Larsen and Toubro Ltd

F:LTO

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Larsen & Toubro Limited Q4 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. P. Ramakrishnan, thank you, and over to you, sir.

[Parameswaran Ramakrishnan, executive]

Thank you, Faizan. Good evening, ladies and gentlemen. A very warm welcome to all of you into the Q4 and FY '23 earnings call of Larsen and Toubro Limited. We will have with us on the call today, our whole time Director and Group Chief Financial Officer, Mr. Shankar Raman.

The earnings presentation was uploaded to the stock exchange at our website around 6:00 p.m. Hope you had a chance to look at the numbers and the presentation content as well. As per usual practice, instead of going through the entire presentation, I will take you through the key highlights for the quarter in the next 30 minutes-or-so. And post which myself and Mr. Shankar Raman will take the Q&A.

Before I start, a brief disclaimer, the presentation, which we have uploaded on the stock exchange and our website today. Including the discussions that we will have in this call contain or may contain certain forward-looking statements concerning L&T Group's business prospects and profitability, which are subject to several risks and uncertainties, and the actual results could materially differ from those in such forward-looking statements. During Q4 FY '23, the Indian economy continued to display a surprising resilience despite the continuing geopolitical uncertainties globally. Most of the Indian high-frequency economic indicators are continuing to exhibit growth momentum. PMIs and industrial activity, power demand, credit growth investment indicators, mobility indicators, passenger and cargo traffic data, et cetera, are all pointing towards a stable macroeconomic environment. However, the discretionary consumption spends have continue to remain a bit of black cluster. The tax collections for the government have continued to remain strong and the balance sheets of the banks as well as private corporates are healthier. Clearly, most of the Indian macro indicators, be it growth, current account, fiscal deficit as well as inflation are relatively better vis-a-vis other countries in the world. Within GCC, our -- one of our primary geographies besides India, we also see many countries building their non-oil economy by investing in areas like water, green energy, at the same time, continuing to ramp up their spend on oil and gas investments. These are definitely interesting times where despite the continuing global turmoil, both India and GCC remain relatively stable.

Before I get into the details of the financial performance parameters, I would like to share a few important milestones and highlights for the year. For the first time ever, our group order inflows have for the year FY '23 has crossed INR 2 trillion. Secondly, our order book at around INR 4 trillion is obviously at a record high. Our group revenues for the year FY '23 at INR 1.83 trillion has registered a growth of 17% on a Y-on-Y basis, once again a 5-year high. We have reported a NWC to revenue. This excludes Financial Services segment, the NWC 2 revenue at 16.1% as on last '23 is again the best reported in the last 5 financial years. Finally, our recurring PAT for the year has crossed the INR 100 billion mark, again, an important milestone for our group.

A few other important highlights for the year are: We successfully concluded the merger of L&T Infotech and Mindtree in Q3 FY '23. The combined entity, which is LTI Mindtree, with an annualized revenue currently at USD 4 billion possess the capabilities of a tier 1 company and yet retaining the agility of a [Indiscernible]. Similarly, our technology services company, LTTS, also crossed the revenue run rate of USD 1 million -- USD 1 billion during the last quarter. Further, NTTS has successfully absorbed the smart world and communications business of the parent, the transaction got completed on April 1, 2023. The expertise of Smart World and the communications business in communications, envisioning and creating smart and safe cities, power in cybersecurity services and 5G enterprise solutions, offer ideal synergies for LTTS and 3 out of its 6 beds they are placing in the future, which are electrical, autonomous and connected vehicles our medical technologies, digital products and artificial intelligence, digital manufacturing and sustainability. During the year, the commission -- the company commissioned a pilot green hydrogen plant at its Hazira campus, marking its entry into the green hydrogen business. The pilot plant produces 45 kgs of high-purity green hydrogen daily. Additionally, the company has entered into a technology license agreement with McAfee Energy, France, for manufacture of pressurized alkaline electrolyzers. The company has also entered into an MOU to develop floating green ammonia projects or industrial scale applications with the Norway-based H2 carrier. With the conclusion of the sale of the mutual fund business and a phased reduction of the wholesale loan assets book, L&T Finance, a listed subsidiary will also transform into a full-scale retail oriented, digitally enabled business. The reality business of the group, in addition to development and monetization of existing land banks will continue to pursue growth in residential and commercial through multiple formats. During the year, the company entered into an agreement with Capital and India for developing 6 million square feet of prime office space in Mumbai, Chennai and Bangalore.

Finally, the IDPL divestment was also announced during Q3 FY '23. The transaction closure, however, is subject to regulatory approvals and should get concluded in the next 1 or 2 quarters.

I will now cover the various financial performance parameters for Q4 FY '23. Our group order inflows for Q4 FY '23 at INR 761 billion registered a Y-on-Y growth of 3%. Within that, our Projects and Manufacturing business secured order inflows of INR 611 billion for Q4 around the same levels as that of the Q4 of the previous year. Our Q4 order inflows in the projects and manufacturing portfolio are mainly from infrastructure, hydrocarbon and defense segments. During the current quarter, our share of international orders in the projects and manufacturing portfolio is at 43% vis-a-vis 39% in Q4 of last year. Our share of private orders within the projects and manufacturing portfolio is at 18% for Q4 FY '23 vis-a-vis 22% in the corresponding quarter of the previous year. Coming to FY '23 as a full year, our group order inflows at INR 2,305 billion has registered a strong growth of 19% over the previous year. We had given a guidance in this particular parameter. We had given a guidance of 12% to 15% at the start of the year, and our actual has been in higher of 19%. Within this total order inflow, our projects and manufacturing businesses have secured orders of INR 1,722 billion for the year, growing by 19% on a Y-o-Y basis. The share of private orders for FY '23 in this portfolio, that is the products and manufacturing portfolio is at 27% vis-a-vis 22% in the previous year. And the share of international orders is at 28% as against 37% in the previous year. The year witnessed booking of some more worthy orders in domestic irrigation projects and base water projects in the water and effluent treatment business, project in public spaces business in the buildings and factories vertical, a few orders in the idle and tunnel business, including a lift irrigation project and a strategic order in the heavy civil infrastructure business. Apart from this, a couple of orders in ferrous metal space, some select large orders in the defense business, and the large order in the onshore vertical and multiple orders in the offshore vertical of the hydrocarbon engineering business were all secured.

Moving on to the prospects pipeline for FY '24, we have a total prospect pipeline of INR 9.73 trillion for FY '24 as against INR 8.53 trillion that we had announced at the start of FY '23. This by itself represents an increase on the prospects of almost 14%. The broad breakup of the overall prospects pipeline that I just now mentioned at INR 9.73 trillion. Infrastructure comprises INR 6.5 trillion, hydrocarbon at INR 2.44 trillion, power at INR 0.5 trillion and high-tech manufacturing at INR 0.29 trillion.

Moving on to order book. Our order book is at INR 3.99 trillion as of March '23. As our projects and manufacturing is largely India-centric of our order book is domestic and 28% is outside India. Of the international order book of INR 1.11 trillion, around 87% is from the Middle East countries, 4% is from Africa and the remaining 9% from various countries, including Southeast Asia. As is evident from the statistic GCC CapEx for both infrastructure and hydro government sectors is on an upswing post the recovery in oil prices. The breakdown of the domestic order book of INR 2.88 trillion, which is 72% of our order book. The breakup is as follows: The share of central government orders 14%, state government 30%, public sector units saw state-owned enterprises at 36% and private sector. Around 22% of our total order book of INR 3.99 trillion is funded by bilateral and multilateral funding agencies. Around 89% of our order book is from infrastructure and energy. You may refer to the presentation slides for further details. During Q4 FY '23 and FY '23, we have deleted orders of INR 53 billion and INR 103 billion, respectively, from the order book. As of March 23, our slow-moving orders in the order book is around 1%.

Coming to revenues. Our group revenues for Q4 FY '23 at INR 583 billion registered a Y-o-Y growth International revenues constituted 39% of the revenues during the quarter. The IT and TS portfolio continued to report an industry-leading growth in Q4 as well. In the Projects & Manufacturing businesses, our revenues for Q4 FY '23 were at INR 433 billion, registering a Y-o-Y growth of 8%. For the full year, we reported group revenues of INR 1.83 trillion, a growth of 17%, largely achieved on the back of a pickup in the execution momentum in the projects and manufacturing businesses and a healthy growth in the IT and Technology Services business. For revenues, if you may recall, we had given -- indicated a guidance of 12% to 15% growth at the beginning of the year.

Moving on to EBITDA margin. Our group level EBITDA margin without other income for Q4 FY '23 is 11.7%, a drop of 60 basis points over Q4 of FY '22. This drop of 60 basis points is mainly due to cost pressures in the projects part of the portfolio. For FY '23, this drop is 30 basis points. That is from 11.6% in FY '22 to 11.3% in the current year FY '23. The detailed breakup of the EBITDA margin business wise is also given in the annexures to the earnings presentation. You will have noticed that the EBITDA margin in the Projects & Manufacturing business for Q4 FY '23 is at 9.2% vis-a-vis 10.3% in Q4 FY '22. And for FY '23 as a whole, is at 8.6% vis-a-vis 9.3% in FY '22. Against the margin guidance of 9.5% that we provided at the start of the year, we have fallen short by 90 basis points, which is, as I said, largely attributed to cost pressures in the EPC projects part of the portfolio. I will cover the details when I talk about the performance of each of the segments.

Our recurring PAT for Q3 FY '23 at INR 39.9 billion is up 10% over Q4 of last year, largely in line with the revenue growth during the quarter. Similarly, our recurring PAT for the year at INR 103.7 billion is up 21% over FY '22. The group performance P&L construct along with the reasons for major variances under the respective function hedge is provided in the earnings presentation you may kindly go through the same further details.

Coming to working capital. Our NWC to sales ratio has improved from 19.7% in March '22, to 16.1% in March '23. We have done substantially better vis-a-vis the guidance of 20% to 22% that we gave at the start of the year. Further, the GWC revenues for FY '23 has dropped sharply to 62.3% as against the GWC revenue of FY '22 at 73.4%. Our group-level collections, excluding the Financial Services segment for Q4 FY '23 is INR 539 billion vis-a-vis INR 430 billion in Q4 FY '22. For FY '23, our group level collections, excluding Financial Services segment is INR 1.7 trillion vis-a-vis INR 1.36 trillion in FY '22, representing an increase of 25%. The improvement in gross working capital is also reflecting in the net working capital. Receipt of customer advances towards the orders received during the year also helped the extent our net working capital drop. Our gross debt-to-equity ratio as for FY '23, the close of FY '23 is 1.14 as against to 1.29 at the end of FY '22. Finally, our return on equity for FY '23 is 12.2% vis-a-vis 11% for FY '22, an improvement of almost 120 basis points.

I will now comment on the performance of each of the business segments before we give our final comments on the outlook for the medium term. First would be the Infrastructure segment coming to order inflows. This segment secured orders of INR 412 billion for Q4 FY '23, registering a de-growth of 9%, that is primarily due to a high base of the corresponding quarter of the previous year. However, full year order inflows in this segment were at INR 1,171 billion reporting a substantial growth of 25% over FY '22 on receipt of multiple large value orders across all the subsegments under this particular business. During the current year, buildings and factories benefited from receipt of some prestigious orders in the public space business. The Heavy Civil infrastructure registered growth on the receipt of a mega infrastructure order and the water and effluent treatment business also received numerous orders for indication and wastewater treatment. The Minerals & Metals business performed well with the receipt of multiple ferrous orders from a private client. For 2 years in a row, the Power Transmission business has continued to benefit from the gigawatt scale renewable opportunities from the GCC region. The decline in order inflow in transportation infrastructure for the year is mainly due to deferral of targeted prospects.

Turning to order prospects for this infra segment. For FY '24, it aggregates to around INR 6.5 trillion vis-a-vis INR 5.72 trillion as of last year. The breakup of domestic in the total order prospects of INR 6.5 trillion, the share of domestic is INR 5.19 trillion, and the balanced international prospects of INR 1.31 trillion. The subsegment breakup of total order prospects in infrastructure business is as follows: Our heavy civil infra 21%, water and effluent treatment at 22%, transportation infrastructure at 19%, power transmission and distribution at 18%, buildings and factories 13%; and Minerals & Metals at 6%. The order book in this segment is INR 2.845 trillion as of March '23. The book bill for Infra is around 3 years. The Q4 revenues at INR 312 billion registered a growth of 5% over the comparable quarter of the previous year, whereas FY '23 revenues at INR 867 billion registered a strong growth of 20%, largely aided by the ramp-up of execution of large orders in the portfolio. As a philosophy, we always step up execution when customer collections are flowing at a healthy pace to essentially strike a healthy balance between P&L and the balance sheet. Our EBITDA margin in this segment for Q4 FY '23 at 7.5%, registers a degrowth of 170 basis points over the corresponding quarter of the previous year, whereas the full year EBITDA margin at 7% basis a decline of 120 basis points. Margins for the quarter and the year remained subdued due to job mix of largely government public-centered tender projects under execution, input price pressures, our logistics constraints, cost overruns in certain jobs pending delay in the customer claim settlements. Our client games will be pursued under the terms of the respective contracts, the settlement of which will happen over time.

Moving on to the next segment, which is energy projects, which comprises of hydrocarbon and power. Receipt of multiple domestic and international orders in the hydrocarbon business during the year improved the order book, whereas deferral of orders continued in thermal power. We have a strong order prospect pipeline of INR 2.94 trillion for this energy segment in FY '24, comprising of hydrocarbon prospects of INR 2.44 trillion and power prospects of INR 0.50 trillion. The order book for this energy segment is at INR 724 billion as on March '23, with the hydrocarbon engineering order book at INR 670 billion and power at INR 54 billion. The book bill for this segment is around 20 months. The Q4 and FY revenue growth of 18% and 6%, respectively, is largely led by the execution momentum in hydrocarbon, whereas lower revenues in power is a function of depleted order book. The improvement in EBITDA margin in this segment for the quarter and full year is largely a function of execution cost savings in both the segments. Further favorable customer claim settlement in hydrocarbon in Q4 FY '23 also aided the improvement.

We'll now move on to Hi-tech Manufacturing segment, which comprises of heavy engineering and the defense engineering businesses. In this quarter, order inflow growth in defense engineering is driven by the government's trust towards indigenization, whereas same engineering ordering was impacted due to reference. For the full year though, both defense and heavy engineering have benefited from multiple order wins. We have an order prospect pipeline of INR 252 billion for this segment in FY '23. The share of defense against this pipeline is around 78%. The order book for this segment is INR 262 billion as on March '23. Revenues for Q4 and full year for this segment registered a growth of 21% and 10%, respectively, largely attributed to higher progress in the refinery business of heavy engineering and execution ramp-up of select projects in the defense engineering business. Margins variance for the quarter vis-a-vis corresponding quarter of the previous year is largely a function of the job mix in this segment, whereas full year margin variance has some element of execution delays arising out our supply chain issues. While I'm on this segment, I would like to mention once more that the Defense Engineering business of Larson and Toubro does not manufacture any explosives nor ammunition of any kind including cluster ammunitions or anti personal land mines or nuclear weapons or components or such munitions. The business also does not customize any delivery systems for such ammunitions.

Moving on to the next segment, Information Technology and Technology Services. As you're all aware, the merger of LTI and Mindtree merger got concluded on November 15, 2022. The merged entity is uniquely positioned to scale up by competing for large deals and will benefit from cost and revenue synergies on upselling, cross-selling and stitching services together. The revenues for this segment for the quarter at INR 106 billion and the full year at INR 407 billion registers a growth of 21% and 26%, respectively, over the corresponding period of the previous year, largely reflective of the continuing growth momentum in the sector with the surging demand for technology focused offerings. The margin decline in the segment for the quarter is a function of higher staff cost, whereas for the full year, the margin was impacted to a combination of higher employee costs as well as onetime integration expenses due to the merger of the 2 companies. I will not tell too much on this segment as both the companies in this segment are listed entities and the detailed fact sheets are already available in the public domain.

We move on to the Financial Services segment. Here again, L&T Finance Holdings is listed, and the detailed results and the fact sheet are already available. And the highlights for Q4 FY '23 for Financial Services segment were improved net interest margin and fees, lower credit costs, better asset quality and rundown of the wholesale and expansion of the retail loan book. In fact, as on March '23, the share of retail in the overall book at around INR 80,000 crores is at 75%, 75% of INR 80,000 crores. The strategic deliverables in this business revolve around portfolio reorganization, strong asset quality and improvement in ROE. This business endeavors to be a top class digitally enabled retail finance company moving from a product focus to a customer focus approach. Finally to conclude sufficient growth capital is available in L&T Finance balance sheet.

Moving on to Development Projects segment. This segment currently includes the power development business, comprising of the thermal power plant Nava power. Uttaranchal Hydropower up to the date of its divestment previous year, August 2021 and Hyderabad Metro. Let me mention here that profit consolidation of L&T IDPL and the PAT level has been discontinued from Q4 FY '23, post signing of the definitive agreement for sale of our entire stake in the company. The investment in this JV is now classified as held for sale. The majority of revenues in the Development Projects segment is contributed by Nabha Power, improved leadership in Hyderabad Metro and higher PLF in Nava drive revenue growth for this segment. To give you some statistics on Hyderabad Metro, the average ridership improved from 199,000 passengers a day in Q4 FY '22, to 408,000 passengers per day in Q4 FY '23. Our average readership in Q3 FY '23 was 394,000 passengers a day. Also average ridership for Hyderabad Metro in FY '23, that is the whole of the year was at 361,000 as compared to 155,000 in FY '22. The higher segment margin in Q4 FY '23 is primarily due to consolidation of Nava profits led by increase in the benchmark valuation. The metro at a PAT level, we have consolidated a loss of INR 13.21 billion in FY '23 vis-a-vis loss of INR 17.5 billion in FY '22. The interest cost in the Metro SPV has reduced from INR 14.77 billion in '22 to INR 12.73 billion in FY '23, largely reflective of the benefits of refinancing, which got concluded in the previous year.

Moving on to other segment. This segment comprises reality, industrial wall, SmartWorld & Communications, construction equipment and mining machinery and rubber posting machinery. The Q4 and FY '23 growth in this segment is mainly in reality, rubber posing machinery as well as construction equipment and mining machinery. The Q4 and FY '23 margins of this segment is in line with the corresponding period of the previous year.

Before I conclude on to the environment outlook, I want to draw your attention to 2 new slides, which we have included in the annexures 2B earnings presentation. The first slide is how return ratios have improved in the projects and manufacturing portfolio over the last 5 years. If you glass through the numbers, you will realize that a combination of revenue growth and a reduced capital intensity in this project and manufacturing portfolio has offset the margin side and actually resulted in improved return ratios over time. As I say this at the cost of, maybe I'm sounding different your margin, I would like to mention that the delays and disputes on additional claims from clients has created in some sort of a timing mismatch in the books, consequently impacting margins in the shorter term. Hopefully, the benefits will accrue to P&L as and when the claims get processed over time. There is one more slide as part of the annexures to the earnings presentation, which explains the journey of return ratios to group level. In this slide, we have listed out 3 action points for ourselves as part of our Lakshya 2026 track plan, to improve the returns to our shareholders. And if you see that it covers the portfolio, the emphasis is on the portfolio utilization of financial services at a pace to exit or reducing exposure from our development projects portfolio and a higher cash return to shareholders over the period.

Coming to the last part of my presentation, which is the outlook. India's economic growth continues to display encouraging resilience despite the continuing global chaos. Prudent fiscal and monetary policy management from the government and RBI, respectively, has resulted in the partial decoupling of India growth story with the rest of the world. The government's push for growth through larger infrastructure spend is clearly evident from the enhanced budgetary allocations for FY '22 PLI incentives, improved business confidence and by and demand conditions will culminate into revival of private CapEx in the medium term.

Going forward, improved tax collections for the government will support its CapEx-led growth aspiration. Further bank balance sheets are healthy, providing opportunities to lend funds to credit worthy projects. with the government's enhanced trust towards manufacturing exports, the country's good straight deficit should narrow for a period of time. The country is committed to NetZero goals and both the government and the private sector are committed to investments around energy transition. Despite this, amidst these various moving parts, the silver lining is that India would continue to remain one of the fastest-growing economies in the world. The last 2 years has seen the global economy striving to deal with overlapping crisis, the latest being liquidity to troubles after a series of global bank prices. While the impact appears to have been contained, these uncertainties continue to undermine the confidence among consumers and businesses to spend possibly impacting global growth. Government and [Indiscernible] banks across the world are attempting to strike a balance between containing cost plus inflation and pursuing demand and growth. A combination of China's reopening a significant easing of the natural gas cases in Europe and a resilient U.S. consumer confidence should help the global economy tied over the current uncertainty overhang with OPEC and partner countries announcing production cuts, oil prices are likely to remain firm at current levels, aiding the GCC nations to pursue their CapEx plan in oil infrastructure, green energy and other industrial sectors. In this backdrop, the company will focus with cautious optimism on large -- pursuing large project wins, timely execution of its large order book, growth of its services portfolio in the stated glide path and preservation of liquidity and optimum use of capital and other resources. The company is optimistic about its growth aspirations in the medium term despite this uncertain macro environment and is committed to creation of sustainable value to all of its stakeholders.

Finally, let me comment on our guidance for the next year before we take Q&A. On order inflows, this is at a consolidated level, that is at a consolidated group level, our guidance is around 10% to 12% bank for FY '24. On consolidated revenues, we are providing a guidance of around 12% to 15% bank in FY '24. On margins with respect to our Projects & Manufacturing business, we closed the year FY '23 at 8.6%. It is our endeavor to improve the margins of around 40 to 50 basis points, maybe in and around 9% for FY '24. Having said this, the margin trajectory will show -- should be showing a good improvement in the later part of FY '24. In terms of the the projects that will come and cross the margin recognition pressure, we see the later part to be a more profitable second half than the first half. On working capital, we are giving our guidance a range between, this is, again, working capital at a group level, the guidance would be between 16% to 18% for FY '24. On the sustainability front, the parameters for FY '23 are undergoing on it currently. We will be presenting you the same when we come with our Q1 FY '21 earnings presentation.

Thank you, ladies and gentlemen, for the patient hearing. We will now open the floor for questions. Both myself and Mr. Shankar Raman will be taking the questions. Requesting the participants to restrict their questions around the broader aspects of performance and strategy in order to make the best use of available time. Any bookkeeping questions can be taken up with the Investor Relations team later on.

Over to you, Faizan.

[Operator]

[Operator Instructions] The first question is from the line of Mohit Kumar from ICICI Securities.

[Mohit Kumar, analyst]

Congratulations on a very, very strong order inflow. However, the EBITDA margin has been slightly on the lower side. My first question is the EBITDA margin for the last 3 years for the core segment, the 10.3, 9.3 and 8.6. It has been contently been declining. As a result, EBITDA growth, if I look for the last 3 years for the core business is around 7% to 8%. Do you expect margins to improve in FY '24 materially in the same some of the losses which you incurred in FY '23 or less in the COVID period will come back in FY '24 and will improve slightly on the high side of 50 bps, [ 40 bps ] look to the lower side. That's the first question.

[Ramamurthi Raman, executive]

Mohit, Shankar Raman here. Good evening. You've chosen a very interesting 3-year period to do your margin profiling, okay? And this has been the most challenging 3-year period for EPC companies, as you will know. The margins that we have reported now largely reflects the cost of inputs that have gone into the execution. And to a limited extent, we were able to sort of fine-tune the time that is available at our hand to complete the project. waiting for the prices to cool down. But it was not possible across the length and the breadth of the project business that we run. So we had to actually go ahead, complete the project, make sure that we don't get into the LD zone and complete our obligation. Now as you know, in project business, the margins are not linear because a, there are milestones and b, there are various gates for margin recognition and contingencies -- cost contingency, and C is finally at the end of the project, there is always a negotiation around any of the scope creep time cost overrun, et cetera, et cetera. So it does take the project completion plus 12 months to actually get the final outcome of a project. Now while it is true that as the projects are getting more and more complex, competition is increasing. The margins never used to be the same that we used to be because the world is getting far more competitive. So there's no doubt in my mind that the 10%, 12% margins that we used to comfortably enjoy. It's not there for some time. I think we need to learn to operate efficiently in a lower margin band. Now what can be the compensating levers? One is the complexity of the project that we can bid for where there is a higher engineering overlay, which will give you some competitive advantage and keep the bar higher. Second is how to ensure that the time erosion that happens in project execution improves and to the extent to which we could have pre-bid arrangements with our entire vendor ecosystem. So that the margin erosion is just not confined to the EPC player, but the chain there the cumulative burden but in a more distributed manner. And third, obviously, is I think, as we broad base our presence across geographies, we have to make sure that there is sufficient cushions that are available in the various markets that we operate in. The timing mismatch is part and parcel of our business, unfortunately, because the cost gets incurred first and then the negotiations happen for final settlement. Except that the cost gets accounted in a lumpy manner, and the benefits drop in in a phased manner. So you don't even realize the recovery that happens in this. The sustainable lever that we are operating on, and it's very visible even in FY '23 is how to reduce the capital intensity. I think we should either run a business, where the returns are very -- the margins are very high. So you can afford to actually be less rigorous on capital allocation. The other scenario where margins are ending lower because of general competitive environment, economic landscape, et cetera, et cetera, and hence, get far more efficient in resource deployment. When I talk about resource deployment, it's just not money, but money mean material, et cetera, et cetera. Also, the fact that we increasingly are getting to automate our processes, trying to use digital technology in our project related manufacturing equipments and also have modular fabrication so that we operate on a batch mode rather than a sequential more. Now these are levers that will take some time to seep into the organization. If we just allow the cost increases to play out, it would have been far sharper fall than what we have managed because of all these compensating levers, which have all got at various degrees of maturity. We do believe in the next couple of years, 2 things will happen. Hopefully, we'll perfect this model of getting less resource intensive and get more cost competitive and more operationally efficient, reduce the rework time, reduce the downtime, et cetera. And b, is the backlog that is actually suffering the higher input costs would have got exhausted by then. According to me, 60% of the backlog that had large cost inflation has got exhausted during the current year. The balance will spread over possibly next year and the following year. But my belief, as Mr. Ramakrishnan was mentioning, the subsequent 2 quarters will continue to see cost pressures on software margins. But as the tie to turnover that phase and cross the hump, and possibly the margins will begin to look up. And '24, '25, my assessment is it will be a more accurate reflection of a normalized execution. Sorry for the long answer, but it deserved it.

[Mohit Kumar, analyst]

My second question is when you look at your green manufacturing portfolio, what are we aiming in FY '24 what is the capacity we are looking for the utilize? And the related question is that are we getting more and more inquiry for the EPC for the clean hydrogen, green ammonia or green manufacturing plant.

[Ramamurthi Raman, executive]

We are working on a capacity of 1 gigawatt for electrolysis. As you know, we have tied up with [Indiscernible] for technology licensing. The factory is getting set up now. We do believe by the time this financial year runs out, we would have produced a pursue electrolyzers. Initially, it would be a product used in India. But we do believe it has potential to be a global product. We should get the technology right. We should get the costing right, et cetera. So our sense is that by FY '24, end of FY '24, the electrolysis plant will be up and running, meaning commissioned. We have not exactly chopped out how many units we will produce, et cetera, because there will be a function of marketing and product development. In so far as EPC is concerned, I think the world is actually beginning to come to terms with the green hydrogen. It is still not according to me, widely implemented. It is widely spoken. I think there is enough pressure in the system for people to get more green in their fuel efficiency and fuel usage, et cetera. So this trend will begin to pick up. My own sense is it will take 0 to 3 years for us to see some scaling up happening in this opportunity. At the moment, what we are trying to do is we're trying to stay relevant to the technology and the developments around we're having conversation. Maybe if the initial movers in this -- for example, groups like Reliance have announced their plans to manufacture. And given our EPC competence and also our electrolyzer manufacturing capability if we are able to get some initial orders, maybe a couple of thousand crores could be the initial orders that we could get in this area. But '24, '25 would be a more appropriate time for us to actually size this opportunity.

[Operator]

The next question is from the line of Ashish Shah from JM Financial.

[Ashish Shah, analyst]

Question is on the guidance. While, of course, 12% to 15% revenue growth guidance is a good guidance. But given the fact that we are sitting on a record order book and our working capital cycle is probably at the lowest point in several years, do you think this is a tad conservative and there is a potential to do better? Or do you think given the concern, this is the correct number to look at?

[Ramamurthi Raman, executive]

There's an event risk at the moment, Ashish, that many types are going for elections, country will be geared for an election. So far, things have been progressing well because the enablers for project execution has been much better in terms of environment. We have to be a little guarded in the current year. My own sense is it could be a bit of a truncated year, may not have the full benefit of 12 operating months.

I really do not know how many months in the current year and how many months in the next year will actually get into some kind of a silent period, so to speak, for large moves by the government. And secondly, the finance minister is blessed with a high degree of compliance and willing taxpayers, so today, I think the physical conditions look very, very rosy.

Now if the allocations change track because of some political priorities, some of these projects can get a little slower. Now the -- while the apparent implication of this order inflow is understandable, the operations in infrastructure, public space, we've always thought with some risks of access clearances, multiple agencies to give progress enabling approvals, et cetera. If the bureaucracy slips into some kind of political prioritization more, then some of these could get affected.

We also have to see the war, seems to be escalating at least the last one week. Whatever normalcy we thought the level of escalation will happen has got completely changed and it is getting into another pitch of rivalry and attacks and stuff like that. I do not know how much more supply chain disorientation is going to happen.

So -- and we do for our project business do a fair bit of equipment supplies from international markets. So we want to be a little careful here. This is not to say that there's no upside. For example, in the current year, we said 12% to 15%, but we ended up over 17%. Our effort would always be to beat margins. But so early in the year, we felt that it's better to be a little more surefooted than adventurous on the guidance.

[Ashish Shah, analyst]

Sure. I got that point. Just last question on the defense, you've have got a pretty good inflow for the fourth quarter. I just want to get some color on this because there were a couple of -- there were a few programs where we were in the front line. There's a cad of training ships, there's the model leverages whether on orders. So I just want to know which all these programs has been received and which is yet to be taken in the inflow. And also in the pipeline, we were in to a fairly good number in terms of prospects for defense. Any broad color on which programs are we eyeing on.

[Parameswaran Ramakrishnan, executive]

There are multiple programs, some are land-based army systems and some are naval systems, as you know. Given the confidentiality with which we are bound on the FY '23 wins, I'm not able to call out specifically as to which program is moving. But suffice to say, both the naval programs and the land-based programs are on course. I think the government is getting comfortable with private sector participation. Still early days.

I don't think a few orders should make us conclude that it's going to be up and running volume. We'll have to wait and watch. But these are areas where we have capabilities. And so to the extent at the moment, let me be a little circumspect in calling off. But all the programs that you mentioned are alive.

And these are continuing programs. So none of these programs is actually one order program. So our hope is that we will continue to keep receiving some of these orders going forward because the services requires these quite badly.

[Operator]

The next question is from the line of Renu bet from IIFL Securities.

[Renu Baid, analyst]

My first question is on the cash utilization and the asset divestments. Now with IDPL almost done and hopefully Nabha also closes in fiscal '24, given that you have readjusted the net realizable value there. How are we looking at the overall cash test of the books for the deleveraging coming in place?

And with this reduced net working cycle that we are seeing because of a structural growth or cyclical growth in orders, how are you looking at the overall utilization of this proceed, any M&A in pipeline, et cetera?

[Ramamurthi Raman, executive]

Actually, in so far as M&A is concerned, we have so far been scaling up in the IT services. In the core business of engineering, construction, manufacturing, we think we have much of the competencies better than most available. So to acquire another company in those core areas, unless it completely changes the competency profile or the threshold mapped for prequalification, I don't think we are thinking in terms of any such major buying.

At the moment, the focus is two. One is to complete the divestments that we are working on. You mentioned about Nabha as I mentioned to you, possibly in one of the earlier meetings, Nabha is a unique asset. It's a fantastic asset by itself, and it is being put to good use in Punjab. The problem with Nabha is that it has been constructed at a cost, which is far higher than the cost at which power capacities are available through NCLT proceedings.

So to that extent, I think it suffers from some competitive disadvantage when it comes to being rolled out in the market. But having said that, what we have done in Nabha is some very good effort in making sure we are closing all the litigators. Significant litigations have been won and money collected against those mitigations in the last year. There are 1 or 2 which are still left and will continue to end to get them also resolved.

If we keep the plant running as well as we are doing now and take all the litigation-related discounts out of the equation, we might possibly find interested people for a performing asset. Because when you buy an asset, NCLT process, et cetera, you have to incur a fair bit of expenditure to revamp the plant. Many of these plants have remained shut for long, et cetera.

So who knows, there might be an interested party who could possibly aggregate this nongreen capacity. But the fact is we are trying to sell nongreen and retirement and everybody is talking green. So there's going to be a bit of an effort required. At the moment, it is not hurting us in terms of either utilization of the asset or the margin that it is contributing.

Whereas if I look at IDPL, you are right, I think we're almost home. We have to make sure all the various approvals that we need to get, we get in good time. And hopefully, we'll close it in the course of this year. The core businesses are expected to generate good cash. We have worked very hard to make sure that the asset intensity, the capital intensity, resource intensity, we have noted down.

Even though we surprised ourselves in getting to 16%, I think it is safer to plan to operate in that 15% to 18% band. And we have seen that pattern in the past because generally, the first 2 quarters would involve a lot of vendor payouts. And thereafter, the customer cash flows get stronger in Q3 and Q4. So there could be some ratio movements, but it will be within this band.

If the cash flows are good and the debt servicing, I do not think would require a lot of cash because anyway, the parent company, if you keep aside the Hyderabad Metro and Nabha Power Plant and keeps financial debt, the parent company has pretty low debt point to one is the kind of debt equity. So I don't think there's substantial debt to be done.

There will be some strategic assets that we might have to invest in because of the kind of orders that we are trying to procure. For example, when we got a lot of metro work, especially underground, we had to invest a lot in tunnel boring machines. We hardly used to have any. Now we are almost having 2 now. So these are expensive equipment. Likewise, dedicated freight corridor program involved a lot of automated track-laying equipments. Now these are large investments.

So we do think about INR 3,000 crores to INR 4,000 crores worth of assets we might have to invest, depending on the type of the projects. I mean, these are actually would be very contingent on the type of projects that we get. But barring this, I do not think there's going to be any significant call on the capital. We have stepped up our dividend, as you've been seeing. Now it's almost 40%. In fact, 42%, 43% of our profits earned in the stand-alone company is being paid. So there is a move over the last couple of years to increase the dividend.

We have open along the way. We said in this FY '26, we'll also try to do some return of cash to shareholders by means other than just the dividend payout. We had attempted for buyback in the past, and we were actually pushed back by regulations at that point in time. We have time now in this period. We should be able to -- one of the objectives, and that's covered in one of the slides that we have attached this time to the presentation deck, that one of the ways to deal is to enhance the return of cash to shareholders. And that will possibly enable us to keep the cash required to optimal level within the company instead of sitting on extra piles of cash.

[Renu Baid, analyst]

So one follow-up question, if I can ask. Why is credit the way L&T has managed its net working capital and truly industry-leading. But on the operating performance side, sorry to harp again, despite having the diversity of project size and scale, and at the end of the day, when you've seen commodity uncertainties in supply chain, the operating performance is not very different compared to other mid-cap EPC names, would want to take the names here.

So what are the steps that we are trying to do so that these issues are addressed? And we already have quite a bit of risk management processes, commodity hedging in place unlike most of the other peers. But where do you think has the gap been because -- which could be the reason for this underperformance on the operating front?

[Ramamurthi Raman, executive]

See, I think it's very difficult to compare L&T given its history, age, maturity, cost structure, et cetera, to various EPC companies which work in the same area. You would be surprised that companies which existed 10 years ago are no more in the picture, about competing with us. They're just not in the picture.

So we find that practices have been very varied, and I would not like to join courses to pick holes on the accounting practices and recognition practices, et cetera. We do think that EPC business is catching the tiger by the tail. You have to ride it, and you have to ride through several cycles. And if you happen to be a company which is 80 years old, it does go through these cycles. Our own sense is that the kind of derisking that we have achieved between geographies, between the various verticals, et cetera, provides us requirement to keep investing in many of these areas.

As I just mentioned a little while ago, I do not know how many companies would have invested in the kind of equipments that we invested on the back of projects. And that's the reason projects are moving forward. But all these add costs. And the cost will get recorded only if there is consistently large projects that are being given out.

It's only in the last 3, 4 years that we have been seeing some amount of consistency in ordering or replacements, the kind of projects, the complexity, et cetera. I think we are on a cusp of a period where if you continue to see these kind of investments, the wheat will get separated from the shaft. At the moment, we might suffer by comparison. But I think it is more structural rather than efficiency in execution.

[Operator]

The next question is from the line of Deepika Mundra from JPMorgan.

[Deepika Mundra, analyst]

Sir, if you would think back on the FY '26 strat plan, in terms of the prospects pace, which areas do you see are surprising you more positively than what you would have thought? And where do you think a greater push is required either from government or from private sector, which has been missing your expectations?

[Ramamurthi Raman, executive]

I know we are midway in the - I mean '26, we still have to cross 3 more years. I think so far, we have been on course. If I were to plot what we have achieved in FY '22, what we have achieved in FY '23, I think we have been, by and large, on course. What is going to be important rather than what has surprised us, et cetera. What is going to be -- COVID surprised us. I mean we never ever anticipated the kind of start to our strat plan. And what has surprised us is our ability to actually stay the course. And despite this disruption, I think all credit to the organization that we work for, people actually put their shoulder to the ground and make sure that we are not losing our way.

As far as government is concerned, the tax on has surprised us and the confidence that the country has today, in not only defending its own domestic policies, but be able to articulate internationally as to why India is a market that others should participate in. Now if we are able to carry this forward, that's why I felt that it's extraordinary diplomacy and branding that India has done, we're able to carry this forward. We are able to widen the tax coverage, I mean, footprint. Instead of 10% of the country paying the entire tax bill, we can able to make it to 12%, 13%, 14%, 15%, if you're able to improve that.

And keep focus on investments, which will generate employment, which will generate connectivity. There is a pattern to the investment on infrastructure, if you see, because it is enabling movement of people, movement of goods, et cetera. And I do share the central government's vision that a connected country will lead to overall development and more inclusive development than what has been in the past.

So my sense is that if we are able to keep the political differences at bay and be able to pursue regardless of which party actually succeeds in '24, we're able to pursue this and do whatever I just mentioned, I think we would surprise ourselves at our potential. Many of us have been -- have grown up thinking that India is a focus and growth country. Now in today's time, it's not hard to imagine India at double that rate.

So I think a lot of work needs to be done. But the hope and optimism has gone -- the country has got a lot more confident. And that has roped on us also. We also internally feel confident. But there are lots of battles we'll have to win. As I mentioned, I think we are, as we get older and older, we have to make sure that we unlearn and relearn. We have to make sure that the talent that got us here is obviously aging talent. We have to make sure the age and talent is to make this company forward.

We have to adopt to new technologies. I think no more are we using the same methods to deliver, I tell you. The clients are getting smarter and demanding, so we have to make sure that we measure up to that as well. So enormous challenges ahead. It's not an easy part. But I think -- I guess that's what would make the growth story of the company and maybe the country interesting.

[Deepika Mundra, analyst]

And just a second question. You look at -- given that we've seen consistent commodity volatility plus sales supply chain disruptions, do you see that differentiation in contract negotiations with clients today, both in domestic and in international markets? Or do you think some of the bidding practices largely remain same as what you've been following so far? .

[Ramamurthi Raman, executive]

To the discerning, there is a difference because people have seen us deliver despite COVID. And people have seen a stake knock and then it delivered. So to that extent, I think to the discerning, there is a difference between what we have done on the face of adversity otherwise.

But if you also look at the other way that typically the public sector units or the government-sponsored projects are done. End of the day, it is L1. I think there is some comfort that all these agencies take in having a bid responded to by at least 0.5 dozen people. So they make the bid in such a way that more and more people can, sort of, participate.

Despite the directive from the government that the bidding should not be -- the bid should not be decided just based on L1, and there should be a quality and cost-based consideration. Somehow, the user departments, especially if it is driven by bureaucracy, is more comfortable with quantitative costs than qualitative assessments of technical capabilities.

So that has not played out as is. We still have to be L1 to make sure that we make the cut. So that has not changed. And because of the need to have more people participating if the thresholds do not go up sufficiently, we will have delayed projects. See, infrastructure, if India wants to be very competitive in its services, manufacturing products, goods, et cetera, it has to create infrastructure at a very competitive price.

All the inputs that go into infrastructure are anyway, generally market-driven, so there's nothing that you can do. What you can do is save time, make sure that the projects are awarded to companies which are able to execute within time. And my own assessment is at least 15% to 20% of the cost of infrastructure in the country. We are paying more just because of either unorganized, dis-coordinated approvals and all the related project clearances and the delay -- inevitable delay in negotiating after the project is done.

Because the scope gets negotiated, quantity gets negotiated, right of way and all the utility removal gets negotiated. All of this fall in place, and there's always some public interest group, which doesn't like the project. So you take -- we're not involved in that asset. But if you take even the high-speed rail, I came up to the border of Maharashtra and got stuck. And now slowly packages are being done. But we have last 2 years. And instead of the project getting completed, it's going to take at least 3 years more than the original.

And who's going to pay for that extra time? It's only you and me, the taxpayers and countries ex [indiscernible] will pay. So I think in this quest of creating competitive infrastructure, it is very, very important that we back companies which have very good capabilities and competencies. And that is something that, somehow, that has not completely changed to our satisfaction at least.

[Operator]

The next question is from the line of Aditya Bhartia from Investec.

[Aditya Bhartia, analyst]

Sir, my question is again on intra margins, wherein the first time we had those cost overrun on the transportation side, we had spoken about possibility of getting some variation. So just want to know how is our experience been? Is it that we are getting variations and the margins that we are seeing after accounting for those? Or is it that you're generally seeing that it's taking much longer to get those negotiations start?

[Ramamurthi Raman, executive]

Aditya, I would say, we are realizing the hard way that to get these extra credits from the customer is not as easy as originally one would think. Because what is the customer's first priority? To get the project completed. And what is our requirement? We can't go to the negotiation table because the project being completed.

So I think first and foremost, complete the project. And in the meanwhile, keep filing our interest in whatever negotiation, commercial adjustments that we want to achieve. But this typically happens at the end of the project. And if it, let's say, a corporation like, let's say, for example, I'm seeing IOCL ONGC, et cetera, they are also worried about the decision -- discretionary decision being questioned in the parliament.

So there often is a process involved to make reconciliation involving a third-party independent person, even assuming it is not a dispute which gets referred to arbitration, even a conciliation to close out on the veracity of the claim and the validity of the claim, et cetera, that process is involved. So it does take time to get all of this done.

But the only good part is if our reputation is intact and we have delivered to plan, then the chances of consideration is far higher. So to my mind, we don't normally recognize the claims ahead of time. We booked the cost on it for projects completed. And only on acknowledgment by clients, either in terms of accepting the liability or receipt of payment is the margins recognized of that extra claim.

So it comes in the subsequent quarters. It depends on when the project is completed. We can easily take another 6 to 12 months after the project is completed, during the defect liability period for all these conversations to happen. So my sense is what we have lost out in '22 and '23, possibly will start creeping into our books from '24, '25 onwards. It is my assessment. And it will go in for a couple of years. The same couple of years it took to hit us, it will take a couple of years to get back.

[Aditya Bhartia, analyst]

Sure, sir. And what about the past claims in respect of some of the transportation projects have you kind of received some money in respect of that?

[Ramamurthi Raman, executive]

Some portion has happened. I think I heard my colleagues talk about in the context of hydrocarbon, you were seeing some claim settlement by these things happen, except that they come in sizes which are actually not material. So they come in and then get submerged in the overall cycle of margins. But settlements are happening. We would like it to happen faster, but it happens.

[Aditya Bhartia, analyst]

Understood. And sir my next question is on Nabha Power. Should we read you reconsolidating Nabha Power into account as an indication that something may be happening soon over there. You are in discussions with good third parties and you could take a feeling that realization value is higher than the total value.

[Parameswaran Ramakrishnan, executive]

Ramakrishnan here. If you recall, in the quarter ending September 2020, the Board of Larsen & Toubro have decided to say that Nabha Power East is looking for suitors, we are looking for prospective buyers. And since then, as a measure of conservatism, we restricted the carrying value in the both independent and consolidated financial statement, the same value.

And we actually took in that quarter an impairment hit as well. Since then from October '20 to March '22, we consolidate because Nabha Power we still not -- we have not executed deal like the way we have done for IDPL. So we were continuing to report the revenues and everything. But what reports -- what our profit at the company was accruing was not getting -- was getting worse, which means we are not taking the profit.

Now since then, for the last 1 year or so, the company's performance has definitely shown an uptick in terms of very improved PLF of almost 91% -- 85%, sorry, our availability factor was 91% for the year. Group PLF and a lot of cases that was there in between the legal court. Most of the cases went into Nabha's favor. And practically speaking now, the company has completely in terms of operations and in terms of the overall balance sheet has actually strengthened.

So if you take by way of discounted valuations of the future cash flows, definitely, the company's value has gone up. And when you compare it with what you call comparative benchmarks, vis-a-vis listed companies in this field, that also has gone up. So of course, we take the benchmark more as a reference point. But since because of the discomfort duration on the back of discounted cash approach has gone up. So to the extent of the profits that the company posted has been taken. I hope I have clarified here.

Yes. I have a request since we are now towards the end of this call, maybe few of you can take or stick to one question, please. One question piece for each of the people who want to ask. Yes, go ahead.

[Operator]

The next question is from the line of Sumit Kishore from Axis Capital.

[Sumit Kishore, analyst]

Shankar Raman and PR, my question is again on margins. for a 5-year period until FY '21, your core margins were in the range of 10% to 10.5%. You have clarified in your first response to a question regarding the new normal that margins are entering into and your guidance for this year is 9%.

You also mentioned that 60% of the impacted projects have already been executed, another 40% in the next 2 years. But are you going to move closer or if at all, to your 10% to 10.5% trajectory once all these problems are sorted? And what is the extent of the unrecognized claims where you are reasonably confident and which have not really reflected in your margins over the last 2 years?

[Parameswaran Ramakrishnan, executive]

Okay. So Sumit, this is PR. I will take that because I think this is the fifth time or the sixth time, the same cost is creeping up, so let me try to answer it.

So yes. We have given that today, when we have printed 8.6% for FY '23, we are looking at definitely an improvement. We believe that the worst is behind us in terms of the projects that we secured before COVID, the projects that we secured during COVID went into execution at higher material costs. And we got -- because of COVID, there was a stoppage of work which enabled us to get time extension from the customers and thereby executing the projects.

So time extension need not necessarily mean value extension in terms of additional claims. Time extension only protects us to say the customer has no rights on the terms of the contract to levy any sort of punitive damages. But definitely, extended time stay in the project also has its cost implications.

And a combination of, I would say, time extension leading to cost and also higher material prices that we witnessed in the last year and, to some extent, sweeping into the current 6 months, for projects that were back prior to COVID and during COVID is one of the reasons it's a combined reason, I would say that where we are seeing margins at 8.6%.

As Mr. Shankar Raman talked about, that this particular project execution trajectory is going to see possibly the end of -- by FY '24. The mix of these projects would be hopefully coming to a close. As orders that we have secured during the last -- later part of FY '22 and in the current year, obviously factors into account, I would say, the current material prices and to some extent, the margin trajectory will be definitely protected.

But all of this getting into execution mode for us to recognize margins is going to happen in the later part of FY '24. So at this juncture, it would be -- not be possible to say in terms of how much of these claims. Because as you know as an EPC contractor, definitely, we will be putting -- we are putting up the claim.

But to what extent once the project is handed over, to what extent it is getting cleared by the client is a question of negotiation and discussions and settlement at that point of time. So -- with this, I would like to reemphasize that at the overall projects and manufacturing level, what we have printed for 8.6% seems to have bottomed out. We should be seeing an improvement, and that is the reason we are giving a comfort that we do expect an improvement of almost 40 to 50 basis points over 8.6%.

But that would happen in the later part of FY '24. FY '25, hopefully, we should be seeing a major part of the orders that we have secured recently getting into, I would say, margin recognition threshold. Hopefully, I think that should be coming back. In terms of what margins we will see, as you know, we typically guide the margins only for the year. And for obvious reasons, it is impossible for us to give a guidance beyond a year, considering the varied nature of the projects business.

[Operator]

The next question is from the line of Pulkit Patni from Goldman Sachs.

[Pulkit Patni, analyst]

Sir, two quick questions. One on the Hyderabad Metro. Ridership improvement has been very significant, if you see year-on-year, but still profitability has improved a little bit on that too, because of financing. Any ballpark number where we think we can get EBITDA positive on Hyderabad Metro? Because despite doing almost 400,000, we are seeing losses are pretty meaningful. So that would be question number one.

[Parameswaran Ramakrishnan, executive]

Yes. So in terms of Hyderabad Metro, if I have to really talk about, just to give a construct. Today, the ridership that we are witnessing in the current quarter on a normal weekday is ranging between 4.4% to 4.5%. And during the holidays and weekends, it ranges between 3.5% to 3.6% or so.

Now for the benefit of all, if I take a construct at the average readership for, say, FY '23 -- sorry, FY '24, the current year, one would assume 3.6% was the previous year, if you assume at around 400,000. So a 3.61 average ridership, the total fare revenue has been in the range of INR 450-odd crores. If you take 400,000 ridership with an average realization of 35 per passenger or per trip, then you can assume that the top range should be going around INR 500-odd crores at 400,000.

Now in terms of the interest cost, the total external debt that PLN Metro Corporation SPV has external debt is around INR 8,000 crores, comprising of around INR 8,000 crores, or INR 8,000 crores of short-term NCDs and INR 5,000 crores of medium-term NCDs and INR 5,000 crores of short-term commercial paper. So all of this, what I spoke now, if you can -- since the NCDs and the commercial papers are listed, so the entire financials of the Metro has actually been filed in the stock exchange.

And actually, what I gave you is the overall context of the ridership, the fair revenues, what we can assume as a ridership for FY '24, and what kind of EBITDA one can see.

[Ramamurthi Raman, executive]

Also, Pulkit, Shankar here. There has been a development in terms of Fare Fixation Committee, agreeing that the sponsors, namely LNG, can subject to demand supply conditions, raise the fares. So at the moment, all the projections that we are talking about is based on the fares that we are currently collecting. If things settle down and is work from home, et cetera, further moves towards workroom office.

I think -- and the general population gets more comfortable with the usage. We do expect that there could be an opportunity along the way to relook at the fares. And that will also be another kicker, depending on how much we are able to do this.

[Pulkit Patni, analyst]

Got it. Sir, just one quick one on thermal power JVs. I mean we've been talking about order, potential orders in this segment, and we know that it's been tough. What is the thought process about running these businesses? Could we look at doing something else on those factories over time? Just your thoughts on this thermal power JVs and the future?

[Ramamurthi Raman, executive]

It's under discussions because we are also talking to partner, our partners and -- we're trying to figure out a way as to what is to be done because these are good capacities that have got created. And it will not be appropriate just to scrap it.

Of course, the plants can always be used because it's space which we use. But to some extent, export of some of these equipment is also possible, subject to the JV partner willing to route some of the businesses through us. So right from the investment being bought over by them, to the plant being used for their requirements, we're trying to do something else.

All of that are getting discussed because I think we do recognize this energy transition is a major implication in terms of whatever we have created on ground capacity. But let me share the details only when we progress a little more clearly on one of these various options that we are trying to evaluate.

[Operator]

The next question is from the line of Aditya Mongia from Kotak Securities.

[Aditya Mongia, analyst]

My question was more specific on the working capital situation and the way it is improving. Should we be inferring from 16% working capital as a proportion of sales number, that the intent of the customers is to make a [indiscernible] faster?

I'm saying because obviously, at the back side, that is -- there were changes that had happened on the procurement side of things that ensure that an incremental order, the payment could be very well framed. Has that started to kind of satisfy broadly paces for you?

[Parameswaran Ramakrishnan, executive]

So Aditya, if I understood it right, the way you -- I mean your question is that -- do you expect an improvement in revenue if the working capital, the way we are managing it is a little more flexible. Is this what you referred to?

[Aditya Mongia, analyst]

I'm basically trying to assess that, obviously, we are intend to assess the possibility of working capital further coming down, if that is a pure intent from customers to go in that direction.

[Parameswaran Ramakrishnan, executive]

So definitely, I mean, if you see structurally from the Indian economy perspective, since a major part of the order book is oriented towards or exposed to government in some form or the other, and given the fact that the government finances have improved over the last 2 years or so.

So we have definitely seen a more timely certification of the work done and the payments happening on time. And I also like to mention here that the GCC part of the order book is also increasing. And typically, in the GCC countries, the client paying on time and certifying the builds on time happens at a faster scale.

So to the extent of a larger share of the GCC order book coming in, also has enabled us to overall improve the working capital at a segment and at a group level.

[Aditya Mongia, analyst]

I just want to sneak one more question, sir, here. Sir, on the GCC kind of things, the company being made are quite bullish for the near term. And we understand that actually, the entire territory and hydrocarbon space is becoming a larger proportion of your overall business. Does that way, as at some point of time beyond the next 6 to 12 months that we are so exposed to hydrocarbon, especially that in the Middle East?

[Parameswaran Ramakrishnan, executive]

So in the Middle East, our opportunities today, the way we are looking at is a combination of hydrocarbons and infrastructure. And when we talk about infrastructure, the opportunities largely center out renewables and power transmission distribution. And obviously, opportunities in the nonferrous sectors that come once in a while discretely.

And we do see in the next year, that is FY '24 and possibly maybe FY '25 as well, the opportunities from the refinery or the hydrocarbon side continue to be holding good for us in terms of better order prospects and hopefully, larger orders as well.

[Operator]

The next question is from the line of Deepak Krishnan from Macquarie Capital.

[Deepak Krishnan, analyst]

My question is more about your ROE target. How do we reach the 18% from the 12.2% over in the next 3 years? Given that core margins will still see some issues, say, for FY '24, like what end margin do we kind of assume when we have the 18% ROE target in mind?

[Parameswaran Ramakrishnan, executive]

So Deepak, I guess, I think this we have covered in numerous calls and conversations. So the way to see it across is that the -- if you see the slide that we have put as part of our additional slides in the deck. So the 2 major, I think, margin erosions are in a question of the development projects, which is the concessions part of the business. So once that is done, definitely we can see in terms of an improvement of 1.5% to 2%.

Which means reduced losses or profits of Hyderabad Metro through a combination of restructuring of the company's current position, pllus the prospective of an investor coming in, maybe not now, but maybe definitely after 2 to 3 years. once the assistance that has been declared by the local government comes in and we are able to monetize the DOD rights that we are looking at maybe in the current year.

So improved performance of Hyderabad Metro divestment of IDPL hopefully should get completed in the next 6 months or so. And also, hopefully, I think with the improved performance in Nabha, we should be looking forward to a buyer who can possibly match our price points. And with this margins, the ROE stack itself will probably improve by 1.5%, 2%.

The second point is, I would say, the steady growth of our traditional portfolio of projects and manufacturing, which today in the current year is almost 19-odd percent. If you are able to manage what we are talking about sort of a mid-teens growth in the overall growth portfolio of the entire group. With the better margins, I guess that should add up to 2% into the ROE. And the last 2% would be a combination of, as Mr. Shankar Raman referred to, in terms of higher payouts to shareholders. So it is a plus 2 plus 2 plus 2 kind of a strategy.

[Deepak Krishnan, analyst]

Sir, maybe just one follow-up. Any update on the cash from the government for Hyderabad Metro project?

[Parameswaran Ramakrishnan, executive]

So of course, in their local budget, they have allocated INR 1,000 crores, INR 1,500 crores for last year and in the current year. And as part of disbursement, which will flow into the L&T metro rail spill. So last year, that is until March '23, we got around INR 100 crores, and we have got some open some in the current year. Hopefully, I think this year, we should see a sizable amount of money coming in.

[Operator]

Ladies and gentlemen, we'll take that as the last question. I now hand the conference over to Mr. P. Ramakrishnan for closing comments. Thank you, and over to you, sir.

[Parameswaran Ramakrishnan, executive]

Thank you, ladies and gentlemen. I hope we have been able to explain the contents of our performance for FY '23. And of course, you would have heard the comments of Mr. Shankar Raman in terms of how we are looking at FY '24 in the near term across segments, across margins, across businesses.

With those few words, thank you for patiently listening. In case any one of you have any follow-on questions on the numbers in terms of stack up, please do not hesitate to call me or my colleague, Harish. We'll be definitely there to help you out. With that, thanks a lot for joining this long call. Thanks, once more. Thank you.

[Operator]

Thank you. Ladies and gentlemen, on behalf of Larsen & Toubro Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.