The Hindu Business Line : L&T sees order book growing 30% this fiscal

`Our real concentration though is in the Gulf, we will diversify to some Far-East countries this year'; `Trying to go to Malaysian, Thailand, Singapore'

ON A ROLL: Mr A.M. Naik, Chairman & Managing Director, L&T, with Mr Y.M. Deosthalee, Chief Financial Officer. - File photo

Construction major Larsen & Toubro came out with an impressive set of numbers. The fourth quarter net profit rose 40 per cent to Rs 467 crore, while sales rose by 8 per cent on year-on-year.

For the full year, net profit was up 3 per cent, aided by a 12 per cent rise in net sales. Despite revenues falling short of street expectations, the company was helped by healthy margin expansion in both divisions.

The company says its current order book is at Rs 24,000 crore and it will see a growth of 30 per cent. The revenues are also likely to increase by 20-25 per cent. At present, the company's international business contributes 25 per cent to the total revenues.

Excerpts from CNBC - TV18's exclusive interview with the Chairman and Managing Director, Mr A.M. Naik, and the Director (Finance), Mr Y.M. Deosthalee:

The current order book stands at Rs 19,600 crore. How do you see the order book growth this year?

Mr Naik: I think the order booking is of Rs 24,000 crore backlog. Having started with a very good backlog, the current year looks good. The revenue growth should be 20-25 per cent. Hopefully, we will have an order book growth of about 30 per cent over the last year's 50 per cent.

What about the share from international business? That is about 19 per cent, do you see that growing further?

Mr Naik: We can grow more than that. But finally we have to balance it with our efforts to work for our own country. Our country needs huge infrastructure and core sector development. If we use all our capacities outside India, then who will bail India?

Therefore, we have deliberately decided that around 75-80 per cent we will do in India; and around 20-25 per cent we will work outside India. When it comes to manufacturing, we have no limitation. We do export many of our product lines, which is more than 60-70 per cent. But when it comes to building projects, we feel our obligation and duty, is to build India. Therefore, we have a very good balance of 75-80 per cent here and 20-25 per cent outside.

It also seems that income from the Gulf forms major part of your income from overseas business?

Mr Naik: Hydrocarbon sector in the Gulf with the current oil price of $60-70 is booming. There is tremendous amount of opportunities. In fact, there is huge opportunity, not only in the Gulf but also in all oil producing countries.

We are also trying to go to Malaysia, Thailand and Singapore. So our real concentration though is in the Gulf, we will diversify to some Far East countries this year.

You have always talked about shortage of talent, shortage of engineers in this country? How was the last year? Was there improvement?

Mr Naik: As more and more multinationals come into the India and start offtheir engineering companies and more outsourcing takes place, the pressure will only increase.

The situation has, in fact, not eased. It is under tremendous pressure. We are doing our best to see what we can do under these kinds of constraints.

You want to make more engineering institutes throughout the country?

Mr Naik: I think we need to improve the standards of the current engineering colleges. There are 75 per cent of the engineering colleges, which are below standards. There is not enough teaching infrastructure. We should not be building new ones. We should improve the present ones.

What is the plan for L&T Infotech? Any IPO plans in the near future?

Mr Naik: There is always a plan. We have done well in the last two years by growing at 45-50 per cent.

Tell us the revenues and profits for L&T?

Mr Naik: Our growth for the current year is expected to retain the momentum of 40 per cent plus. If we continue that way for a couple of more years, we will seriously think about it sometime in 2008.

When all big corporates have announced plans to set up SEZs, why has L&T has not ventured into it?

Mr Naik: The point is corporates that have a skill in acquisition of land, will do well in SEZs because from L&T perspective, the whole SEZ development should actually have been done by the Government. Also, SEZs have not been let out on a competitive basis, while all other infrastructure projects have been let out on a competitive basis whether it is road, power plant or airports. SEZs have been done with some big private companies coming up to develop them. To begin with, L&T does not have a skill of doing that.

Second, if you look at MIDC or GIDC, what we call industrial development corporations; they did exactly what SEZ is supposed to do in a domestic front. That is to acquire land, develop it, build infrastructure, water and electricity, invite industries and give that to them without making profit. What is the announcement on bonus right now?

Naik: We have a meeting after a week and there the board will consider what it wants to do with the bonus.

Can you tell us about the domestic margins as well as the export margins and how they are stacking up?

Mr Deosthalee: For 2005-2006, there have been all-round improvements in margins. All the businesses have improved by 1-3 per cent. In Engineering and Construction last year, we were around 7.3 per cent and this year we are 8.1 per cent. In electrical and other businesses, margins are more than 15 per cent. They have shown almost 3 per cent improvement over the last year. Our effort for the current year will be to improve further on these margins. Hopefully, you will see some improvement in the coming year as well.

What are the major risks that could arrive for a decline in margins?

Mr Deosthalee: The major risk involved in today's business is commodity price increases. So how do we manage these commodity price increases, whether we are able to pass it on to the customer, whether we are able to put some kind of escalation clause in the contracts or we ask the customer to buy materials to give us or do some kind of commodity hedging, is the decision we need to take. So there are various ways in which we need to deal with this subject; that is the one risk. The second is, talent risk.

Our ability to attract, retain and manage talent. We also need people to manage the projects in our increasing Gulf business, execute them in time and deliver.

You also talked about IPO plans for L&T-Infrastructure Development Projects Ltd, L&T-IDPL, which is the investment vehicle for BOT projects. When could that happen?

Mr Deosthalee: First of all, we have to complete the projects, which are under execution. Second, we need to make sure that the value, which is embedded in some of the projects, which are already operational, is realised.

Then we need to undertake some more projects, so that the basket becomes very vibrant. After that we will decide. There is no definite date for that, but there is a potential for listing as far as this company is concerned.

More Stories on : Interview | Engineering | Larsen & Toubro Ltd

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Navayuga completes bridge in record time

BEML rolls out wagons to move Army tanks

Coromandel makes open offer for Ficom

Cenvat credit rules to be amended for easier compliance

Indian cos turn global turnaround specialists

Madras Cements to spend Rs 1,052 cr on expansion

`Protests over Tata Motors project a small incident'

L&T sees order book growing 30% this fiscal