With a good domestic order book and an increase in international business composition from the Middle East, Indian multinational Larsen & Toubro believes that the company will be able to navigate through inflationary pressures and global recession. Shankar Raman, Whole Time-Director & Chief Financial Officer, Larsen & Toubro, speaks to businessline on the company’s plans ahead.


The domestic order book has growth during the quarter, does this indicate that in the domestic market, there is no impact of inflation?

Our domestic order inflow grew by over 50 per cent, while the overall order inflow grew by 30 per cent. We believe that the domestic orders have grown well. The share of international orders last year was 40 per cent and it has come down to 25 per cent in the current year quarter.


What is the private sector orders and the share of the domestic market?

For the nine months that ended December, the share of the private sector was 35 per cent. By default, the public sector and the government-sponsored orders balance 65 per cent.


The Middle East composition for Larsen & Toubro had grown with every quarter. Do you see the business further going up and contributing up to 20 per cent of revenue like the USA and Europe?

Middle East today is very different. It is almost like India, but the scale is very different. there are factories getting built which are energy intensive. There are renewable power generation plants being put up, and the metro rail system. The Middle East always had a road network and the rail network was not very good; both intracity and Intercity rail network has started coming in and new cities are forming.

Consequently, power grids are strengthened. Power transmission, water, and electricity: these utilities are investing in making some places more habitable. Middle Eastern countries are also insisting on foreign players like L&T, who operate in that market to invest in the local economy, which means that we are required to put some fabrication yard or small manufacturing facility. This would mean also industrial development.

The share of revenues, and the bulk of the income that we report in the US and Europe is arising from our IT business and not from engineering or construction business.


What is the development of the JV announced with Indian Oil Corporation?

The government, under the green hydrogen program, wanted all the public sector refineries to put up a green hydrogen plant and then use the energy for the refineries so that they make the energy efficiency of the refineries better and also score better in the reduction of carbon dioxide emission. So this is a three-way partnership. We have assigned a broad framework agreement. The details are working out. I think they were waiting for the current budgets to be finalised, their budgets are on the back of the Union budget. As they get into April, they will have their budgetary allocations formalised. Once that happens, hopefully, we will see some action.


Larsen & Toubro announced that they would cut off China imports. What percentage of China’s imports are still coming in?

Depending on the type of project, sourcing from China will vary. It could be between 2.5 billion dollars to 5 billion dollars, depending on what we are sourcing from at a given point in time. I don’t think it is going to be possible for us to cut China away completely because the end of the day, it’s an important source for many things. When you talk about competitive infrastructure, this scale and the size of supplies of China are unmatched today.

We can reduce the dependence on China and not eliminate it, but even to do that profitably, an alternate source should provide the goods and services of the scale and the price. Today, even for the PLI schemes and certain areas of manufacturing, the government has permitted specific Chinese firms to work in joint venture partnerships with Indian partners and even the government has conceded that there are some areas where the Indian industry needs to collaborate with the Chinese industry.


Do you see Larsen & Toubro’s (L&T) international business being impacted by geopolitical scenarios and global recession?

The company should have the ability to navigate through this. It is a challenge as much as an opportunity. People have realised that after years of interdependency, we cannot completely become independent of each other and operate successfully as a new player country’s nuclear country. What most of the countries are focusing on is trying to pick their spots of priority and see who is the best place to provide that. India fortunately has been at its diplomatic best over the past few years, so it’s been able to navigate the pressures the geopolitics is creating on the overall economic environment, it’s tried to stay the nonaligned course and stay relevant.

I sense that our ability to work with different parts of the world will enhance because of these geopolitical tensions, but what it does test is the ability and agility of the company to realign its well-established supply chain, network, and ecosystem.


Has the company’s new businesses, like Edutech and Sufin, started bringing meaningful revenues? How large are these businesses going to become in the next two to three years?

They are still a work in progress. It’s essentially B2B and not so much B2C, so it’s a very differentiated platform, but it does take time to build a platform because the technology behind should be well-tested and robust and there should be an economic benefit or any other material benefit for users. So our attempt now is to tighten the platform to make sure that it is of meaningful consequence to the users. It will take another year or two before we can even mention the revenue trajectory. At the moment, it is earning some revenue. The focus is on completing the delivery bouquet rather than scaling up- which will follow once we get the structure and the technology well tested.


What is the status of your ongoing divestment? 

We have exited our mutual fund business in the financial services sector and infrastructure sector. We have exited the concession business that toll road and two major divestments that we were attempting to do is completed. We are working with various regulatory authorities for approvals because there are eight-nine toll roads and one transmission line involved. Various state governments are also involved. We are trying to get those approvals done. The tasks ahead of us in the next three to six months would be to complete these transactions and then we would have to deal with another large concession which is the Hyderabad metro. This will start taking our attention in the later part of FY23, FY24, and maybe FY25.