Driven by a strong order book, Larsen &Toubro clocked ₹2,947 crore profit in Q3. The company that is witnessing growth in its order inflow from the Middle East is optimistic about domestic demand growth. Shankar Raman, Chief Financial Officer and Whole-Time Director of Larsen & Toubro (L&T) speaks to businessline on the company’s plans 

Q

The infrastructure spending by the government has slowed down. Do you think it will have an impact on the overall infrastructure segment and L&T?

The pace of buildup will not be uniform through the five years of any government. We should expect some amount of slowdown, we were talking about this right at the start and I was mentioning internally that we are looking at a 9-month year and not a 12-month year.

It could become soft in terms of order intake from the infrastructure sector in the domestic markets which will be played out. The first two quarters have been robust, the third was a little soft quarter and the fourth quarter will continue to be soft from the domestic front. The good news for L&T is that it is more than adequately compensated by the orders that we have won in the Middle East.

As a portfolio, we have a ratio of international to domestic which keeps changing through quarters but the outcome is satisfactory

Q

What is the share of your private sector order in the domestic market?

About 25 to 26 per cent of our order book is from the private sector. However, the private sector order is assorted and does not come from just one sector.

Q

L&T has a strong order book, and you expect to end the year with a 5-lakh crore order book. What will be the share of orders from the Middle East by the end of the year?

Today about 40 per cent of our order book is from the Middle East of which 80 per cent is from Saudi Arabia. The mix is not likely to change much by the end of the year. The ratios could move one or two per cent but by and large stay the same.

Q

You mentioned that logistics could be a challenge with the ongoing Red Sea Crisis. Will it impact the business in the Middle East in the coming future? What alternate routes have you planned?

I think the logistic challenges will stabilise as it is not in anybody’s interest to escalate it to the level that it becomes an issue for the world order.

As a business, we should plan for it like the Ukraine war. If the crisis continues we can’t depend as it is a very important channel connecting Asia to Europe. We have to figure out alternate ways to get it done, like today we have accepted the fact that aeroplanes don’t fly over Ukraine-Russia airspace. They take a detour and it is factored into the cost. Alternate routes will mean larger logistics costs.

Most of the orders in the Middle East are recent and to that extent, the shipping is still some time away. The initial 12 months will go into engineering, design clearances, specifications and fine-tuning of the orders.

Q

L&T manufactured its prototype electrolyser of 1MW. When do you start out rolling the electrolysers and what kind of cash flows are you expected in 2024-25 from the business?

At the moment we are testing the electrolyser for its features and functionalities. In a month from now, we will be working out a detailed business plan for 24-25 and it will be a part of that.

Once the tests are completed and we know what the electrolyser can deliver, the buildup plan will be worked out. We expect it to be sold in India and overseas, but we must remember that this product will be in demand when hydrogen manufacturing becomes the preferred route. In India, large industrial houses have announced plans for setting up hydrogen generation or production based on hydrogen as a fuel. Globally we think it is far more competitive as compared to electrolysers that come from Europe. We will have to tap the markets that the European tap and compete in those markets. It will be like the Italian oxide reactors that we export which go from Canada up to Australia. We do think electrolyzer is a similar product.

Q

What is the status of your divestment?

As far as L&T Infrastructure Development Projects Limited (IDPL) is concerned we are a couple of approvals away to sell the entire shareholding. It is a painful process because various agencies, state governments, and lenders are involved and we have to get their approvals. They in return have their respective approval process within their organisation. We are trying to make sure that by the end of this year, the transaction will be consummated.

L&T has a small engineering firm which was into infrastructure engineering. We created this several years ago when the company was not so engaged with infrastructure as a business but over time we have internalized those engineering capabilities. Today, our business verticals have extensive engineering and design skills. So there was no use for a separate company. We have sold that company in the first week of January.

We are working on not for divestment immediately but in preparation for equity stake share for the Hyderabad metro. We are still working on improving the viability of the project and once we complete that exercise we will invite partners that could provide us the opportunity to aid, reduce the equity stake and if required exit

Q

What headwinds do you foresee?

As global companies are setting up their engineering centres in India, L&T has become a natural place to look for talent. According to me, the headwind that we need to tackle is the ability to continue to retain good talent and add to the talent pool.

We are sitting on a 5,00,000 crore order backlog, we have to deliver that to the customers and our profit is at the end of the tunnel. We have to make sure we have the right people and teams as every customer would demand the best team to work for its project.

Secondly, the skill set needed for the large workforce we employ through subcontractors needs to go up and keep pace with the technological changes. The workforce on the ground needs to keep pace with the changing technology. We need to have capable people to live up to the client’s expectations and our on-time delivery with good quality.

Q

Talking about the talent pool, L&T has started its platform EduTech to check employability for engineering students. How is that working out?

 Edutech platform is E e-commerce platform. We have signed up with major universities in India and the idea is to make the students learn curated content through our platform. It is almost like licensing for 500 students. It’s not much for captive engineer training, it will do skill assessment.

We have curated content for graduating engineers that will reduce incubation time when they get to work because some techniques and technologies that we use have been introduced into the curriculum. It is early days because the first set of students have yet to finish their course.

We think that there is a skill gap that is emerging between industry practice and academic curriculum and that is what we are trying to address through the platform, some of which will benefit us as a talent pool but this is not confined to only our talent.

comment COMMENT NOW