With an uptick in international business from West Asia and a strong domestic order-book, Indian multinational Larsen & Toubro believes infrastructure and energy sectors will further drive demand. Shankar Raman, Whole Time-Director and Chief Financial Officer, Larsen & Toubro, speaks with businessline on the company’s plans.
The company has a strong domestic order-book. What kind of growth trajectory are you anticipating in FY24?
We are drawing strength from what has happened in FY23 — the ordering was quite brisk and the tenders-to-award ratio was very healthy. Given the fact that the government’s fiscal position is comfortable, tax collections have been very robust, much more than possibly what many of us expected. We see orders of interest to us of about ₹10 lakh crore, and I think two-thirds of this will be India-centric opportunities. Of the domestic opportunities, we find infrastructure to be the large sector that will drive our order intake. We do think that heavy civil infrastructure, the work that we do on expressways, on metros, and underground, the work opportunities that are available for station redevelopment, , bridges, tunnels, these would be very interesting because the country wants to connect itself up. Now all of this provides us with big opportunities and we, by way of our construction in the EPC business, are present in each of these verticals in a very strong way. On top of all this is the energy transition that is happening, where the country is pushing more and more towards green energy. So, instead of the old thermal coal or oil, hydrogen is also now becoming a fairly interesting piece to converse on in terms of the energy transition. Now all of this will give an incremental opportunity. Maybe hydrogen will take some more time before it translates into steady EPC orders, because people have to get around the technology. We are already the largest EPC contractor for solar energy in India and overseas and have won large orders from the Middle East (West Asia) on solar energy. Now this involves putting up a solar plant as well as connecting it to the grid network. India is still lagging in terms of the scale of investment. I would consider manufacture of hydrocarbon and petrochemical equipment to be promising. India is also beginning to step up on nuclear equipment. Nuclear and defence will continue to be interesting opportunities but may not be on a consistent scale year-on-year. The election is going to be a big event in FY24. So, to that extent, I do not know whether we will have the benefit of a full 12 months or whether there will be some truncation in terms of time.
The revenue composition from West Asia is around 17 per cent for the quarter, compared to 12 per cent in the previous quarter. What kind of growth are you anticipating from West Asia?
In FY23, of the total revenue we reported, 38 per cent is from international. The overall growth of revenue was 17 per cent, but the growth of international revenue was 30 per cent, on the back of the large orders we won in the previous year in the hydrocarbons space. We have been one of the recipients of large orders from Saudi Aramco for Saudi capacity enhancement and those orders are under execution. We’re also executing hydrocarbon orders in Algeria. I think this is a function of the mix of orders that we won in the previous year. We expect the mix to be around one-third (international), two-thirds (domestic) level. So I would expect the share of revenue from international orders to mirror this mix.
What is the share of private sector orders for L&T?
Thirty two per cent has come from the private sector. The corresponding number in FY22 was about 26 or 27 per cent. There has been a growth in the private sector and this growth is largely on the back of improved ordering by the steel industry, healthcare industry, minerals and metals industry, and construction equipment.
What is the status of the cloud offering for the regulated sector that you are developing together with Microsoft?
We are still trying to get clients’ interests firmed up as it is a work in progress, because the data centre is under construction. We are building about 30 megawatts to start with, and it may be completed by the end of this year. It has potential to scale up. . The client’s offering could start from 24-25.
Vodafone and Idea have also partnered with L&T for private network solutions. What kind of an opportunity do you see in this?
I think the potential one would be for our internal network. The other would be as part of our L&T technology services business, which has a telecom vertical to take these solutions to customers on a global basis. At the moment, these are still ideas that are getting sharpened. We’ve not delivered anything.
How is the raw material pricing situation? Is supply still a constraint?
It is easing and prices have come close to pre-Covid level, while some raw materials are still priced higher than pre-Covid. We are not planning for any drop in prices from these levels, but we don’t expect the kind of spike we saw — 25, 50, and 80 per cent — because it is not sustainable. The price increases have also coincided with the global slowdown of inflation and tight money conditions. Given all of that, the ability of the markets to pay more for material is limited. So we assume that, taking current prices as a base, in the next one or two years, which is critical for us to execute the projects that we have won in FY23, the inflation range would be modest.
L&T was looking to be a zero-debt company. How is that shaping up?
L&T’s debt is very minuscule for all operations in its project, business, and manufacturing business. We have a debt-equity of 2.2, which is bare bones and it is just for working capital requirements, because for any project we require guarantees, LLC. It’s good to have a small dose of debt. I mean, it’s not fashionable to just become zero-debt. If you look at the cash equivalent in our balance sheet, we already have net debt zero, because the cash equivalent is more than ₹20,000 crore and the debt that we have is only ₹20,000 crore. So in a sense, we are already debt-free. In a particular manner of speaking, if you want to repay the debt, we can liquidate all the investments and pay off the debt. That shouldn’t be a problem, but I don’t think that’s a course; we think we are quite optimally structured from a capital structure point of view. I think we’re already at an optimum level of debt. I think the best-case scenario over the next couple of years could be this 1.14 debt.