---
endpoint: analytics
pattern: Conglomerates
status: done
latency_ms: 196212
conversation_id: 7ea73237-445a-4446-bcc3-483280818596
citations: 5
created: 2026-05-31 18:36:01Z
---

# What is Larsen & Toubro’s core business franchise and the key components of its operating model?

# Larsen & Toubro (500510-IN): Core Business Franchise & Operating Model

L&T is India's flagship engineering, procurement & construction (EPC) conglomerate, paired with a portfolio of monetisable subsidiaries (IT services, financial services, infrastructure development) that collectively make it a levered play on the India + Middle East capex cycle [7]. CLSA characterises the company as having two layers — a **core EPC franchise (~73.5% of SOTP)** plus **listed/unlisted subsidiaries (~25% of SOTP)** — and houses the entire group within a project-execution operating discipline backed by government/PSU customers [7].

---

## 1. Core Business Franchise

### 1.1 Reporting segments (FY24-25 structure)

L&T reports five operating segments, of which the project-based "core E&C + Hydrocarbon" cluster is the historical franchise [1]:

| Segment | FY25 net sales (Rs m) | YoY | EBITDA margin FY25 | Notes |
|---|---|---|---|---|
| Infrastructure Projects | 1,313,145 | +15% | 6.4% | Largest segment; international = 61% of FY25 order inflow [1][10] |
| Energy Projects (Power + Hydrocarbon) | 406,892 | +38% | 8.4% | Carved Hydrocarbon into Offshore + Onshore w.e.f. 1 Apr 2025 [1][10] |
| Hi-Tech Manufacturing (Heavy Engg + Defence) | 101,808 | +16% | 16.5% | Highest-margin core segment [10] |
| IT & Tech Services | 484,533 | +8% | 18.3% | LTIMindtree + LTTS + LTSCT (semiconductors) [1][10] |
| Financial Services (LTF) | 151,940 | +16% | 24.8% | 30 years of operations completed Nov 2024 [1] |
| Others / Development Projects / Realty | ~131,888 | — | mixed | L&T Realty, Nabha Power, Hyderabad Metro [7] |

Consolidated FY25 revenue was **Rs 2,55,734 crore (+16% YoY)**, with services businesses accounting for **26% of total revenue** (down from 28% in FY24) [2].

### 1.2 Vertical-level diversification within E&C

Inside the dominant Infrastructure & Energy segments, L&T runs ~6+ business verticals each contributing 9–15% of group order book — designed so revenue growth is **not dependent on the fortunes of any single vertical** [5]:

- **Buildings & Factories (B&F)** — residential / commercial / private developer construction
- **Water & Effluent Treatment (WET)** — desalination, sewerage (e.g., Ras Mohaisen plant in Saudi Arabia for ACWA Power) [9]
- **Power Transmission & Distribution (PT&D)** — 765kV / 400kV transmission, GIS substations; **Renewables carved out as a separate vertical in FY25** [4][9]
- **Heavy Civil Infrastructure** — metros, tunnels, bridges
- **Transportation Infrastructure** — roads, railways
- **Hydrocarbon (now Offshore + Onshore from Apr 2025)** — won its biggest-ever EPC contract, ~US$4bn+ NFPS COMP 4 offshore gas for QatarEnergy LNG (Rs ~370 bn) [9]
- **Minerals & Metals (M&M)** — refineries, freight handling (e.g., Hindalco 850 KTPA alumina refinery, GCC freight contracts) [9]

### 1.3 Subsidiary portfolio

Subsidiaries contributed **31% of consolidated EPS in FY24** and grew recurring PAT 18% in FY25 [6]. The principal listed subsidiaries (SOTP build-up) [7]:

| Entity | L&T stake | SOTP rationale | Value (Rs/share) | % of SOTP |
|---|---|---|---|---|
| Core EPC business | 100% | 30x 1-yr fwd PE | 3,068 | 73.5% |
| LTIMindtree (LTIM) | 68.7% | 10% discount to CLSA TP | 545 | 13.0% |
| L&T Technology Services (LTTS) | 73.8% | 10% disc to 5-yr avg 32x PE | 264 | 6.3% |
| L&T Finance (LTFH) | 66.1% | 10% disc to 1.735x 1-yr fwd BV | 227 | 5.4% |
| L&T Realty (Urban Infra) | 100% | DCF, 11.7% CoE | 55 | 1.3% |
| Nabha Power | 100% | At FY23 L&T PDPL value | 28 | 0.7% |
| L&T Metro (Hyderabad) | 100% | DCF, 11% CoE | 28 | 0.7% |
| **Total** | — | — | **4,176** | **100%** |

L&T's tech subsidiaries together rank as **India's fifth largest tech franchise** [6]. LTFH's book has been "retailised" — retail finance grew 19% YoY in 4QFY25 while wholesale (real-estate + infra finance) shrank 53% YoY [6].

---

## 2. Operating Model — Key Components

### 2.1 Project-driven EPC engine

L&T's core operating model is order-book-driven execution: **consolidated order inflow Rs 35.7 trn in FY25 (+18% YoY)** and **order book Rs 57.9 trn (+22% YoY)**, with Infrastructure (Rs 35.7 trn / 62%) and Energy Projects (Rs 16.6 trn / 29%) accounting for the bulk [10]. The pipeline for FY26 is guided at **Rs 17.4 trn (+57% YoY) — Infrastructure 56%, Hydrocarbon 40%** — the principal forward-execution funnel [8].

### 2.2 Customer mix — government / PSU anchored, India-centric

The franchise's risk model leans on government counterparties: **~82% of the domestic order book sits with central/state government and PSUs**, with private customers only 18% — management's framing: "in times like these, it is good to have government risk on the balance sheet" [5]. India is the dominant geography (~75%+ of order book historically), with the Middle East / GCC as the principal international leg.

### 2.3 Geographic diversification — India + GCC

Approximately **39% of the FY25 Infrastructure order book is international**, with 61% of FY25 Infrastructure order inflow from international wins, largely Saudi/GCC [1]. The Hydrocarbon vertical's largest single contract ever was Qatar's NFPS COMP 4 in March 2025 [9]. The model uses GCC to absorb capex-cycle pockets when domestic ordering slows.

### 2.4 Strategic objectives framework (SE-1 to SE-5)

The operating model is codified into five strategic enablers (SE) [2]:
- **SE-1**: Operational excellence — cost competitiveness and world-class execution
- **SE-2**: Industry-leading digital technology and analytics for productivity / ESG
- **SE-3**: Financial resources for growth + sound balance sheet for capital-market access
- **SE-4**: Talent and leadership pipeline
- **SE-5**: Capability development via R&D and technology partnerships

Strategic objectives (SO) layer on top — value-accretive growth (SO-I), scaling digital & e-commerce (SO-II: L&T-Cloudfiniti data centres, L&T-SuFin, L&T EduTech), Energy Transition (SO-III: Green business ~Rs 75,500 crore = **53% of standalone revenue** in FY25) [2].

### 2.5 Active portfolio management — divest non-core, invest in new economy

A defining feature of the model is constant portfolio reshaping:
- **Exits**: Completed divestment of L&T Infrastructure Development Projects (IDPL — toll roads + a power transmission asset) on 10 Apr 2024; signed asset sale for Machinery Works segment on 12 Jun 2024 [3].
- **Investments**: Acquired remaining 26% in L&T Special Steels and Heavy Forgings from NPCIL (now wholly-owned); L&T Semiconductor Technologies (LTSCT) acquired SiliConch Systems; LTTS acquired Intelliswift; L&T took 15% in E2E Networks [4].
- **New verticals**: Carved out **Renewables** from PT&D (FY25); allocated 500 acres at Kandla port for **Green Hydrogen** via L&T Energy Green Tech (LTEGL), with incentives for 90 KTPA green H₂ capacity [4].
- **Hydrocarbon restructuring**: Split into Offshore + Onshore from 1 April 2025 [1].

### 2.6 Internal-controls / governance backbone

L&T runs a **three-line defence model**: business heads/process owners (1st line), Corporate Internal Control department (2nd line), and Corporate Audit Services (3rd line, independent internal audit). The Audit Committee reviews the annual audit plan; findings are escalated quarterly [3].

### 2.7 Capital allocation & shareholder return

Management is explicit about "maximising shareholder value by efficient execution of its large order book, leveraging technology to improve cost competitiveness and efficiency, reducing working capital along with better funds management, and divesting its non-core assets" [3]. CLSA flags improving return ratios and capital return actions as a key share-price driver, alongside FY26-27 margin expansion on the shift toward higher-margin energy orders [7][8].

---

## 3. Synthesis — How the Pieces Fit

L&T's franchise is a **diversified-EPC + listed-subsidiary holding company**:

- The **EPC engine** monetises India's public-infra capex cycle and the GCC oil-and-gas / non-oil industrialisation cycle, hedged by ~6 verticals so no single end-market dictates the P&L.
- **Subsidiary IT/finance/realty** layers deliver higher-margin, less-cyclical earnings (IT EBITDA margin 18.3%, FinServ 24.8% in FY25) that smooth the cyclical core E&C margin (6–8%) [8].
- The **active portfolio management** — exit non-core (IDPL, Machinery Works), enter new economy (Renewables, Green H₂, semiconductors, data centres) — is the strategic lever for margin and ROCE re-rating.
- The **operating discipline** is anchored in government/PSU counterparty mix, India+ME geographic balance, three-line governance, and SE-1 to SE-5 strategic enablers.

CLSA's read: L&T is the cleanest large-cap proxy on the India + ME capex cycle, with FY26 margin expansion (the first in five years) the key catalyst [6][7].

---

**Sources**

[1] Larsen & Toubro FY24-25 Annual Report — Business Highlights / Segment-wise Performance (FactSet doc 500510-IN, FY ending Mar 2025)
[2] Larsen & Toubro FY24-25 Annual Report — Strategic Objectives & Performance vs SE-1 to SE-5 (FactSet doc 500510-IN)
[3] Larsen & Toubro FY24-25 Annual Report — Overall Financial Review / Internal Controls / Non-Core Divestments (FactSet doc 500510-IN)
[4] Larsen & Toubro FY24-25 Annual Report — Renewables vertical carve-out, LTSSHF, LTEGL Green Hydrogen, LTSCT (FactSet doc 500510-IN)
[5] Q1 FY2021 Earnings Call Transcript — order book vertical diversification & government-PSU mix (Larsen & Toubro, 500510-IN)
[6] CLSA — Larsen & Toubro O-PF (Subsidiaries deliver) — 7 May 2025 (607958427LinqAlpha.PDF)
[7] CLSA — Larsen & Toubro O-PF (Subsidiaries deliver) — SOTP valuation table — 7 May 2025 (607958427LinqAlpha.PDF)
[8] CLSA — Larsen & Toubro O-PF (Guidance surprise) — Segment EBITDA build — 8 May 2025 (607958683LinqAlpha.PDF)
[9] CLSA — Larsen & Toubro O-PF (Guidance surprise) — 4QFY25 announced orders by vertical (B&F, WET, M&M, Hydrocarbon, PT&D) — 8 May 2025 (607958683LinqAlpha.PDF)
[10] CLSA — Larsen & Toubro O-PF (Guidance surprise) — Consolidated 4QFY25 earnings: order inflow, order book, net sales by segment — 8 May 2025 (607958683LinqAlpha.PDF)

## Citations

- [1] **PAM_08052025171614_LTMarch2025_2.pdf** · external
- [2] **Larsen & Toubro Ltd. (500510-IN) - Annual Report for period end 31-Mar-2025 (English) - PDF** · external
- [3] **Larsen & Toubro Ltd. (500510-IN) - Annual Report for period end 31-Mar-2025 (English) - PDF** · external
- [4] **Larsen & Toubro Ltd. (500510-IN) - Annual Report for period end 31-Mar-2025 (English) - PDF** · external
- [5] **Q1 2021 Larsen & Toubro Limited** · external

