L&T's Push into Green Hydrogen

Larsen & Toubro is accelerating its move into green hydrogen and electrolyzer manufacturing, aiming to create a new, fast-growing business. This strategy capitalizes on global shifts in energy policy and supply chains, positioning the Indian conglomerate as a competitive alternative to European manufacturers.

Scaling Up for Global Demand

L&T is increasing its presence in green hydrogen and ammonia production, driven by forecasts for market expansion. The global green hydrogen market is expected to grow from an estimated USD 17.28 billion in 2026 to USD 231.32 billion by 2035, with a compound annual growth rate of 34.09%. To meet this, L&T is scaling up its electrolyzer modules from 0.5 MW to 4 MW units, currently in testing. These will first be deployed at Indian Oil Corporation's Panipat refinery before L&T focuses on international exports. The company targets regions with abundant, low-cost renewable power, such as West Asia and other parts of Asia, where customers are actively seeking diverse suppliers. L&T's strategy hinges on cost competitiveness, key to gaining market share against European rivals. Beyond hydrogen, L&T is expanding its renewable energy footprint, notably securing 4 gigawatts of offshore wind platforms in Europe, with potential for another 4 gigawatts, alongside solar and wind opportunities in emerging markets.

Market Dynamics and Competition

The global electrolyzer market is highly competitive, with major production capacity concentrated in China, Europe, and North America. Leading companies like LONGi Hydrogen, Plug Power, Bloom Energy, and Siemens Energy are rapidly expanding their manufacturing. L&T is using pressurized alkaline electrolyzer technology, licensed from France's McPhy Energy, to enter the market with its own manufacturing capabilities, having commissioned its first 1 MW electrolyzer in Hazira, Gujarat. While the Asia Pacific region is projected to lead the green hydrogen market with over 47.40% share in 2025, Europe is expected to see the fastest growth. L&T's P/E ratio, between 24.90 and 32.0255 as of March 2026, suggests investors anticipate growth, though it trades at a premium to the Indian construction industry average. The company's market capitalization is around ₹4.72 trillion. L&T also holds strong sustainability credentials, ranking second globally among environmental firms by ENR and an 'A' ESG rating from MSCI.

Geopolitical Risks and Financial Exposure

Despite L&T's strategic moves, significant risks loom over its green energy ambitions. The company has substantial exposure to the Middle East, which accounts for 37% of its total order book and 33% of its order inflows in the first nine months of FY26, making it vulnerable. Geopolitical tensions in early March 2026 caused L&T's stock to dip roughly 7-8%. A key risk is that 55% of its Middle East orders are fixed-price, potentially squeezing margins if costs rise due to conflict. Furthermore, L&T faces competition from global players like LONGi, whose 5,000 MW production capacity far exceeds L&T's current scale. The sector's high capital needs and shifting regulations also present execution risks. With approximately INR 1.32 trillion in debt, the sector's volatility demands close attention.

Analyst Views and Future Outlook

Analysts are cautiously optimistic. Brokerages like Macquarie and CLSA hold 'Outperform' ratings but warn of margin risks from Middle East fixed-price contracts. Axis Capital believes the recent stock drop may be premature, but prolonged conflict could force a revision of earnings forecasts. L&T has maintained its full-year guidance, expecting over 10% order inflow growth, 15% revenue growth, and 8% core margin for FY26, showing management confidence despite global challenges. The company plans significant investments in green energy, aiming to build large-scale green hydrogen production facilities and reaffirming its energy transition strategy.