Infrastructure major Larsen & Toubro (L&T) has formally requested to exit the Hyderabad Metro Rail project, citing mounting financial losses and a lack of support from the Telangana government.

In a letter to Union Housing and Urban Affairs Minister Manohar Lal Khattar, the company said it was open to selling its more than 90% equity stake to either the state or central government through a new Special Purpose Vehicle (SPV). The proposal includes the transfer of operations and maintenance of Phase I, along with the planned Phase II-A and Phase II-B corridors.

The letter, reviewed by PTI, stated: “The Telangana government, despite repeated follow-ups, has not provided the expected financial assistance, and the delay is further aggravating the financial duress of the concessionaire and making the situation necessarily difficult to manage.”

Subsequently on 25th September, 2025 the Telangana government has agreed to take over Phase 1 of the Hyderabad Metro Rail project, absorbing Rs.13,000 crore in debt and paying Rs.2,000 crore to Larsen & Toubro Ltd.

While the metro carries about 5 lakh passengers daily and earns passenger revenues of around Rs.600 crore, it still makes losses of Rs.600 crore mainly due to borrowings of about Rs.13,000 crore. It also has accumulated losses to the tune of Rs.6,600 Crs. 

L&T Metro Rail developed Phase-I of the 72-km network at an investment of nearly Rs.19,000 crore. It began operations in 2017 under a 35-year concession agreement (which is extendable for another 25 years). L&T owns 90 per cent of the Hyderabad Metro project while the Telangana government owns the remaining 10 per cent. The Centre provided viability gap funding, while the state gave land and other logistical support. The project cost which was estimated at Rs. 14,132 Crs in 2012 shot up to Rs. 18,791 Crs by 2019. L & T Metro Rail (Hyderabad) Limited ‘ s three corridors covering 69.2 KMs (Miyapur to LB Nagar -corridor-I, Jubilee Bus Station to Falaknuma -corridor-II and Nagole to Shiplaramam -corridor-III) on elevated structures is being operated under Desing, Build, Finance, Operate and Transfer (DBFOT) basis. 

Time Overruns / Delay Extensions

The project was originally expected to be completed by April 2016 for the full 72 km with 66 stations. Certain parts (stations, sections) were delayed specifically due to right of way, land acquisition, utility shifting etc. For example, six stations on Corridor-II between MGBS and Falaknuma remained incomplete in some earlier stage, causing parts of the route to open later than planned.

Losses, Debt & Claims

L&T submitted claims for cost overruns due to delays etc. In March 2017 claims of Rs.3,756 crore; by full commissioning (Feb 2020) this had risen to ~Rs.5,000 crore. Thanks to Covid shutdown L & T Metro incurred Rs. 1,766.74 Crs losses for the FY 2020-21. Debt burden: Phase I debt now stands at ~Rs.13,000 crore.

The Company received in total Rs.900 crore of financial assistance in the form of interest-free soft loan from the Government of Telangana. The soft loan is repayable on the 16th anniversary from the date of receipt by the Company. The entire proceeds of the financial assistance were applied towards repayment of the outstanding Commercial Papers of the Company to that extent, in line with the stated objective of debt reduction.

Key Financials of L & T Metro Rail 

Fixed assets of the company are Rs.15,672 crore. 

The company’s financial stress continued even after commissioning, worsened by the Covid-19 pandemic, which forced a 169-day shutdown and left ridership weak due to the persistence of work-from-home arrangements. However, L & T Metro bounced back in 2023-24 with significant increase in its other income (that includes lease rental income, AD revenues, etc) though its revenue from operations declined compared to 2022-23. Some people attribute this decline to the free buses for women introduced by the Telangana Government on 9th December, 2023.  

In an interview with Business Today TV, India Today’s sister channel in May, 2024, the firm’s director R Shankar Raman, also L&T’s president and Chief Financial Officer (CFO), said women were travelling more on buses even though the number of buses has not risen. He added that men “were moving to the railway wagons”. He also said that that the free bus scheme initiated by the Congress government made ridership “less interesting”. However, as mentioned in L & T Mereo Rail ‘s financial statements highest ever ridership of 5.63 lakhs was recorded during 2024-25 with more than five lakhs ridership for seventy days during the year recording a growth rate of 25% over the previous year. Therefore to justify the L & T CFOs statement mentioned as above, a deep analysis to be made that shows the women passengers who travel long distance shifting from metro to RTC buses and men travelling shorter distance (whose number is greater than the number of women who shifted from metro to RTC buses) shifting from RTC buses and other private modes of transport to metro, which will justify that though metro witnessed more number of passengers, the passenger revenues have fallen down. Incidentally, L & T Metro marginally increased its passenger fare 7.5 years after its operations, on 17th May, 2025.  

Originally it was estimated that passenger ticket revenues will be 50%, 45% revenues will be from real estate income and 5% from ad revenues. It was also estimated that the real estate of 18.5 lakh sf. ft would be created to support this real estate income. However, L & T has built only around 2 lakh sq. ft. of real estate so far. To ensure last mile connectivity it was also planned to provide bus services and bike services from the metro stations but this was not done effectively. 

Summary / Interpretation

• The project has seen ~30-35% cost escalation compared to initial estimates (from Rs.14,100 Cr to Rs.18,800 Cr or more) because of delays, ROW/acquisition, alignment changes etc.
• Time delays: full planned operations were delayed by 2 or more years from the original target (April 2016 → later years like 2018, 2019, 2020).
• Claims by L&T for cost overrun & delays (Rs.3,700-5,000 Crore) are also a big component.

Key Achievements

1. Green / Sustainability Certifications

• Hyderabad Metro became the first metro network in India to have all 57 stations across its corridors (Red, Blue, Green) awarded IGBC Green Existing MRTS Platinum Certification, being the first metro in India to achieve this feat.
• L & T Metro has replaced 12% of its grid power requirements for Metro operations with captive solar power of 11.0 MWp, to increase the use of green energy.

2. Water Saving / Environmental Impact

• Use of regenerative braking systems in trains which capture ~40% of used traction energy and feed it back into grid. 
• Rainwater harvesting: ~155 rainwater pits, capturing ~58,600 kilolitres annually, used for non-potable purposes in stations and depots, thus reducing dependence on municipal water.

3. Operational Performance & Ridership

• The metro has achieved ~99.8% on-time performance for trains. 
• Fleet utilization during peak hours is reportedly 100%. 
• Daily ridership at one point reached about 5 lakh (500,000) passengers/day. 

4. Awards & Recognition

• Numerous national and international awards: over 325 global & national awards for excellence in various domains (infrastructure, safety, green building etc.) 
• Special Recognition at UITP Awards 2025 (Hamburg, Germany) for its project “Optimized Metro Operation Plans leading to Increased Revenue per Train”. 
• Platinum Award at 53rd CII National Kaizen Competition 2025 for its “Ring Main Power Supply System with Intelligent GIS Panel Redistribution”. 
• The company received the prestigious Golden Peacock Occupational Health & Safety Award (GPOHSA), 2024.

Hyderabad Metro Rail route proposed expansion 

The first Phase II plan by the Telangana government was submitted on 27 October 2022, for expansion of the metro rail. However, the Union government rejected this proposal stating that the project is unviable and not feasible. The revised plan (Phase II-B) was submitted by the Telangana State Government on 21 June 2025 along with the Detailed Project Report (DPR). The revised Phase II plan is called Phase II-A / Phase II-B. The first part (II-A) has five corridors, totalling 76.4 km, costing about Rs.24,269 crore. The funding splits: State share ~30% (≈ Rs.7,313 crore), Centre share ~18% (≈ Rs.4,230 crore), ~48% through loans (from external agencies like JICA, ADB, etc.), and ~4% under PPP component. Later, another part (Phase II-B) was also proposed — three corridors, 86.1 km at cost ~Rs.19,579 crore. 

Union Government’s response

In discussing the Phase-2 proposal (the expansion), the Union Government insisted that L&T (which holds equity and operates Phase-1) participate in Phase-2 as an equity partner. 

The Centre also asked for a “definitive agreement” between L&T and the Govt(s) (State and/or Central) to ensure operational integration between Phase-1 and Phase-2 corridors. This concerns things like revenue sharing, cost sharing, seamless train operations etc.

L & T s stand 

L&T has repeatedly declined to commit to being an equity partner in Phase-2. It has stated that it has “exited the business of ownership and operation of transportation concession assets”. So under the current configuration, L&T categorically said it will not be an equity partner for Phase-2. 

L&T has also refused to sign the definitive operational integration agreement that the Centre wants (linking Phase-1 and Phase-2 under shared revenue / cost / operations). The concerns cited are about seamless operations and how revenue / cost sharing would work.

Telangana State Government’s swift move 

Because of this deadlock, the Telangana Government has swiftly moved to take over Phase-1 entirely — that is, assume the debt (~Rs.13,000 crore), pay L&T a one-time settlement (~Rs.2,000 crore) for their equity stake. 

The idea is that by converting Phase-1 into a government-controlled entity, the mismatch between Phase-1 being PPP under L&T and Phase-2 being government led can be resolved, which is one of the Centre’s concerns.

Bharat’s Metro rail experience and way forward 

Most large city metro projects are implemented via a Centre–State SPV (usually 50:50) and PPP has been used selectively. Many cities ultimately implement via public SPVs or central funding. Kolkata is an exception — it is controlled/operated largely by Indian Railways rather than a 50:50 metro SPV. Metro rail projects are per se financially not viable, due to high technology cost and government-controlled pricing in view of their public utility character, not only in India but world over. In the long run real estate income, lease rentals, AD revenues supplement the passenger revenues to sustain their operations. In a country like India where delay in metro projects execution is very common due to factors like- change in the scope, challenges in land acquisition, coordination with various other public utility government agencies in the execution of the metro project, construction related delay, etc., PPP Models are a deterrent to the private sector and L & T Metro is no exception. In order to encourage the private sector to enter the metro projects under PPP route, the governments should also explore the hybrid annuity model, similar to that of NHAI wherein the governments share both the negative and positive gaps in annual revenues during the concession period in addition to funding the viability gap in the capex. The contractors executing Metro projects should give priority to generate roof top solar power (both in the metro stations and on the roof top of the metro trains) and generation of solar power on the railway tracks. Bharat Railways has already taken the lead in this regard. (On 15th August, 2025, Banaras Locomotive Works unveiled Bharat’s first removable solar panel system installed between active railway tracks in Varanasi. This pilot project was launched on Line No. 19 of the BLW workshop. It includes 28 bifacial monocrystalline solar panels spanning 70 metres with a total capacity of 15 kWp.) This would ensure accrual of carbon credits and its related income to the contractors by trading those carbon credits in the global markets.    

L & T though has burnt its fingers heavily in its Hyderabad Metro venture, they have created a long-term value to Hyderabad City and set high standards of performance matching global benchmarks. It remains to be seen whether the Telangana Government which has announced it’s taking over of the Hyderabad metro will be able to maintain the standards set by L & T and ensure safety and security to the passengers.