Larsen & Toubro Limited analyst Q&A

Thank you. The first question is from the line of Mohit Kumar from ICICI Securities. Please go ahead.

My first question is on the Order Inflow. So, I think in the particular quarter, I think we have announced two mega orders. One was on 10th of October, which was a mega and the other was Ultra-Mega today for Middle East. But in the Press Release today, it seems you have classified both the orders as ultra-mega. Is the understanding right? And are post the orders part of Q2 or only one has been included in this -- in the order inflow?

So Mohit, both the orders, the one that was announced on 10th October and the one that was released today are all forming part of Q2 order inflow of the Energy segment. And both of them individually are Ultra-Mega, which means it is more than Rs 15,000 crores each.

Understood. And my second question is the domestic order booking it seems like on the H1 is slow. Are you seeing some slowness in the closing of these tenders? And how do you think about H2 -- as we enter H2 in terms of closing the -- especially the domestic tenders?

So I would like to state here that the prospects pipeline that we have , the domestic order prospects pipeline is quite robust in the infrastructure segment. And there are no such indications per se for us to say that whether the prospects pipeline is drying dow n. The only thing we have to be mindful of the fact that possibly Q4 could be a little subdued on tendering and ordering activity, assuming that we can have the general elections announcements happening around that time.

My last question is th at it seems that you've taken debt for buyback. Given that the large cash flow available on the balance sheet in standalone, what are the need to take a short-term debt?

So Mohit, typically, we run a fair bit of very proactive debt raising and investment on treasury operations. So what you are seeing is something very optical and it is temporary. Incidentally, I wish to tell you that a major part of the debt is actually falling due in the next one year. So there has been some amount of refinancing that has happened. I would like to emphasize that this is a sort of a temporary situation. Hopefully, by March '24, this should improve back to the March '23 level as far as debt in the standalone is concerned.

Thank you. The next question is from the line of Sumit Kishore from Axis Capital. Please go ahead.

Congrats on our robust performance in Q2. My first question is on the net working capital ratio, which has improved on a year-on-year basis by 300-odd basis points plus to 16.7%. When I look at the reading in both Q2 and H1, in your cash flow slide, they are down year-on-year. So given that the operating profit, obviously, has grown in both these periods , could you qualitativel y explain what has dialled down the operating cash flow?

Okay. So Sumit, it is like this that when I communicated 16.7% in September '23 vis-à-vis 19.8% in September '22. I also would like to emphasize here that the Gross Working Capital as of September '22 was 65.9%, translating to a Net Working Capital of 19.8%. That Gross Working Capital as of September '23 has dropped to 57.1%. So in effect, what we are trying to communicate here that our collections momentum across the Projects & Manufacturing portfolio, including other businesses as well, but largely aided by the Projects & Manufacturing portfolio has improved. So it's actually the Gross Working Capital reduction, which is getting more pronounced. But optically, when you talk about the Cash Flow Statement, it is more because of the volume growth.

Okay. But the volume growth is there in the revenue, but the operati ng profit margin basically decline is leading to this impact overall in OCF is what you're trying to say?

I would like to emphasize once more that the reduction in working capital to 16.7% in September '23 vis-à-vis 19.8% in September '22 is largely a result of lower or of sharper improvement in the Gross Working Capital. Having said this, the volume of growth that we have seen in the first six months is more than what is there in the six months of the previous year.

Sure. That's very clear. The second question is on the order prospects that you are seeing in the Energy vertical, particularly overseas hydrocarbons, has there been some addition to that prospect pipeline after this mega win that you have seen, because you still seem to be at a very high level on a year-on-year basis.

Yes. So as far as Hydrocarbons, the prospects pipeline that we gave in June '23 was almost about Rs 3.47 trillion. Now coming to September '23 for the near term, the prospects has co me down to Rs 2.91 trillion after taking account whatever orders have been tendered and awarded during the Q2, which actually means that there has been a new set of mega and ultra -mega order prospects into Hydrocarbon segment from International. And when I say international means, you can assume that it is Middle East.

And this is mainly Saudi Arabia...

At this juncture, I'm not in a position to give you the breakup of the country -wise prospects, Sumit, but let me tell you it is beyond Saudi as well. We have sizable prospects in Saudi and Qatar and to some extent, in UAE.

Okay. Just one last clarification on the core business margin. You mentioned that there are certain customer claims that the company is reasonably confident to recover. Could you please quantify where you're reasonably confident of these claims? And over what time frame do you expect...

Yes, Sumit, let me once again reiterate when we started the year, we had given a yearly guidance of 9% for the Projects and Manufacturing portfolio. And we have also clearly stated that this margin expansion of 40 basis points from 8.6% in FY23 to 9% did not factor any customer claims. Because last year, when we had given the guidance and closed at 8.6% for the full year, but the initial guidance for FY '23 did recon. But as you know, some of these claims that we are pursuing, the amounts and the collection or the settlement of that is a little uncertain. So it won't be appropriate for me to talk about the amount and also the crystalization of such things that could happen. If it happens, that would definitely lead us to the margin improvement. So we are now talking of only the cost pressures that we had artic ulated in the first six months relating to the legacy jobs that will be nearing execution. I think it is more or less in line. And hopefully, from Q3, Q4, we can see a margin expansion in the portfolio. And anything on customer claims that gets crystallized in that particular quarter, we could see a margin uptick in those time periods as and when they get crystallized and get paid.

Thank you. The next question is from the line of Renu Baid from IIFL Securities. Please go ahead.

The first question is on Hyderabad Metro. Can you help us with certain bookkeeping details on interest, depreciation and the losses excluding for the profit excluding the gain from the sale of the TOD property? There would be some tax implication as well?

No, no, Hyderabad Metro for the near term, Renu, will not have a tax implication given the fact that we have unabsorbed business losses, okay? So just to give....

No tax implication even on the TOD asset monetization?

Yes. So the TOD monetization is a part of business income for the company because the company's business model is a combination of metro operations and real estate operations. So it will not have a separate tax line item in the form of Capital Gains. It has been structured as slump sale and will attract the normal tax. And since we have the accumulated losse,s there is no tax incidence. So the Rs 512 crores PAT, which I referred to in my conversation, that is at a PBIT level itself. Having said this, to the other questions, you can assume that at the current debt levels of around Rs 12,500 crores at Hyderabad Metro, the interest cost would be around Rs 300 crores per quarter and the depreciation of around Rs 80 crores per quarter. And you were talking about what our ridership that we are looking at? In fact, in September, the average ridership is slowly touching 5 lakh in October, sorry, 5 lakh on weekdays. It's more than 5 lakh on week days and possibly 100 thousand lower on the weekends or public holidays. So one can easily work out the traffic projections assuming Rs 36 per average ridership.

Got it. Sure. And you were expecting some last tranche of certain payments to come from the government as subsidy. Has that come through now or you expect it in the second half of the year?

Okay. So cumulative support in the form of soft loan from the Telangana government as of date is Rs 900 crores. As of September, it was Rs 750 crores. So we have r eceived another Rs 150 crores in the month of October. So, the arrangement was they were to give around Rs 3,000 crore over a period of 2, 2.5 years. Hopefully, I think we should see the momentum of the support coming more frequently in the current year as is evident. Till March '23, we had got Rs 100 crores. In Q1 of the current year, we received Rs 150 crores. Q2, we received Rs 500 crores, and in October, we received another Rs 150 crores. So that aggregates to INR900 crores

Got it. Secondly, on the guidance, I understand you have kept your inflow and revenue guidance open ended. While on the margins, you have reduced it by 50 basis points. So just keen to understand this incremental revenues, which you are expecting where the margin recognition threshold will not be reached, are factoring in the upper end of the numbers that you have mentioned or it is factoring in a higher growth within your open-end guidance?

Okay. So let me tell you as far as order inflows are concerned, at the current clip if we are growing, of course, the H1 in terms of order inflows has been quite satisfactory. But we are mindful of the fact that although order prospects is almost Rs R8.8 trillion. Here again, you should be aware that there are events that pose against these kind of opportunities, either as pre- election year or pre -election period and any other event in the Middle East, which is another major source of order prospects for us . I think we have to be mindful of this. And secondly, Renu, a large part of the order prospects now are actually going into for L&T aggregate of both mega and ultra -mega kind of prospects. So that is something we have to be mindful about because the size of a large order, $1 billion and above may have a slippage in terms of time. So hence, we are comfortable to give that we will be outperforming the order inflow. Coming to the revenue part, here again, the progress in H1 has been satisfactory, and we do expect the growth to happen beyond the targeted range of 12% to 15%. So when I'm talking of outperforming on the revenue side, obviously, we are looking at to crossing the higher end of the band that we communicated at the start of the year. Maybe in terms of landing, where are we going to have in order inflow and possibly, I think we'll be in a better position to comment when we give our Q3 results in the month of January.

So also the point I was trying to make is since you also mentioned that t here will be operating leverage which will also kick in, offsetting the impact from legacy. So the only point I was trying to understand is a 50-basis-point reduction in the operating margin guidance that you have given, is factoring in a 15% kind of reven ue growth, which is at the top end of your open -ended guidance or factoring 15, 20 or a higher revenue growth?

So it is factoring the revised guidance where I'm talking about outperforming on revenue. In terms of how the margins will shape up, I think let us close Q3, we'll be in a better position to communicate as to how are we going to close the year ? But given the fact that what we had assumed some of the newer jobs to get into margin recognition threshold in Q2, there has been some slippages there. And hence, we thought it is appropriate that we could be landing anywhere between 8.5% to 9% for the full year. It is premature to communicate at this juncture whether we will be at 8.5% or 8.7% or 8.9%, but maybe a better articulation ca n happen once we close Q3. But this 8.5%-9% guidance factors volume growth as per our estimates.

Perfect. And lastly, while you did highlight about reasonably good order prospects for the Power sector, I just want to understand what are the base assumptions that you have taken for order pipeline for the domestic power projects, thermal coal-based projects here? Because some of the largest customer NTPC is indicating almost 11 gigawatt kind of project award in the next 12 to 18 months. So can you quantify gigawatt and gigawatt terms what is the pipeline that you have assumed until March or near term that you have projected?

So Power, I had indicated prospects of INR0.55 trillion. It factors around 4.5 gigawatts of order prospects in coal-based power plant ordering in the next six months.

Thank you. The next question is from the line of Aditya Bhartia from Investec. Please go ahead.

My first question is on the two large hydrocarbon orders that you've booked. Have there been any customer advances that we have received on those orders? And what is our internal margin expectation for orders of these sizes?

Okay. So that's a great question, Aditya. Let me tell you, I think as far as advances are concerned for all these orders will be coming up in this current quarter, okay? I also wish to make a remark that most of the hydrocarbon orders that we secure, they're all fixed price contracts. Obviously, by bidding for the projects, we have taken into account the competitive intensity and also our recent performance of orders with the customers in these areas and geographies. Premature for us to communicate the embedded margins because these have been fixed pr ice contract, time will tell how the margins evolve over a period of time. But as far as the bidding methodology is concerned, there has been no compromise as far as the margin trajectory is concerned.

And when we look at the revenue, the potential between domestic and international for this quarter, actually, it's been quite tough. On the domestic side, it seems that there has been some deceleration some moderation in revenue growth because we are having something 6% to 7.5% kind of revenue growth. So what exactly has been playing out over there? And how should we think about it over the next few quarters?

Okay. So Aditya, I made a statement saying that Q2 FY '24 revenues at Rs 510 billion. It registered a Y -o-Y growth of 19% and international revenues constitute 43% of the revenues during the quarter, okay? Now these are group revenues. So if I had to just summarize it, out of that Rs 510 billion of overall revenues, Infrastructure segment contributes 48%, energy Eegment contributes 13%, IT and Technology Services, obviously, as you know, comprises 22% and largely 90% of that revenue is international, okay? So I don't think at this juncture, the revenue growth I would say is for the quarter, the domestic revenues of the Pr ojects & Manufacturing segment has grown up by around 7% on a Y -on-Y basis. And the Projects and Manufacturing, international revenues have actually virtually doubled. The growth is almost 92% in Q2 FY24 as compared to Q2 of last year.

Exactly my point, sir. So on the domestic core business there's been quite a sharp deceleration in first quarter, we are seeing almost something like 35% revenue growth. This quarter, it seems that it's been somewhere between 5% to 10%. So is there something that's really happening over there? Because in first quarter, we had spoken about very sharp pickup in execution space, both in domestic and international and also spoken about some labor constraints we faced in the domestic market.

So there are no supply chain constraints or labor shortages per se at a broader domestic side. But let me tell you that one of the foremost reasons for our ability to control on working capital is to have a sharp look at the progress linked to the money that gets collected. So that is possibly the only reason for us to say that the domestic part of the order book is possibly growing at a slightly slower rate than what is happening in international. Everything is linked to the money collected.

Understood, sir. And over there, you are seeing some challenges versus how things have been in the last couple of quarters because last few quarters, we've been growing without compromising on working capital?

So Aditya, let me talk about as far as H2 for the domestic part of the order book is concerned is actually one of the more seasonally more favorable quarter for project execution. So I don't think there are any challenges as far as Q3 is concerned. But Q4, no, it's a little to o early. That's one of the reasons when we -- I keep reiterating that revenue guidance, we will possibly outperform because we have to be also mindful of the fact that Q4, although one of the best quarters for the overall economic momentum to peak in that quarter given the fact that the government projects would like to be completed, the climate supports the entire execution. But Q4 can be -- because of all the state elections and a possible Centre elections, there can be a possibility of labor movements going back to the respective constituency for voting and campaigning and all. So little too early, but I don't see any challenges per se to articulate the why domestic growth is slowing down. It has more to do with L&T's focus on progress -- collect and progress, I would say.

Congrats on a good set of numbers. Just a couple of things. One is on the macro side to start off with, any inter esting trends you're seeing either on the private capex side in India or any sub - segment within Infra that you'd like to highlight?

So as far as India is concerned, as I mentioned in the order prospects pipeline of Infrastructure segment, I did give a breakup. I think what we could potentially see in the next six months or so, Lavina, would be basis the order prospects, we do see a lot of activity coming on the railway side, which is both electrification and announcement of high -speed rail networks. Metro packages almost some 24-odd metro packages are on the anvil to get awarded, okay? So we do see a large uptick on the transportation infra led by railway sector. As far as another major area where we're seeing a good amount of prospects is the Buildings and Factories sector, which is almost 18% of the total order prospects of the Infrastructure segment. And in Buildings and Factories, I think a very positive element has been a decent mix of both private sector and public sector order prospects that are coming in. As far as private sector is concerned, a lot of prospects coming on pure play residential, commercial, data centers. These are three or four important areas we are looking at. On the Minerals & Metals, here again, the order prospects is almost 10% of the top infrastructure order prospects, again, led by prospects coming from additional capacity expansion in the steel sector, which we expect to be getting tendered out. Of course, the awards part can be a little -- it will be too early for us to comment whether the award actually would happen. But definitely, I can see that the order prospects in the Infrastructure segment, as far as domestic concerned, is a blend of both private and public, led by Transportation Infrastructure on the public side, and Buildings and Factories on the back of what you see a residential and commercial boom happening across the country. Almost 20% to 22% o f the domestic order prospects of Infra from the Private sector space.

And lastly, I might have missed this, sorry about this, but Saudis, how much of your order book today? And just confirming Israel-Hamas conflict has no impact on L&T for now?

So answer to your second question first. We don't have any major order book exposure to Israel per se. In fact, almost negligible. As far as exposure to Saudi is concerned of the international order book, almost 84% is coming from Saudi.

Thank you. The next question is from the line of Aditya Mongia from Kotak Securities. Please go ahead.

So I had two questions. The first question that I had was on getting a better sense of the improvement in working capital and the trajectory of margins. If you kind of take away the fact that domestic has not grown well then overseas have grown really well. If you just compare it to domestic or domestic, would the change in working capital be as stark as it is appearing? And whether we would the decline in margin will be less sharp than what it is?

So Aditya, I did not understand your question on margins, but the way I will put my answer to response to working capital is that I did respond to a question that was earlier put across is the improvement in net working capital is not because of having collected customer advances. Now -- for example, the two recent ultra mega orders that we have taken in order inflow in Q2, we do expect our advances to come in Q3. Obviously, it will only add a fillip to the net working capital. But the larger point I would like to emphasize here that L&T has shown an improvement in the NWC is primarily focused on a more larger focus on the Gross Working Capital. To that extent, if you see in the cash flow st atement, since the gross working capital has actually come down, but because of volume growth, the number is showing a little more additional as a cash outflow because of volume. But it also means that we have to ensure that there is no slippage on executions, all the creditors or vendor payments are actually happening at a higher level, okay? So I would like to, once again, to reiterate that it is not account of customer advances that is enabling us to show a lower working capital is largely due to the bet ter control and better connection visibility that we have been seeing over the last 1.5 years or two years where we have been able to bring down the overall capital intensity in the Projects and Manufacturing portfolio. Now having said this, of course, hydrocarbons, as a segment, has been getting a lot of orders from the overseas side, and typically, the working capital intensity for international jobs is more favorable than domestic jobs. So the extent of advances that we keep getting as we get more- and-more orders there will enable only the improvement to happen further from what it is today. I didn't get your question on margins.

I would want to believe that because the overseas mix is increasing in revenues, that should be an added overhang on margins -- as it is a support on working capital, it's probably an overhang on margins. And I was just trying to kind of understand that is what is leading to somewhat the Y-o-Y pressure on margins as well?

No, no. I would like to emphasize here that just because a larger share of international orders, whether it is compressing margins, would be an appropriate conclusion. I would like to once again mention, and we did this at the start of this year itself that the first six months, the margin trajectory for the Projects and Manufacturing portfolio would be subdued. And we do expect the improvement to happen because a large part of the projects that we secured in both Infrastructure and Hydrocarbons in the later part of '21, ' 22 and '23, will all get into margin recognition state in the later part of the financial year. But I wish to emphasize that the guidance that we have given a band of 8.6% to 9%, or 8.5% to 9% is primarily because what we expected some of the projects of t he newer projects to get into margin recognition threshold can have a slippage in terms of time lines. And hence, the guidance has been given to a band now. Let us see how Q3 shapes up. We will have a better visibility on how we will finally close the year. And next year, obviously, it's a little premature. It becomes very difficult for a Projects and M anufacturing company to give a guidance beyond 12 months. So we will see that basis how we complete Q3 and Q4 of the current year. But it could be a fallacy to assume that a large part of orders coming from international orders can have an adverse impact on the margin trajectory.

Understood. The second question that I had, P.R. I'm not asking for the guidance, but given that a lot of tendering h as happened and you're getting a sense of pricing, is the path towards 10% EBITDA margin in core E&C becoming clearer or murkier?

So Aditya, I think I would stay to clear that we will restrict ourselves to the current year in terms of margin guidance and developments. But let me assure you that as we grow bigger, we are not compromising on any sort of bidding mechanics to any way tal k about lower margins. I think the subdued margin trajectory in the Infrastructure segment for the last two years has largely been on account of the legacy jobs that were secured prior to COVID, and delays in execution, cost pressures are raising a lot of additional site hold on costs. And of course, the claims that we have been pursuing with our clients for these kind of costs that we have incurred is taking its own toll in terms of time lines of collection and -- settlement and collection. So -- but I would like to reemphasize that we are focusing on bidding parameters. There has been no compromise as far as profitability is concerned. Of course, we take into account the sectoral competition, we factor that. But I think the largest piece, whereas we may have optically come down on margins. but I think the Return on Capital Invested for the entire segment over the last 1.5 years has been actually shown an improvement.

Understood, sir. Just a clarification over here. I think you made this remar k that labor and the shortage of labor is having no impact. And this is kind of in contrast to what we are hearing from engineering companies, which are essentially saying that labor are going back to their home states because there's a lot of work. I understand L&T can manage the situation a lot better, but still just kind of double checking. Is labor and the cost of labor, and availability or hold the labor becoming a problem in any state or is it something completely under control?

So Aditya, I will tell you that in the first six months, I cannot attribute that the lower progress in domestic jobs is because of labor shortages. It is not that way, okay? But going forward, yes, as we get larger and larger jobs, it is becoming difficult to get the right skill set of labor, especially when you are talking of coastal roads, high-speed rail networks, underground metro, the type of labor that we need to secure will be challenging. But given the fact that we work with a set of subcontractors wh o provide, and we are possibly one of the few companies that are able to demonstrate order inflows so that they are in turn given opportunities. Maybe our ability to accumulate or organize labor at a short-term notice is better. But having said this, it would be inappropriate for me to say there is no labor shortage issue per se. There can be state -level temporary disruptions because of shortage of labor. But it's premature for me to comment that revenue shortfall because of capacity of labor at this juncture may not be the right cost -- right answer.

Thank you. The next question is from the line of Puneet Gulati from HSBC. Please go ahead.

Sorry again to deliver on the same point here. On the margin, you said that some of the newer jobs are likely to miss the margin recognition. But if the execution phase is strong, which is visible by revenues, why would that happen?

So Puneet, let me tell you, just to -- since multiple questions coming on margins, see, we have a Rs 4.5 trillion order book, okay? Against that, I wish to tell you, almost 60% to 62% of this order book is yet to achieve the margin recognition threshold. So they have not cross those thresholds by which we can start recognizing margins, okay? Now this is at the overall Projects and Manufacturing level. But if I have to take it at the overall Infrastructure segment level, against the total order book that is of Infrastructure we have, almost 60% of that is yet to cross the margin recognition. And in respect of Hydrocarbons, order book, almost 70% of that is yet to achieve margin designation. Now this gives us the comfort that what we are today, the drops that are getting closed or getting into completion, the focus is on all the jobs that where we have time lines to complete given the fact that these jobs got extended because of COVID. So the relative activity on the older jobs is far more than the newer jobs. And we believe that the pace of completion of the older jobs will get over by -- largely over by Q3 of the current year, and you should be seeing the newer jobs getting into a faster execution mode sometime from the next start of next calendar year.

Understood. So what you're saying is basically the -- growth contribution is driven more by older jobs and newer jobs will probably start...

Puneet, legacy jobs that are contributing to the growth. And this has been factored while we gave the start of the year guidance that the first two quarters to three quarters could be a little subdued given the fact that the emphasis is to complete all the legacy jobs in priority to the newer jobs and yet without affecting the deadlines of the new jobs as well.

Yes. But now you're giving a guidance to better than the initial year, but margins you are cutting still?

We are only saying that given the fact that, as I mentioned in response to a same question last time, that some of the projects, the newer projects that were expected to cross the margin recognition threshold in Q3, depending on the budgeted estimated progress in the first half, that is getting postponed. And hence, we thought it would be appropriate for us to say that we can be looking at a margin band of 8.5% to 9% for the current year.

Understood. And secondly, on the claims, where are the and how positive are you on getting those covid-related claims?

The claims that have been launched with the customers for additional cost for claims towards price variation because of the higher commodity prices, all of this are across various segments, across various customers, be it central or state government. And when it comes to an extra claim, obviously the -- which is not necessarily within the terms of the contract like this COVID-related cost it is taking its own time for it to be crystallized. And hence, while we have given the margin guidance for the current year, we have not factored any of these claims that will come. Hopefully, I think when they come, that should see an imp rovement of margins in that particular quarter, maybe that will be a onetime. But as far as the margin trajectory is concerned, the legacy jobs are peaking at the execution in the current year. The newer set of jobs will get into peak execution sometimes maybe from Q4 of the current year.

Understood. And just last time you said, even though margins are weak because working capital is good, the return on capital employed is still healthy. In the current orders that you're winning, are you factoring in maybe lower margins because the working capital management is extremely good? Or are you still aiming for the same higher 10% kind of margin?

So Puneet, working capital is a behavioral matter. It is independent of the margin side. So if don't -- let's not conclude that we may be bidding for higher margins and the cost of higher working capital intensity. We are, in a way, more disciplined enough as an organization to ensure that we progress on jobs in line with the payments that we collect.

Okay.

Margins and capital intensity run after the project is awarded, but while the time of bidding, margins are being considered as a way, taking into account the capacity that we have in that particular business and also the competitive intensity.

Thank you. The next question is from the line of Amit Mahawar from UBS. Please go ahead.

Congratulations on great momentum in orders and execution. Sir, my first question is on the Saudi Arabia strategy. L&T has been investing in the last couple of quarters in that region, either to increase the addressable market of what we do there, conventional Hydrocarbon or Infra and also to meet the local content requirements in the Kingdom. And it seems we are not going there as a one-off presence of taking a couple of orders. It's going to be a permanent high exposure with a lot of local abilities for L&T. What is the framework that we are following in that region because the competition there is no more Indian, it's a global competition we have with half a dozen global giants. So can you just throw some light on some of the framework that we are following to manage the risk profile because the ultra-mega categories introduced maybe because of the region itself with the way the projects are coming.

So Amit, ultra-mega is not because of only the Saudi orders. We have been thinking about this for a long time. It's not only Middle East orders that is becoming the size, there has been some domestic orders also where the amount is almost close to Rs 15,000 crores. And it is important for L&T to start differentiating this. Coming as far as the overall L&T's approach to -- I won't use the word specific to Saudi. Yes, our exposure to Saudi is, as I said, 84% of our current international order book is from the Kingdom itself. And the Kingdom is looking to -- and it is there in the public domain. There is a spend that is happening on the energy side, which is hydrocarbons, which is the both the expansion of offshore and onshore opportunities. Then we have new city developme nts, and new city development complete from nothing to everything, including energy transition projects and so on and so forth. So this kingdom will continue to have a good set of opportunities for EPC contractors like us. Till now, our experience with ou r customers, our ability to deliver projects on time has been good. And we think that this will continue, and we should be getting a good amount of orders from this part of Middle East. But I would also like to reemphasize that the prospects that we have for hydrocarbons, I did articulate that everything is not Saudi itself. It is now going beyond Saudi into other domains or other countries like Qatar or UAE. So we are -- as an organization, we are mindful of what we call a separate organization to be created to pursue the opportunities there, be it a project management organization, our procurement organization and overall execution organization, the company is investing in talent and headcount in these geographies to cater to the improved or higher set of opportunities be it on hydrocarbons or renewables or water or core industries as well.

And the second question is more slightly longer term, taking a three year, four year view, what kind of direction would you take for the core revenues fro m the convention EPC versus some relatively higher value -add revenue segments that we will eventually start building up across high-tech, or across energy transition segment? So my pointed next two years, three years, the profile of business that is significantly better gross margin, will that move in the next two years to three years? And what can that be? Or we are still too early in that game, sir?

So Amit, when we articulated in May '22 about L&T's strategic vision for the next four years ending FY '26, a substantial part of a substantial part of that is getting into -- investing into talent that relates to bidding for or catering to energy transition projects, be it on green energy or be it on energy transition means it can be a combination of nuclear, hydel, green energy and so on. So we have factored all of those type of investments, including talent. Investment may not necessarily be monetary investments. It's also important to know that we need to have a higher focus of sector-specific talent to be part of the organization. So that is one. Hopefully, as the EPC contracting business goes beyond normative construction opportunities to getting into larger, more boutique projects that requires a lot of engineering and technology adoption, hopefully, I think the margin trajectory should be in line with these kind of opportunities as well. And that also, in a way, has been articulated in our start plan in terms of how we are looking at improved profitability coming from a mix of these new type of projec ts that could have in the next two years to three years, Amit.

Thank you. Ladies and gentlemen, we will take that as the last question for today. I would now like to hand the conference over to Mr. P. Ramakrishnan for closing comments. Over to you, sir.

So thank you. Thanks for everyone for attending this call. It was really a pleasure to interact with all of you. I hope all you r questions have been addressed. In case if you have any follow - up questions, please feel free to contact me or my colleague, Harish. We will now close the call. Thank you once more. Good luck and wishing you all the very best. Thank you.

Thank you. On behalf of Larsen & Toubro limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.