Dear Shareholders

Robust self-belief and resilience are the key to success in times of uncertainty and challenge. This spirit has helped India contend with an unprecedented pandemic and, in rapid succession, a war in Europe with its attendant disruptions. It is indeed creditable that amidst these macroeconomic and geopolitical upheavals, India has managed to stay the course in its quest for growth. Your Company has also performed well while operating within the given constraints. At this juncture, we wish to reiterate our commitment to advance the interests of our country and express our solidarity with the nation and its leadership.

Business Scenario

FY 2021-22 was an economic roller coaster with the impact of recurring bouts of COVID-19 and global disquiet counter-balanced to some extent by Country’s economic resilience. Regular government spending throughout the year complemented by liquidity easing measures by the Reserve Bank of India prevented the risk of an economic meltdown and helped bolster the confidence of households and private companies.

An improved borrowing programme for the Centre and State Governments also meant that the spending proposals envisaged in the Budget continued unhindered. Most of the high frequency, mobility and service indicators gained momentum as the easing of pandemic curbs saw demand regaining lost ground before geopolitical tensions erupted to set the clock back once again.

After years of stagnation, India witnessed a pick-up in exports in FY 2021-22. Consequently, the economy expanded at 8.7% in real GDP terms vis-à-vis a contraction in the previous financial year.

India is expected to post top quartile growth among emerging nations in the medium term. Challenges hovering on the horizon include runaway oil prices, supply chain disruptions and the US rate hikes affecting capital flows into India. Despite these roadblocks, however, our view is that the bold structural reforms carried out by the Government in the last couple of years will pave the way for improved quality of growth. A slew of incentive schemes launched by the Government should stimulate manufacturing and exports in our run up to becoming a USD 5 trillion economy. Leveraging its expertise in high-tech manufacturing, your Company is well-positioned to take advantage of the opportunities as they unfold.

Driving Growth

India’s FY 2022-23 Budget focusses on consolidation with a capex-driven infrastructure thrust where the Government will do the heavy lifting and the private sector steps in to play its part. Most of the initiatives undertaken, ranging from NIP to NMP, creation of DFI, the PLI scheme, the public procurement initiatives as well as the renewed PPP models, have an overarching infrastructure focus. Clearly, they are directed to coax capex back into play. We hope that a reasonably stable domestic macro environment and an equable socio-economic climate will enable the Government to realise the vision envisaged in the NIP blueprint. Public and private investments working in tandem should also resuscitate India’s Investment / GDP ratio which has been stagnant.

Since infrastructure investments serve the dual purpose of driving productivity and generating employment, we believe the underlying macro drivers for growth remain intact. Your Company is poised to capitalise on these opportunities as they emerge.

Internationally, we expect the GCC economy to remain buoyant with a strong capex fuelled by prevailing oil prices. Infrastructure and hydrocarbon opportunities are likely to open up in the African sub-continent on the back of enhanced bi-lateral/multi-lateral funding support.

Group Performance Review

In a year marked by several disruptions, your Company turned in a creditable performance and registered appreciable recovery across key performance parameters. Our Order Inflow for the year at ₹192,997 crore was achieved on the back of major domestic and international order wins in Hydrocarbon and Infrastructure. Although the domestic ordering environment was a shade below expectations, the international environment, especially in the Middle East, is a cause for cheer.

The L&T Group recorded revenues of ₹156,521 crore during FY 2021-22, registering a growth of 15%. The growth was aided by improved project execution and manufacturing activity further complemented by a strong pick-up in the services businesses amidst a volatile macro backdrop.

As on March 31, 2022, the Order Book at ₹ 357,595 crore is large, growing and diversified. The Infrastructure segment has a 73% share of the consolidated Order Book. The Order Book registered a growth of 9%, on the back of orders secured in projects businesses.

A healthy Operational Profit After Tax at ₹ 8,572 crore, representing a growth of 23% over the previous year. Thanks to robust operational cash flows, our capital employed metrics have reported progress, leading in turn to improved return ratios for the Group. The Group has repaid borrowings during the year resulting in improved Debt-to-Equity ratios.

Your Company continues to focus on shareholder value creation by divesting non-core assets, capturing cost efficiencies and leveraging technology for productivity gains. Our strategically diversified business portfolio, geographical dispersion, robust balance sheet and strong Order Book are reliable signposts pointing to a brighter future. Further, the Company’s proven execution strengths and committed workforce are helping it to seamlessly transition to a more digitally evolved work environment. This should enable the business to thrive once the immediate challenges posed by pandemic and the geopolitical uncertainties are behind us.

It gives me great pleasure to inform you that the Board of Directors has recommended a final dividend of ₹ 22 per share for FY 2021-22.

International Business

The Company’s policy of aiming for wider geographic dispersal continues to yield positive results while de-risking exposure. While the Middle East region remains an area of focus, your Company has expanded its outreach to several countries in Africa as well as South East Asia. Currently, the Middle East region constitutes 76% of the international Order Book of ₹ 95,227 crore.

Strategic Plan

Our Strategic Five-year Plan christened ‘Lakshya 2026’, continues to steer your Company’s growth. Simultaneously, it also responds with agility to flux in the business environment. This year we launched Lakshya 2026, built around the following themes:

• Value accretive growth in our current business portfolio
• Exit from non-core businesses
• Developing innovative business offerings to ride the energy transition wave
• Scaling up Digital and e-commerce businesses
• Business sustainability through sharper focus on ESG and shareholder value creation

We are targeting Group Revenues of ₹ 2.7 lakh crore and ROE of 18%+ by FY 2025-26

Training and Talent Management

People are at the heart of our successes and our continuing endeavours to do better. Our HR policies are crafted to ensure professional growth while contributing to the employee’s sense of pride and well-being. We also leverage technologies as we anticipate and adapt to changing requirements. For instance, our digitalisation initiatives enabled us to provide learning experience to our employees, even as they worked remotely during multiple lockdowns.

Sustainable Development

I am very happy to inform you that this is the maiden issue of our Integrated Annual Report, bringing together our financial and sustainability performance across multiple parameters. While the world seems to have suddenly woken up to the perils of climate change, for your Company sustainability is nothing new. We have been at the forefront of 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.

Your Company has set for itself a Water Neutrality and Carbon Net Zero target of 2035 and 2040 respectively. We are already present in EPC Solar and Water space and are now actively looking at expanding our footprint in Green Hydrogen and Energy Storage. With more and more countries signing up for time-bound zero emission targets, lucrative business opportunities should emerge for your company in green hydrogen, storage solutions, renewables and the world of data infrastructure.

With regard to governance, the Company’s core values pivot around the principles of independence, transparency, accountability, responsibility, compliance, ethics and trust. We will continue to uphold the value systems which have been the traditional hallmark of Larsen & Toubro for over eight decades.

As stated in the past, I wish to reiterate 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.

Outlook

We live in an age of unpredictability. Just when it appeared that the world had come to terms with the pandemic and that the worst was behind us, war broke out in Europe, dashing hopes of achieving the stability essential for growth. In the interdependent world we live in, conflagrations are no longer confined to the boundaries of the combatant countries. This has disrupted the global supply chains and triggered an alarming spike in prices. The consensus view is that prices of various commodities would remain elevated in the near term.

Amid all this, there is good news on the technology front. Paradoxically, it took a pandemic to open our eyes to the latent benefits of digital technologies. These technologies are irrevocably changing the way we work and interact with each other. Also, the IT spends are possibly the only deflationary force in today’s inflationary world. Another positive result has been a heightened awareness of sustainability and a more rigorous emphasis on Environment Protection, Social Responsibility and Governance frameworks.

Conclusion

I would like to thank our employees, our customers, supply chain partners and the Government for their contribution, directly and indirectly, to our growth. I also thank my fellow Board Members for their invaluable support in guiding the Company through turbulent times.

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

My heartfelt greetings to you all as India celebrates ‘Aazadi ka Amrit Mahotsav’.

Jai Hind!