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Larsen & Toubro: Making India Proud
Catering to an active sector, the engineering giant, Larsen & Toubro, has a strong capability profile
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Infrastructure is certainly one of the most focused sectors in India at present and the heavyweight in this industry is now gearing up for the big leap. As the sector leader, Larsen & Toubro’s (L&T) financial performance for the first half of the current financial year shows, infrastructure was one of the key growth drivers for the engineering giant and this sector constitutes at least 52 per cent of its current order book.
“L&T’s capability profile is always convergent with the needs of the nation,” says group executive chairman A. M. Naik. “The government’s recent emphasis on developing infrastructure, creating smart cities and the ‘Make in India’ thrust opens up an exciting canvas of opportunity for L&T’s businesses. Our engagement with key national projects gives a topical resonance to the company’s slogan — We Make the Things That Make India Proud,” says Naik in his 2014-15 annual address to the company’s shareholders.
The company that again found its prominent place in BW Businessworld’s Most Respected Companies in 2015 in the infrastructure, power and energy sector, is up there to benefit shareholders thanks to the rapidly growing infrastructure projects in its domestic as well as international turf.
While the company’s order book mainly comprises of government-private collaboration projects, its pioneering public-private partnership focussed unit L&T Infrastructure Development Projects (L&T IDPL) is likely to emerge as one of the most focussed subsidiaries in the new wave of growth. This unit, which received the second tranche of its earlier-signed Rs 2,000 crore investment commitment from Canada Pension Plan Investment Board (CPPIB) a week ago, is up in the market to grab the opportunity. With a series of prestigious projects, including the Hyderabad Metro Rail and the Kudgi Power Transmission Line in its hands already, the business unit has also recently won the detailed design consultancy (DDC) contract to construct nine stations on the North-South Khapri — Automotive Square line from Nagpur Metro Rail Corporation.
As expected, the market perception of L&T — one of the key criteria that takes a company to the Most Respected Companies list — has turned in a laudable performance on most key performance parameters for 2014-15.
As the chairman’s vision statement highlights, the company’s order inflows, which are the lifeblood of its integrated engineering procurement and construction (EPC) business model, clocked in at Rs 155,367 crore at the group level. This represents a strong growth of 22 per cent over the corresponding inflows of the previous year.
According to the company, its unexecuted order book stood at an all-time high of Rs 232,649 crore and represents a 28 per cent growth over the order book at the end of the previous year.
L&T’s business segments, which comprise of turnkey projects in infrastructure, power, metallurgical and material handling, heavy engineering and electrical
and automation, hydrocarbon, developmental projects including roads, ports and power, information technology, realty, financial services and others, expect significant improvement in both private sector investment in industry capacities and public sector spending in infrastructure.
“Funding from increased budgetary allocation by the central government, increased level of ordering by healthy public sector undertakings and a steady inflow of soft loans from external multilateral lending agencies, have contributed to a perceptible rise in the core infrastructure investment momentum. This has considerably enhanced potential business opportunities for L&T,” says Naik.
L&T, with a current market capitalisation of Rs 1,20,545.75 crore, based on 24 December 2015 closing price of Rs 1,294.50 a unit, the shareholder value has gone up immensely. While, a strong balance sheet offers the capability to the company to confidently look at the emerging bigger opportunities.
“L&T has sufficient balance sheet strength to undertake numerous large-scale complex engineering and construction projects simultaneously in different countries,” says equity researcher Morningstar’s analyst Piyush Jain in his latest report. “At any given time, the company usually has more than 400 current projects in India and internationally. While we don’t expect it to be immune to a cyclical downturn in a specific locale or region, the firm’s varied expertise and diversified, multiyear order book should provide some buffer.”
[email protected]; @unni_ch
(This story was published in BW | Businessworld Issue Dated 11-01-2016)