Larsen & Toubro (L&T) is often described as an infrastructure giant, but that description understates the scale and diversity of its business. From executing large infrastructure projects to manufacturing high-end equipment and providing technology services, L&T operates across multiple profit pools.
This article breaks down how Larsen & Toubro makes money, where its revenues come from, and why its order book is central to understanding long-term growth.
Company Overview: What Does Larsen & Toubro Do?
Larsen & Toubro is a diversified Indian multinational with operations spanning:
- Infrastructure and construction projects
- Energy and hydrocarbons
- Heavy engineering and manufacturing
- IT and technology services
- Financial services (non-core but meaningful)
Unlike consumer-facing companies, L&T’s performance is driven by long-cycle project execution rather than product sales. Understanding its business model requires looking at segments and order flows, not just quarterly profits.
Company Overview: What Does Larsen & Toubro Do?
Larsen & Toubro is a diversified Indian multinational with operations spanning:
- Infrastructure and construction projects
- Energy and hydrocarbons
- Heavy engineering and manufacturing
- IT and technology services
- Financial services (non-core but meaningful)
Unlike consumer-facing companies, L&T’s performance is driven by long-cycle project execution rather than product sales. Understanding its business model requires looking at segments and order flows, not just quarterly profits.
The Core of L&T’s Business Model: Projects & Manufacturing
The backbone of L&T is its Projects & Manufacturing (P&M) portfolio. This segment includes infrastructure, energy, heavy engineering, and defence manufacturing.
As per FY25 and Q2 FY26 disclosures:
- P&M contributes the majority of group revenues
- It accounts for most of L&T’s consolidated order book
This makes L&T fundamentally an order-book-driven enterprise, where growth visibility depends on new contracts secured and their execution.
In Q2 FY26, L&T reported group revenue growth of around 10% year-on-year, with international revenues contributing more than half of total revenue. This highlights the increasing importance of global markets, especially the Middle East.
Revenue Split: Where Does L&T’s Money Come From?
L&T does not sell standardised products at fixed prices. Revenue is generated through large, milestone-based contracts executed over multiple years. This execution-led model is structurally very different from consumer-facing businesses such as Hindustan Unilever, where revenues are driven by brand strength, distribution reach, and pricing power.
FY25 Revenue Contribution by Segment (Approximate)
| Segment | FY25 Revenue Contribution | Nature of Revenue |
|---|---|---|
| Infrastructure Projects | ~55–60% | Large EPC projects across roads, metros, railways, water & buildings |
| Energy & Hydrocarbons | ~15–18% | Onshore & offshore oil & gas, power, renewables, international EPC |
| Hi-Tech Manufacturing & Defence | ~8–10% | Defence manufacturing, heavy engineering, precision systems |
| IT & Technology Services | ~12–14% | Digital engineering, IT services, recurring contracts |
| Financial Services & Others | ~4–6% | NBFC, financing, asset management |
Key takeaway:
More than 70% of L&T’s revenue is execution-led EPC and manufacturing, while IT services and financial services provide diversification but not dominance.
What This Revenue Mix Tells Us
- Infrastructure remains the cash engine but is cyclical
- Energy projects improve margins and add global exposure
- Defence & hi-tech manufacturing provide long-term optionality
- IT services offer recurring revenue, but with lower margins
- Financial services are non-core and capital-sensitive
This diversified revenue base helps L&T smooth cycles without diluting focus.
Why the Order Book Matters More Than Quarterly Revenue
For L&T, order book is a better indicator of future performance than reported revenue.
As of September 2025:
- The consolidated order book stood at approximately ₹6.7 trillion
- The order book grew at a strong year-on-year pace
- It provides multi-year revenue visibility
Order Book Composition
- Roughly half domestic and half international
- International orders largely driven by Middle East infrastructure and energy projects
A growing and diversified order book reduces volatility and supports sustained execution-led growth
Execution Model: How L&T Converts Orders into Revenue
L&T follows a milestone-based execution model:
- Revenue is recognised as projects progress
- Cash flows depend on billing and collections
- Working capital management is critical
Encouragingly, recent disclosures show:
- Improvement in working capital efficiency
- Tighter control over receivables and inventory
This discipline is essential for a capital-intensive EPC business operating at scale.
Margins: Not High, but Stable
L&T is not a high-margin business, and it does not aim to be one.
Key characteristics:
- Operating margins typically remain in the high single-digit to low double-digit range
- Margins fluctuate based on project mix and execution efficiency
- IT services margins are lower than core engineering margins
The business relies on scale, execution discipline, and capital efficiency, rather than aggressive margin expansion.
New Growth Drivers Beyond Traditional Infrastructure
Management commentary in FY25 and Q2 FY26 points to several emerging growth engines:
- Renewable energy and green infrastructure
- Defence manufacturing and precision engineering
- Semiconductor and hi-tech manufacturing
- Digital engineering and technology services
- Expansion of international energy projects
These areas expand L&T’s addressable market beyond traditional civil infrastructure.
What Makes L&T’s Business Model Resilient
Several structural strengths underpin L&T’s resilience:
- Diversified revenue streams across segments
- Large and growing order book
- Strong execution track record
- Global presence reduces dependence on domestic cycles
- Improving capital and working capital efficiency
These factors allow L&T to compound steadily across economic cycles.
Key Risks to the Business Model
Despite its strengths, L&T faces inherent risks:
- Project execution delays or cost overruns
- Dependence on government and public-sector spending
- Commodity price volatility
- Margin pressure in IT and services businesses
These risks explain why L&T is valued as a steady compounder, not a high-growth multiple stock.
Final Takeaway: How to Think About L&T as a Business
Larsen & Toubro makes money by:
- Securing large, long-duration infrastructure and energy contracts
- Executing them efficiently across geographies
- Maintaining discipline in capital allocation and working capital
For investors and analysts, tracking order inflows, order book quality, and execution discipline matters far more than any single quarter’s earnings.
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