get back to the second half '20 kind of top line, that is the pre-COVID levels?

So Ankur the construct is obviously that it's a pre-COVID level of execution, okay? As I mentioned, as of September, the workforce across the 800-odd sites were around 251,000 or so. And now I believe it is -- the update is that it's already mapped up to 260,000. So -- and I also confirmed from the businesses like what those challenges, which we witnessed in the last 1 year. I'm talking from almost August 2020 to maybe August 2021 where workforce changes also had an impact in terms of productivity. So I don't think that also should not be a challenge anymore. The only place where we could have a challenge is like that, as I mentioned, on supply chain. The domestic supply chain is completely up and running absolutely smooth. But when it comes to the overseas part, there has been some challenges. Of course, it is improving. But that could be one possible risk assumption we are looking at. And in terms of our experience, like I mentioned, that we have been consciously trying to balance growth and capital employed. And that has been the philosophy in the last 4 quarters, especially post-COVID. And in a way that is witnessed in our working capital numbers. But collections have been improving. And if I take into a pre-COVID kind of H2 construct, then the collections usually jump up. And that should also enable us to progress on execution to touch on the targets that we have set ourselves to with respect to our Projects & Manufacturing portfolio.

The next question is from the line of Puneet Gulati from HSBC.

I wanted to get some more color on the nature of hydrocarbon business that you're winning and whether one should assume that most of these businesses would still remain a single-digit margin business? Or is there a potential to move to double digit there?

So hydrocarbons -- okay, I mean, just to -- Puneet once again reiterate the hydrocarbon order prospects that we have now is almost for H2 is at INR 1.2 trillion, out of which INR 0.2 trillion is domestic, and almost INR 1 trillion is international. Yes, there are, I would say, a good amount of competition for both the domestic and the international opportunity. And the international prospects today at INR 1 trillion has gone up because there was hardly any ordering in the last 15 months or so. So that itself because of the crude prices being what they are. We do see a lot of inquiries and plans coming out by all the customers in the Middle East area. As far as margins are concerned, as we speak now, we can only talk about the margins, which are residing in the order book, so, which will continue in the way we have been printing out for this particular segment for the last 2 to 3 years. But going forward, in terms of giving you a margin forecast on the bids that we are going to submit against these order prospects, I think it would be a little more premature for us to comment because ultimately, competitive intensity, client visibility, client connect, the nature of the technical complexity, all of this have a bearing on the pricing. So I will stay put with that comment, Puneet.

Okay. That's fair enough. Second is while you say you'll talk about the solar and electrolyzer business in the other plant but you also mentioned EduTech and e-commerce. Can you talk a bit about what kind of capital allocation are you planning for those?

So at this stage, these are all start-up investments. We have just launched EduTech. It happened on the 15th of October. Obviously, there will be spend happening. But in terms of overall thought process how we would like to run the business and grow these businesses, it will all part of our overall strat plan, Puneet. So as it stands now the investments that we are making is not substantial, and they are just incubation investments, I would say. But yes, going forward, this may require. But in terms of our plans, how much of -- how are we going to approach it, kindly wait for 3 to 4 months. In Q4, hopefully, we will be able to articulate as part of our strat plan for FY '22 to '26.

Unlike the IT, do you see any synergies in EduTech or is it just very, very exploratory business?

No. Okay. If at all you can say, it is a blend of our technology capability that we have done through IT and the domain expertise that we have in engineering. So we are trying to marry both these competencies to create something for India's engineering talent.

The next question is from the line of Nitin Arora from Axis Mutual Fund.

Sorry for dwelling back again on the execution. We have a very strong backlog. Directionally, I'm not trying to gauge because Q2 is only being a very low quarter for us in the overall context. But given the backlog has been strong for the last 4, 5 quarters and I understand there was a COVID, is it possible to guide something here in terms of execution because whether we look at your second half of FY '21 or whether I look at your second half of FY '20. The second half '20 base is actually lower than second half '21. So you can guide us where we should end the second half in terms of, let's say, the base of '21 or '20. Can we go at 15%, 20%, given what's the backlog right now? And I'm assuming the projects, which you have, the government also wants the cycle is getting shortened to execute much faster towards the large projects because of the general election part as well. So if you can help us on the execution part, which is in our control, not the COVID part.

So Nitin, actually you have asked me multiple questions. So I will try to sum it up in 1 answer. So Nitin, when we started the year, I mean, maybe I'm sorry for repeating it, but we have given a guidance of growth in revenue for our Projects & Manufacturing business, again, a low to a mid-teen kind of a forecast. And this was basis the time having taken into account the possible COVID-related delays and so on, okay? So in our opinion, the second half of FY '22 is going to be a very busy second half as far as execution is concerned. Apart from the 1 or 2 risks that I just now cited in response to the previous question, we don't think -- of course, if things can change, we'll have to again revise an update, but I do believe that we should be in a position to -- in terms of execution, given this order backlog, I think we should see a reasonably compensatory H2 to maintain the revenue guidance. That's the way I will put it up for you. And I would also like to reiterate that this record order book, what we are talking about, all the projects, barring for maybe 4% to 5% which would be, I would say, a slow-moving project backlog where for various reasons, either we have stopped execution because payments not coming, but almost 95% to 96% of this order book is active. And subject to all things happening based on the contract of the assumptions that I just spoke, we should see more, I would say -- given the overall yearly guidance, we should see the -- an improved execution in the next 6 months. And I don't think we should see that way. But also if you were to see the entire Projects & Manufacturing revenue now for the first 6 months, that is H1 FY '22, that has actually gone up 27-odd percent over H1 of the previous year. So in a sense, we believe that we are looking at more than better pre-COVID normal, given the fact that we have a large order book.

That's helpful. Second part, given the way oil prices are in the previous cycle, there used to be a lot of [indiscernible] on the oil and gas projects at a global level, when these oil prices used to touch or has been in that range of $80, $85. Any sense can you give us because at one end a lot of the investments who are putting money let's say in a shale gas or in a oil and gas are restricted because of the green compliance. So I just want to understand more from -- is it the ground activity still in a wait-and-watch mode in terms of oil and gas? Or you really see the activity really picking up where the oil prices are, if you can comment on that a global scale.

So Nitin, in terms of the uptick in order prospects in the hydrocarbon segment, for us, it's not that it has been only in the 1 or 2 quarters. We did see improved prospects coming from the Q3 of the previous year itself, once oil started moving upwards of $60, okay? So if I had to talk about the statistics, the Middle East has been investing almost 80 million to 100 million worth of investments or awards given in the last 4 to 5 years each year. And out of which oil and gas at any point of time has been almost, I would say, 50 to -- 40% to 50% share. If I say 100 billion worth of investments being announced, then oil and gas will almost feature 35% to 40%. So given the uptick in oil prices, you could see multiple investments happening, if not in greenfield, but it could be in brownfield, refurbishment, then change in the product mix lead to additional CapEx to meet the newer demands. I guess we do -- we are quite, I would say, reasonably bullish on this part of the world arising from the increase in crude prices. And that in turn also has a positive impact because that also creates the higher oil price, the more the surplus these countries have. And that should also hopefully augur well with respect to the other sectors in Middle East where we operate, namely in Power, Transmission Distribution and also, to some extent, in Transportation Infrastructure and also Water. So at this stage, it looks to be -- what we are looking at is seemingly very positive from what it was almost a year back.

And one question. Can you share your first half Hyderabad Metro's revenue EBITDA impact and real estate revenues, EBITDA impact or EBITDA?

So I would put it like this, that the first half of -- just one second. You are -- okay, you're asking for first half?

Yes.

So Hyderabad Metro first half of current year is around INR 140 crores total revenues, okay? But it has a combination of -- you can take 70% of the fares and balance is other income arising of lease rentals and advertisements and all that. It's INR 140 crores. And maybe operating cost, maybe around INR 115-odd crores. So thereby, we have, I would say, to the extent some operating gains. So INR 142 crores has been the first half income.

And the real estate?

And the overall construct, as I spoke, that the amortization per quarter is around INR 75 crores. That is the amortization of the lease assets. And interest costs at the current credit level is around INR 350-odd crores.

Can you share the revenue EBITDA for real estate contribution in the first half?

The real estate Q2 revenues has been in the range of INR 320 crores, real estate business, okay? And the EBITDA is -- because the real estate EBITDA gets dropped in only when you handover the units that you have been giving possession. So obviously, at INR 320 crores, the EBITDA margin is almost at 40% plus.

The next question is from the line of Atul Tiwari from Citigroup.

My question has been answered.

The next question is from the line of Parikshit Kandpal from HDFC Securities.

So my first question is on execution. So just wanted one clarification that the execution has nothing to do with any client-specific issues, right? So it's largely because we have been mobilizing the site, but there has been challenges because of reskilling and other related issues on supply chain and others. So nothing is specific on client asking you to delay the execution for some period. Is it the right assumption?

Parikshit, you are 100% correct. As I mentioned, I once again reiterate, we -- today, we are working at almost 700- to 800-odd sites in the entire infrastructure space. It is not correct to say that we don't have client-specific issues in any of this. But there are insignificant compared to the assumption construct that we are talking about. So as we speak, a major part of our orders are in very active category, and all of them are progressing well. But for reasons, which are specific to each project location, there can be some, I would say, issues for which, as I mentioned, the reason for execution being what they are until the H1. So -- but going forward, there are more specific client issues, which will impact significantly the execution momentum with respect to our Infrastructure segment.

Okay. Second question is on Hyderabad Metro. So you did touch upon the options being evaluated to rightsize the capital. So I just wanted to know by which quarter you won't require any funding support from the parent to this entity. So by then, can you expect resolution where in we'll stop doing the loss funding of this project.

Okay. So I would put it like this, at the start of this year, we did talk about that we are setting aside INR 2,000 crores. And until now, we have already infused INR 1200 crores. And we do expect another requirement of maybe INR 1,000-odd crores until March '22. And internally, we are working on a time line to have this entire refinancing and the capital restructuring, all of this to be get going and get completed or in terms of clear visibility of completement and everything happening by March '22.

So from first quarter of next financial year, the project will be self sufficiently servicing its debt and...

That is the objective Parikshit. That is how the entire -- our group is now currently working on that basis only. And -- but let me also tell you that it is a large project. And obviously, we are taking assistance of the state government and the kind of assistance that we are looking at that also over a period of time, may undergo in some form, if not the amound but the form of assistance could change, okay? And obviously, it is a decision of the government and it takes its own time. So we are also actively pursuing to refinance the current loan with some extended maturities so that the additional burden of arranging cash for debt repayments also do not crop up. So all of these are targets, and we hope that we will achieve substantial progress and maybe some sort of a closure by March '22.

Okay. The last question is on the international order book, so which is the price in nature. And given the commodity inflation headwinds, so how protected or how much cushion you have that it may not result in any significant deterioration in the margin -- the order book's margin? Because you did mention that about 62% of the order book has passed through clauses. So I just wanted your view on that.

So Parikshit, first and foremost, I think as a practice, we give the margin guidance for the year, okay? We don't go beyond that. But having said this to the specific question our international order book is, if I take an order book of 330,000 crore, the international order book would be around INR 75,000 crores, okay? And as we speak now the revenues that will accrue from the execution of this part of the order book also the kind of projects that we have taken. So basis the progress, the milestone completion, the contingence release that we will do for some of these offsetting increases, we are reasonably sure that all of this would aggregate to the entire portfolio of the Project & Manufacturing guidance that we have given at 10.3 for FY '22.

The last thing on the real estate. So if you can quantify how much of the level area currently L&T holding in terms of million square feet and potentially the time line for development of this level area?

So the total real estate area is maybe around 50 million square feet. But of course, that includes the Hyderabad Metro, almost at 17 million square feet. So I will take that as the realty business, which will actively pursue in terms of whatever proposals are it is having. So in terms of residential units, that will aggregate to maybe around 30 million to 33 million square feet. And the -- and in terms of, I would say, the total number of units that have been launched is roughly around 7,600, out of which we have handed over, which we booked the revenues of almost 2,900. We have sold the flats, but we have not handed over, which means it is in a sense an order book, which is around 2,500. And the balance is what you can call in prospect pipeline, which we get another 2,200 yet to be sold against the flats of 7,600 that we have launched.

And what would be the total land bank holding which will potentially in future come up for development [indiscernible]

No. In terms of the land back holdings, what we are currently -- wherever it has been, L&T's own land, that is the Bombay Powai. We have Navi Mumbai. We have Bangalore. These are the 3 places where we are setting up real estate projects in our own land banks. As far as, I would say, bought out land banks, we have not done yet. All of this being done through a joint development route where L&T and that real estate developer, who holds the land title of the land position, we jointly develop and we have a share of revenues depending on the location and the overall construct of the project.

Just lastly, this 30 million covers all the land bank holding as well like you mentioned above Powai and Navi Mumbai.

Yes, yes, yes. It includes not only the own premises, it includes the joint development as well.

Average utilization about 15,000 will be the square feet on this?

No. I would -- now you're asking me specific. I don't have the data ready with me.

The next question is from the line of Amish Shah from Bank of America Securities.

My first question is on the cash that we have on the books. It's close to $6 billion. And obviously, it's a pretty large sum. With the COVID risk now abating, is there a potential for a one-off large payout?

So Amish, at the stand-alone level because in terms of when you talk about payout, right, it all depends on the L&T entity level. I think the overall surplus we are having currently is INR 19,000-odd crores. And at the group level, which essentially means cash lying in stand-alone of INR 19,000 crores, almost [ $1 billion ] or maybe INR 7,000 crores, which are lying in the IT and TS subsidiaries. And the balance largely would be financial services, but that is not to be considered as cash surplus. So if I talk about in terms of INR 19,000 crores plus INR 7,000 crores, INR 26,000 crores, INR 27,000 crores, okay? So in terms of INR 19,000 crores, yes, as I mentioned at the start of my review itself, we are looking at options as to -- as part of the overall improvement in ROE, what are the different, I would say, things which L&T has to take and do. And this has been a very important parameter while we are framing out our strategic plan. So obviously, maybe in the month of -- in the year of Q4 of the current year, you will be able to get a better, I would say, perspective as to what we intend doing as far as surplus cash is concerned. But I wish to tell you that whatever cash flows that the parent entity has taken, has accruing over the last 12 months because in the Q1 of the last year we did take a debt in the form of almost INR 12,000 crores in anticipation of the COVID situation going worse. But we were proved wrong. Fortunately, we were proved wrong. Not only we had the collections happening, we also have the collections of EIC. And of course, we have also given back to some shareholders in terms of special dividends. But wait for 3 or 4 months, and then we'll definitely address this point in terms of how we intend deploying the cash or returning the cash in any form as part of our overall strat plan exercise.

Sure. PR, the other question is related to your mix of order book between central/state PSU government. Currently, you said that your order book towards the central government is only 10%. Is that because at one point in time, central government payments were getting delayed? And on the other hand, state government projects were funded by multilateral which were relatively safe. But now with the government cash flow is improving, is it a possibility that the SKU goes more in favor of central government when you look at your pipeline prospects as well?

So in terms of the overall pipeline prospects, as I talked about, the INR 6.83 trillion, out of which the total domestic is almost INR 4.67 trillion. So I think it would be evenly spread between, I would say, 1/3, 1/3, 1/3. Central government, 1/3 of this INR 4.66 trillion, state government, 1/3, and the balance is for big sector. That's the way I'll put it up.

Okay. The third question is actually quite futuristic, but I just want to understand your openness to it. So let's say, U.S., currently, you have a very small percentage of your order book. But if U.S. goes for the large infrastructure stimulus that they are talking about, would you be open to participating in that geography? Or is it just a new market and you won't venture out?

So Amish, I think 15 years back, we consciously decided to derisk from our dependency on India and went ahead and to be reasonably well known and big in the Middle East from all segments. And it has taken maybe -- and we now as -- we are known as one of the top contractors in many of the segments in Middle East. 2 to 3 years back, we expanded further. We went westwards. We went into select 6 or 7 countries in Africa, doing projection infrastructure like power transmission, distribution, water. And also while we speak, we are executing a big order in Algeria in hydrocarbons. So as we speak now, we are stretching to the current geographies of India, Middle East and Africa and also Southeast Asia. In terms of addressing to the opportunities in U.S., again, at this juncture, it could be premature for me to conclude. I don't think at this juncture, we will be addressing that opportunity because I believe in the EPC contracting business, typically, there are -- most of the companies are localized corporations to address opportunities in those respecting geographies. At this juncture, okay, if I have to put it like this, Africa, from the current 7 or 8 countries, we may actually expand into another 4, 5 countries also. But I would say it will -- until then, I don't think we will be expanding beyond there.

Make sense. Got it. And just one final one quickly. Is there anything within the ESG metric that one can look out for? What is it that we should look out for in terms of progress incrementally?

So if you see the integrated -- if you go through the integrated report, which covers our entire ESG journey from FY '16 to FY '21 in respect of the major parameters, be it water conservation, energy conservation or emission -- reduction of emissions, I guess what we set ourselves as a target, we have been better than the target in all these parameters. And we have gone ahead and also gone out with a clear goal of being both carbon and water neutral for those years of 2035 and 2040. I guess in terms of the detailing out, maybe again, it will all form part of our strat plan as the ESG plan also in terms of the fresh targets over the next 5 years, how we are going to do. So today, we have set ourselves. But how we are going to do it will feature as part of our overall sustainability plan.

The next question is from the line of Ashish Shah from Centrum Broking.

Am I audible now?

Yes, you are audible.

Yes. Sorry for the thing. So what I'm saying, sir, just one question, in our order prospects, are there any large projects exceeding like $1 million in value, the kind of projects that we would have got in the past, like Riyadh Metro or some of the other very large ones? So because that's where I think L&T will have a very clear advantage over the other small and mid-sized orders where we face a lot of competition. So any color you can give on that. That's it.

So Ashish, as far as the order prospect pipeline that we are looking at 6.83 it is, I would say, a combination of all the sectors where we are targeting with reasonably large parcels and where we believe that we have a good chance of bidding and getting those projects awarded based on the bid-award ratio that I was talking about in a good year, 17% to 20-odd percent. So it's not that there are only 1 or 2 big ticket items. I would say it is a well spread out mix of order sizes across all the segments.

Okay. But there are certain large sized orders or -- I mean scale of $1 billion...

There are in hydrocarbons. There are -- there is also -- in the Heavy Civil also, we do have some large ticket items. But it would be very inappropriate for me to list it out at this juncture.

Ladies and gentlemen, we will take the last question from the line of Kirthi Jain from Canada HSBC Life.

Sir, my question was with regard to the Infra sector -- Infra segment margins, which we have improved so apart from the reasons you highlighted, what are the key changes which you are -- and initiatives which you have taken in the last 1 or 2 years which is leading to improved margins in our Infra segment? If you can highlight something, that would be great.

So Kirthi I mean let me tell you that as far as Infrastructure margins are concerned, it's a function of, I would say, multiple subsegments and also domestic overseas, right? For FY '19, FY '20, Infrastructure margins were impacted because of certain cost overrun jobs mostly in the transportation infrastructure side. And such of those jobs have almost neared their completion. So to that extent, we do not envisage any sort of cost overruns happening. And next is in terms of initiatives that we kick started some time in the start of FY '18, okay, in terms of digitizing most of the site equipments okay, to enable improved productivity and lower diesel consumption and so on and so forth. Then the cost of doing detailed engineering in terms of accuracy and all, which was earlier little manual. Nowadays, techniques like geospatial and meta, and all of that has actually become a part of the day-to-day activity of all the project bids or the projects that we are executing. So some of these technology-led activities and the digital initiatives of sensorizing all of this plan and equipment has enabled us to achieve some amount of productivity gains. Some of that, let me tell you for the segment, it caters to could also be passed over as being competitive in that segment, those gains also. So it's a combination of the bad -- the cost overrun jobs. I mean they are all now tapering off. And the new jobs that we have executed coming into some sort of a threshold margin because FY '21 is sort of an outlier year because you can't attribute anything and everything because for various reasons, because of COVID and many things had an implication. But FY '22, which is normalized, I do believe that having -- given the margins for infrastructure in FY '21, what we have printed taking into account of COVID-related issues, tapering off bad projection and all, and we have maintained the same margin stack even for FY '22. It's not that -- so we do believe that with the commodity headwinds affecting some of part of the orders in that segment, but we did see improved productivity, margin threshold and also various cost optimization initiative in terms of design optimization, engineering optimization and even material substitution with the approve of clients. All of this should hopefully ensure that we are able to sustain the same margins in FY '22 as well.

Sir, my question was because of things -- because you have achieved this performance in a hyperinflation scenario when almost all of the material costs have doubled, and you have a good quantum of book as a fixed price contract you have achieved such a numbers and also in working capital...

No, no, Kirthi, you are absolutely right in that question. But I wish to tell is that this commodity price increase, we are all witnessing and all of us agree. But in the Projects business that L&T has been executing for the last so many decades, it is not that the commodity prices have been impacted only this time. We are witnessing current times, and we are stating that. I don't think in the previous -- maybe almost 8 or 10 years, you would have seen some amount of commodity prices going up and down. I don't think we have attributed commodity upswings or downswings impacting the margins either way. It all depends on the fact is how we are bid out what kind of assumptions we have taken, what contingencies, what buffers we have considered. And if your engineering is perfect, if the buildup quantities is perfect, then everything you will have impact on certain jobs. But similarly, you will have impact on -- positive impact on the other jobs also. So it is an assessment of all of these things as one portfolio is what gives us the guidance. It will not be right of me to say that all the margins, the way I've been bid will happen. But it's at the portfolio level, we are reasonably sure that we will be able to weather the commodity price action. We have demonstrated until 6 months. Hopefully, in the next 6 months also, we will see it that way.

Okay. But we will not see -- any one-off provision we will not see, Sir?

I will not be able to comment specific to your question so let's see.

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. P. Ramakrishnan for closing comments. Thank you, and over to you, sir.

So thank you, Faizan, and thank you to all of you for having taken your time to attend this call. On behalf of L&T, I wish you all the very best for the festive season and the best wishes for a very healthy, happy and prosperous 2022. I look forward to connecting with you again in the next investor call, which will possibly be the Q3 earnings call scheduled end of Jan. Thank you.

Thank you. Ladies and gentlemen, on behalf of Larsen & Toubro Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.