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BL Research Bureau

A spurt in the realty construction orders bagged by Larsen & Toubro indicates that the company is looking to capitalise on the booming real estate market in the country.

In recent times, Larsen and Toubro has secured multiple orders from various real estate developers to design and build real estate projects spanning IT parks, hotels, malls, office and residential buildings.

These projects fall under the purview of the company’s engineering, construction division (ECC), which is the largest contributor to the company’s revenues.

The recent orders worth over Rs 3,500 crore, account for close to 30 per cent of the projects bagged by the ECC division between April-December 2007.

While construction contracts are not new to Larsen & Toubro, the ECC division has traditionally focussed on building industrial structures apart from undertaking infrastructure projects.

The current realty boom in the country has resulted in a number of developers sitting on huge projects without sufficient technical resources for execution. Larsen & Toubro’s experience in construction, its superior project execution skills and huge asset base to execute multiple projects has resulted in the company bagging realty construction projects from developers as well as corporates (for office buildings and hotels).

Given the current demand and dearth of quality contractors, the company is also well-placed to command superior pricing for its contracts.

Such improved pricing may drive the operating profit margins for the division (which surged by over 200 basis points to 10.8 per cent for the half-year ended September 2008, compared to a similar period in 2007).

While L&T by itself is not new to the realty business and has a few projects in its urban infrastructure arm, we believe that its strategy of undertaking construction contracts may be more profitable at this point in time.

More Stories on : Stock Markets | Stocks | Engineering | Real Estate & Construction | Larsen & Toubro Ltd

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