Four-fifths of L&T's extra first-half pre-tax profit came from other income

Larsen & Toubro's sales grew 15.8% in the September 2026 quarter from a year earlier, after a slow first quarter, which lifted first-half growth to 11.4%. That puts the engineering and construction group back inside the 10-12% sales growth it has guided for this financial year, a range management reaffirmed on the call. The sales question that hung over the business after the first quarter has an answer. The profit figures raise a different one, because most of the extra pre-tax profit came from other income rather than operating profit.

Operating profit before interest, depreciation and other income, as compiled by Inve, rose 3.5% last quarter. Operating margin fell to 11.2% from 12.5% a year earlier, the lowest of the six quarters shown below. The company's own group EBITDA margin, which also leaves out other income, fell to 8.7% from 10%. It attributed most of the fall to thinner segment margins, which it said were made up for in other income, and the rest to the timing of corporate costs.

The first half shows the split more clearly. Pre-tax profit rose by ₹2,367 crore from a year earlier. Other income, the line that holds returns on cash and investments, rose by ₹1,942 crore, which works out to about 82% of the increase, calculated from the filed results. Operating profit contributed ₹426 crore.

Management explained where that income comes from. It credited part of the profit growth to higher treasury income, made possible by money released from working capital in its projects and manufacturing business. The balance sheet shows the cushion building up. At the end of September, investments were 50.0% higher than a year earlier, and other liabilities, a line that includes advances paid by customers along with other items, were up 48.6%. Net working capital, the money tied up in running the projects after counting what customers have paid in advance, fell to 1.7% of sales at the end of September, from 4.1% in March.

Group net profit attributable to shareholders grew 33% last quarter, faster than pre-tax profit, helped by a lower tax rate than a year earlier.

Whether the other income holds up depends on how long the cash stays. In July, management kept its full-year working-capital guidance at around 10% of sales, expecting customer advances to be used up and vendor payments to rise as work speeds up in the second half. This time it said working capital would close below that level, and its investor relations head said the demanding sales target for the rest of the year could temper the improvement. Fewer advances on hand would leave less cash earning that income.

The sales guidance also now rests on different conditions from those it was set under. In May, management said the range assumed broad normalcy in the Middle East after the first quarter. On this call it described a renewed escalation of the conflict in West Asia, and its deputy managing director said delays could leave solar revenue short unless other projects make it up. The range was kept. The group's sales are now growing at the pace it guided, while much of the profit growth rests on cash that management expects to put back to work in the projects.