Dear Shareholders

There is an air of sustained optimism in India even as the world grapples with economic uncertainties. The vision of the Government and the indomitable spirit of Indians seem to be propelling the country forward. This has been made possible through a nuanced combination of structural reforms, prudent regulatory actions and smart policy manoeuvring. During the year under review, your Company has performed well and continues to excel in the areas of infrastructure, hi-tech manufacturing and tech-driven services. It also contributes actively to India’s transition to a cleaner, greener economy. At this juncture, we reiterate our commitment to pursue our business goals and add value to all our stakeholders while continuing to advance the larger interests of our country.

Business Scenario

The global economy has been in a volatile state throughout the year under review. Global growth has been slowing down due to the conflict in Europe which has disrupted global supply chains. Most central banks, in parallel increased their policy rates to curb inflation, which in turn, could impact future investments.

In India however, the scenario has been more positive. The Government has adhered to its infrastructure-driven growth path and continued with capex spending. The Government’s efforts have been complemented by the Reserve Bank of India (RBI) through judicious interventions to ensure systemic liquidity, bolstering the confidence of households and private companies.

Several domestic macroeconomic indicators provide reasons for cautious optimism. An improved Tax-to-GDP ratio and a healthy Government Balance Sheet will hopefully ensure that the spending proposals envisaged in the Union Budget proceed unhindered. While export earnings from merchandise goods stagnated, the service sector export earnings grew at a fast pace, ensuring that the Current Account Deficit (CAD) scenario remained comfortable. On its part, the Government is doing the heavy lifting in terms of spending on infrastructure. Meanwhile, the private sector’s capacity utilisation returned to pre-COVID levels, and select sectors have started witnessing an uptick in investment. Going forward, this revival in private investments is likely to become more broad-based. Further, bank balance sheets are well capitalised today to propel investment growth.

Buoyed by the success of the Production Linked Incentive (PLI) scheme, the Government is likely to extend it to more sectors and intensify efforts at structural reforms in critical areas such as labour, logistics, manufacture, renewables, healthcare and education. This should enable India to retain its ‘fastest-growing emerging nation’ status in the

medium term. Shifts in global value chains, sustained digitalisation initiatives at home, backed by India’s zeal in meeting its de-carbonisation objectives could well make India the world’s third largest economy by 2030.

Amidst all this, your Company is well positioned to ride the waves and reap the benefits. Its proven expertise in building world-class infrastructure and high-tech manufacturing, coupled with its emphasis on leveraging technology to deliver the best possible output, place your Company in a sweet spot to take advantage of the opportunities as they unfold.

Driving Growth

The Government is clearly pursuing an infrastructure-driven growth strategy. It is expected that private capex will provide tailwinds to the growth momentum. The National Infrastructure Pipeline (NIP), put together by the Government, provides a clear visibility of the country’s infrastructure requirements and the funds needed. The National Monetisation Plan (NMP) has been envisaged to unlock value in the operational infrastructure projects by engaging the private sector. It is expected that the National Bank for Financing Infrastructure and Development (NaBFID), set up primarily as the principal Development Financial Institution (DFI) will support the development of long-term infrastructure financing in India. Thus, a clear vision is in place for India’s infrastructure. The public procurement initiatives as well as the renewed efforts to revive the public-private partnership (PPP) model have an overarching infrastructure focus. Clearly, the Government is serious about reviving private investments in infrastructure. Once both public and private investments begin working in tandem, it will boost India’s Investment-to-GDP ratio, driving the country to an even higher growth trajectory.

As India’s dominant infra player, you will be happy to know that your Company has lucrative prospects to look forward to across the spectrum, as infra investments trigger employment generation and entrepreneurship opportunities, boost income, and drive demand for goods and services.

There are encouraging signals on the Defence front as well. India’s journey towards being self-reliance or ‘Atmanirbharta’ is transiting from stated intention to visible action. The Government is keen to reduce import dependency and go a step further to secure for India an entry into the global supply-chain. Your Company is proud to have been associated for almost three decades with this sector of crucial national significance, and is optimistic of the opportunities going forward.

At this juncture, I wish to state that our defence business does not manufacture explosives or ammunition of any kind, including cluster munitions or anti-personnel landmines or nuclear weapons or components for such munitions. The business also does not customise any delivery systems for such munitions. We have stated this earlier, but it bears reiteration.

Synchronous Capex Recovery

These are rare occasions in the country’s history where we are evidencing a synchronous capex recovery in India and the GCC. For your Company’s projects business, the Middle East region is the primary overseas market. It is expected to have higher investment outlays, and appears to be shifting focus from oil to clean energy and other industrialisation initiatives. Over time, the pick-up in Africa and South East Asia will reduce concentration risk in our international project businesses.

We expect IT spends across the world, revolving around digital transformation, to continue at a healthy clip in the medium term despite concerns around global slowdown. IT spends in selected areas offer your Company twin benefits. They improve productivity as well as enable the Company to gain higher market share.

Group Performance Review

Against the backdrop of continued global uncertainty, your Company turned in a creditable performance and registered appreciable recovery across key performance parameters. Our Order Inflow for the year stood at ₹ 2,30,528 crore, which was achieved on the back of major domestic order wins in Hydrocarbon and Infrastructure. Although the international ordering environment was a shade below expectations, the strong revival of the domestic market has been a cause for cheer.

The L&T Group recorded revenues of ₹ 1,83,341 crore during FY 2022-23, registering a growth of 17%. The growth was aided by improved project execution backed by a strong Order Book, further complemented by a strong pick-up in the IT & TS businesses amidst fears of global spends slowing down.

As at March 31, 2023, the Order Book at ₹ 3,99,526 crore is large, growing and diversified. The Infrastructure segment has a 71% share of the consolidated Order Book. The Order Book registered a growth of 12%, on the back of orders secured in the Projects businesses.

A healthy Operational Profit After Tax at ₹ 10,374 crore, represents a growth of 21% over the previous year. A combination of improved profitability and reduced capital-intensity has resulted in improved return ratios. The Group has repaid borrowings during the year and improved its Debt: Equity ratio.

Your Company continues to focus on shareholder value creation by divesting non-core assets, capturing cost efficiencies, and leveraging technology for productivity gains. Over time, the Company will also invest in various energy transition initiatives as well as incubate and scale up new-age businesses and platforms. Our strategically

diversified business portfolio, geographical dispersion, robust balance sheet and strong Order Book are definite markers to long-term value creation. Further, the Company’s proven execution strengths and committed workforce are helping it to seamlessly transition to a more digitally-evolved work environment.

As an approach to business, your Company is committed to continue its focus on cash generation, pursue prudent capital allocation, maintain a healthy leverage and cash balances, and distribute it to shareholders on a regular basis.

It gives me great pleasure to inform you that the Board of Directors has recommended a final dividend of ₹ 24 per share for FY 2022-23.

International Business

The Company’s policy of aiming for wider geographic dispersal continues to yield positive results, and de-risks exposure to a particular region. While the Middle East region remains an area of focus for the Projects businesses, your Company has expanded its outreach to new markets in Africa as well as South East Asia. Currently, the Middle East region constitutes 87% of the international Order Book of ₹ 1,11,779 crore.

Training and Talent Management

L&T is its people. The success of the organisation is the sum of the individual accomplishments of every member of Team L&T. Our people policies, therefore, are simply to create the conditions, provide the incentives and eliminate the obstacles to consistent peak performance.

While much has been done, we aim to do better. Despite the constraints inherent to the businesses in which we operate, we are consciously stepping up our efforts to improve our gender diversity ratio. We also leverage technologies to deliver ‘any time learning’ and to improve the breadth of engagement with our employees, particularly the younger generation for whom being digital is natural.

Sustainable Development

We believe that we and all our stakeholders, are here for the long haul. Every business decision we take is viewed through the lens of the future, to ensure that temporary considerations do not undermine long-term value generation.

Our Integrated Annual Report brings together our financial and sustainability performance across multiple parameters. We have been driving many sustainability initiatives long before they were mandated by law. Since 2008, we have maintained an annual reporting cycle for our sustainability performance. These Reports are accessible on the Company’s website.

Good governance is the central pillar around which the organisation has been built. Your Company’s core values pivot around the principles of independence, transparency, accountability, responsibility, compliance, ethics and trust. Improving Board gender diversity is also being actively pursued. We will do everything we can to ensure that the value systems, which have been the hallmark of Larsen & Toubro for over eight decades, remain inviolate.

Community Service

L&T-ites do not live in silos, insulated from the world around them. We identify ourselves in spirit with the members of the community to which we belong. We also believe that CSR initiatives are not simply a box to be ticked. We ensure that our efforts across the country are aligned to common themes, and stay sharply focused and outcome-oriented. Over the years, communities see tangible and durable benefits from our presence. They have gained greater access to potable water and better sanitation. Community members benefit from facilities for health, education and skill building. Change cannot happen overnight, but with every step, we get closer to our social goals.

I would like to thank our employees, our customers, supply chain partners, fellow Board Members and the Government for their contribution, directly and indirectly, to our growth through all these years.

My special thanks to all our shareholders for the trust you have reposed in us. You remain an invaluable pillar of strength, and we look forward to your continued support in our journey towards setting higher levels of excellence.

I wish to conclude, on a personal note. As most of you must be aware, I have already announced that I will be stepping down as Non-Executive Chairman of L&T, effective September 30, 2023, and Mr. S. N. Subrahmanyan will take over as the Chairman and Managing Director. My association with your Company, however, will continue as Chairman Emeritus and as Chairman of LTIM and LTTS.

In a symbolic gesture, I will be handing over the L&T flag to Mr. Subrahmanyan, and bestowing on him the attendant honour, responsibilities and challenges which come with the position. This is succession planning in the full sense of the term, and the change of guard at L&T could well rank among the smoothest in Indian industry. Looking back, I consider myself privileged to have had the opportunity to serve, lead and transform the Company that is building the India of the next century. As I have said on multiple occasions before, my life and legacy are L&T, and I am happy and content that I will be leaving it in very capable hands to continue its exemplary record of service to the nation and society.

Jai Hind!