Stable crude price will bring capex back: L&T Hydrocarbon

L&T Hydrocarbon Engineering Ltd (LTHE), a wholly-owned subsidiary of infrastructure major Larsen & Toubro, has emerged as a winning bidder for ONGC’s Daman Development Project.

The offshore contract worth ₹1,150 crore — for the transportation and installation of the Daman project — becomes the second mega order bagged by the L&T division in as many months.

In September, LTHE bagged an engineering, procurement and construction (EPC) order worth ₹1,700 crore from Kuwait Oil Company to construct a new crude transit line (TL-5) from north Kuwait to Ahmadi.

In the first quarter of this fiscal, LTHE had bagged orders worth around ₹800. The Kuwait order, received in the second quarter, was among several others yet to be announced.

“People (now) have more certainty on crude prices,” Subramanian Sarma, MD and CEO at LTHE, told BusinessLine. “A couple of years back nobody knew when it would stabilise.”

“Now the industry consensus is that it will be around $50 per barrel. Having this certainty in mind, people have started making budgets and allocating money.By the second half of calendar 2018, I expect the general sentiment to improve and more capital to come into the market,” he added.

According to Sarma, who took over as CEO and MD of LTHE in August 2015, after spending 25 years in the oil and gas industry in West Asia, the company has kick-started a major transformation to turn around the business, hit by both internal inefficiencies and a challenging external environment.

“We put a plan in place: how to consolidate, and how to rationalise and restructure. We have increased internal capabilities, put some digitisation elements in place, and looked at supply chain. We are taking these steps within the group’s five-year plan. The first stage, which is mainly business consolidation, is going to be completed in March 2018,” he said.

Sarma added that while the business may not show the same kind of performance as last year, it will contribute significantly to L&T’s overall revenue guidance of 12 per cent growth set for this financial year.

L&T’s hydrocarbon business turned around last fiscal, with revenue growing 19 per cent and margins improving as a result of more efficient execution, the company noted in its July presentation to investors. It registered a revenue of ₹2,546 crore in the first quarter of this fiscal, with international markets contributing more than half. LTHE’s order book stood at ₹23,026 crore as on June 30.