Saudi Arabia has a lot more projects in store: L&T CFO

With a $15-16 billion orderbook in Saudi Arabia, Larsen & Toubro believes it has yet more opportunity in store in the Arab nation.

“Saudi Arabia is a very big country, which has a programme that is $250 billion a year,” L&T’s Chief Financial Officer R Shankar Raman told businessline. “That market is one from which you can’t take your eye off. We have to focus on that market and build capabilities so that we can take advantage of these opportunities.”

Around 56 per cent of the company’s current orderbook is from international markets, mainly Saudi Arabia, and it expects to end the year with 45 per cent overseas orders, as domestic tendering picks up pace.

Qatar and UAE are the other countries in West Asia that offer it work opportunities. Raman said he expected to win some orders in Qatar in the hydrocarbon segment in the current quarter and next.

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Asked whether high exposure to Saudi Arabia posed a concentration risk, he replied, “What we are doing in the context of their annual outlay is not eye-popping.”

Edited excerpts from the interview.

How do you see the future growth and split in international and domestic orders?

We had visualised that, in FY24, we would have our order split maybe 60 per cent domestic and 40 per cent international. At the half-year end, we are almost 56 per cent international and 44 per cent domestic. In the first half, domestic orders have grown 15 per cent and international orders have grown 2.5 times — a bit of this is also due to the lumpy two orders that we got from Saudia Arabi, around Rs 40,000 crore. In the next six months we expect some moderation, and that domestic orders will catch up. We expect domestic will grow at least 15 per cent from here. International is a little hard to predict because individual orders are so large that any linear prediction becomes a risky affair. Our prospective pipeline is around Rs 8.5 lakh crore, and about 55 per cent of that is in the domestic market and 45 per cent international. My guess is that, at the end of the year, we will land up with 45 per cent international and about 60 per cent domestic orders.

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Saudia Arabia is prominent in your international portfolio. Do you see that as a concentration risk?

Saudi Arabia is a very big country, which has a programme that is $250 billion a year. In India we compete heavily for a few lakh crore every year, so the order of magnitude is very different. If you look at what we are doing in the context of their outlay, it is not something which is eye-popping. As we speak, $15-16 billion is the backlog we have in the Saudi market… there are so many other opportunities where we are not really participating. I think that market is one that you can’t take your eye off. We have to build capabilities so that we can put our hands on those opportunities.

We are also doing projects in Qatar and, to some extent, Abu Dhabi, though the investment scales are different. In Qatar, pre-FIFA we build stadiums and associated infrastructure, we built the Doha metro. Now, due to the Russia-Ukraine war, Qatar is trying to monetise its gas reserves a bit more aggressively than in the past. So we do expect in the current quarter and the next quarter some orders from Qatar in the area of hydrocarbons. In a way, it will balance out the predominance of Saudi Arabia in the portfolio.

Also read:L&T secures contract in West Asia, shares up

You are confident of exceeding your guidance this year. But margins remain a worry.

First and foremost, we feel secure that our basic guidance is intact. The orders we have been able to win so far give us the confidence that the distance we need to cover to reach 10-12 per cent guidance in order inflows is very much in sight and with time to spare. So we do believe that in the additional time we have, we will focus on a few more projects and, if we are fortunate, we should be able to outperform the guidance quite well.

On the execution side there is a lot of pressure from customers to complete projects ahead of time. So we are trying to respond and execution has picked up very well. We have grown by 25 per cent in the half year. If we continue at a similar pace, the 12-15 per cent revenue guidance will be exceeded quite comfortably.

We are working hard to see how we can improve the margin profile. It has suffered because of all the input cost increases. Only on completion of the projects will the clients sit down with us and agree on reimbursements. Maybe future quarters will see the benefits. But, progressively, every quarter you’ll find us improving our margins. And by FY25 I think our margins will look more normalised than they were in FY23 and in FY24.

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What kind of headwinds do you foresee?

We have to manage resources well. Winning orders is one part of the story, executing it well is another important part; and, to be able to do that, we have to have the right mix of skills to execute the projects and in the right numbers. In terms of workforce availability, there is not enough skilled labour. Most of the people who come from the interior parts of the country are used to farming and working in bits and pieces. They are not used to working in an organised setup, like the ones we run on our sites. So it takes a lot of training and to be able to retain them. They come from faraway places and, at the slightest reason, they want to go back — whether it is to harvest their crops or help their household — so resource management is going to be key for us.

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