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Sunday 25 August 2013

Larsen and Toubro Ltd seeks to double overseas orders

This story first appeared in DNA Money edition on Friday, Aug 23, 2013.

Larsen and Toubro Ltd (L&T) is working on a template to more than double its international order flow this fiscal.

This, it feels, will go a long way in maintaining operating profit margins at 11-11.5% this year, given an overall financial weakness affecting the Indian infrastructure industry.

A M Naik, group executive chairman, L&T, said the management has worked aggressively on building a strong organisation outside India to bag infrastructure projects. “We are targeting order inflows of Rs30,000 crore in this fiscal. As challenges become more intense in the domestic market, we are focusing overseas.

Our strategy is to do as many projects in international markets as possible. This will help us overcome the overall slowdown experienced in the domestic market,” he said at the company’s 68th Annual General Meeting in Mumbai on Thursday.

In the next few days, the company is expecting Rs3,500 core worth of orders from Qatar in the power transmission and sub-station space. Another Rs1,500 crore to Rs2,000 crore worth of road projects from Doha, in addition to a metro project, is in the works.

The company sees a bulk of these international orders coming in from the Middle East. It’s also targeting the Commonwealth of Independent States (CIS) and Far East markets, thus widening its scope for any overseas business opportunity. The current domestic to international order flow mix in the company now stands at 75:25.

In fact, the infrastructure major has started to sharpen its focus on international orders over the last couple of years.

For instance, its order book stood at Rs6,000 crore, excluding IT, engineering and exports of products, in fiscal 2012 and the company achieved a figure of Rs12,000 crore in the last fiscal.

There have been some earlier reports that L&T is weighing divesting stake in Dhamra Port Company Ltd – L&T currently owns 50% through its subsidiary, Infrastructure Development Projects Ltd (IDPL) and the balance is owned by Tata Steel. Clearing the air, Naik said discussions (for IDPL stake sale) are still going on.

“In the current economic situation, valuations tend to get depressed. We are not in a distressed sale position. If we get the right value, we will go ahead with plans to dilute up to 20%,” said Naik.

The company management has clarified that it has no overseas fund raising plans citing strong cash flows and will be able to meet funding requirements. At a group level, the company debt stands at Rs60,000 crore, much of which comes from financial services and concessions business.

On how much of the debt is hedged and vice-versa, R Shankar Raman, CFO, L&T, said, “The debt is largely in Indian rupee (INR) as the revenue profile is INR as a result the question of hedging a significant portion doesn’t arise for the group,” he said adding that earning more dollars will be the best bet to deal with the depreciating INR.

Naik added, “The current situation in terms of economic development is not good at all. People say that the gross domestic product (GDP) growth is around 5% and sometimes one wonders if it is really the case looking at what is really happening on ground at present. The INR is reaching a new low on a daily basis and we really have no idea how further down will it go. The infrastructure sector has been going through troubled times since the last over two years now and I don’t see any improvements (in terms of possible economic recovery) in the next one year or so,” he said.

The company is restructuring its engineering and services business (a major part within L&T). A new subsidiary -- L&T Technology Services Ltd -- is being formed which will buy over the engineering piece which is with L&T Infotech.

“We will then transfer -- at the right time between now and April 1, 2014 -- within engineering also in that company thus making it a technology services company. This will make us a very strong engineering service provider. It’s too early to say if we will be listing that company,” said Naik.
 

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