Re: {LONGTERMINVESTORS} Larsen and Toubro....Thread
RAJESH DESAI
L&T said that with the commissioning of the power generation unit in record time of 24 months, the company has demonstrated its integrated execution capabilities. L&T said that, in September 2006, the company had successfully commissioned the first unit of a similar capacity at the same location. Work is also in its advanced stage for the third unit of similar capacity in which a gas turbine is expected to be synchronized soon. The complete unit is scheduled to be commissioned in the next few months. On completion of all three units, the national grid will benefit from a total capacity of 1,200 megawatts (MW) gas based power plant at a single location, L&T said in a statement.
L&T said, this project has been executed by the Gas Based Power Projects -- Strategic Business Unit of L&T Power, based in Baroda. L&T's scope included design, detailed engineering, supply, installation and commissioning of the complete power plant on a turnkey basis. The plant incorporates state-of-art advance class gas turbines from General Electric and high efficiency steam turbines from Alstom, L&T said in a statement.
Biz confidence hurt, facing risk of sluggish order: L&T
It has been long since Indian companies had hit the alarm button of a growth slowdown and now here it is. It is official that Indian economy is not growing but infact has contracted to a 28-month low of negative 5.1% in October. Criticising government’s inability to bring any policy action, AM Naik, CMD, L&T feels that policy measures could have boosted growth significantly.
In an interview to CNBC-TV18, Naik stressed that India must get the house in order and stop worrying about global cues. He is worried that GDP growth of more than 7% is unlikely.
Expressing concerns about the slowdown, he added that business confidence is significantly hurt while the power division has been worst hit. Unhappy with government’s inaction, Naik emphasized that coal block issues could have been resolved in weeks.
The impending risk of sluggish orderflow is looming large as growth will be hurt if global orders don’t pick up. The overhang will be felt in FY13 -14 revenues, he pointed out. “FY13 will be very challenging focussing on export markets. Orderflow growth will be at best 0-5% in FY12,” Naik added.
Below is an edited transcript of his interview with Udayan Mukherjee. Also watch the accompanying video.
Q: We have seen some very bad IIP numbers, but how bad is the situation on the ground?
A: It has been bad. I have been expecting this for more than a year because the capital goods spending or project spending is the first indicator of how the economy is going to behave in future. So I have been always saying that I don’t think the growth will be more than 7%.
The worst can come next year because I don’t see too many things in the pipeline; there are many policy decisions still not being taken. I have been talking about liberalization of defence which can create hundreds of thousands of jobs, but it is still being imported. For that matter, it is given away to very non-performing public sectors, and the offset has been diluted. Even power equipments are being imported due to which the industry itself is in disarray.
So there are many things for which we are not dependent on global economy or what is happening in Europe. But we have to put our own house in order first and it should be immediately tackled so that we can see some recovery during the second half of next year, at least in capital goods. And if the capital goods doesn’t grow two years down the road, it is going to have an effect on auto, consumer goods and so on and so forth.
Q: GDP growth aside, why has the investment cycle stalled so badly over the last few quarters? What would you say is the real problem for such a weak investment cycle which is weakening with every passing month too?
A: The Reserve Bank of India has increased interest rates 13 times and banks have passed it forward, which makes projects expensive. Many of them are not viable at these interest rates.
If you see the western world, they have brought down interest rates to spur the economy to 1-2% maximum. How can you have a growth if you have more than 11-12% of the interest? In an already high cost situation, this only adds fuel to fire. The inflation is already high, so there is hardly any positive that one can see for investing at this point in time.
Q: When you speak about policy inaction, and that also being a big part of the problem, what kind of policy are you alluding from the government which has led to some kind of freezing up of the investment cycle?
A: What I have been saying is on the defence. For example, instead of depending on the private sector for investment and acquisition of defence equipments, more than 80-90% is being imported. Whatever is being made here is done by the public sector, which doesn’t perform. Deliveries extend by more than four-five years and cost overruns are huge, but still the private sector won’t be allowed.
This is something which is in the government’s hand; it has been sitting there for last six years. Defence Ratna and so on could be implemented to make sure that future defence equipments are made in country with minimum knowhow that is required for abroad and the industry will rise to the occasion. This has no concern with the investment from private sector; it’s a policy decision which is pending for five-six years.
When it comes to other industries like steel, cement and commodities, they are all capital intensive and if they don’t see economic growth coming, obviously they are going to slowdown their own investment. That’s what has happened, whether it is steel or aluminium or anyone else. The other thing is auto; if you don’t have the purchasing power improvement in larger section of the society, obviously it will affect the consumer durables, the autos and the other consumer products.
Q: Which of the businesses or verticals that you work in L&T seem the worst affected between power, hydrocarbons, metals etc. Where are you seeing the greatest amount of sluggishness and delay in execution or decision-making?
A: One is power sector, because the industry itself is facing problems on coal linkages. The recent hope in farmers is that they will get 5-6 times more for the land, due to which land acquisition has become very difficult. There are also problems with water connection. Proper power purchase agreements are not signed, and those which are signed are not paid by the electricity board because they are giving away power to most of the sections of the people for almost free. So all of this needs to be corrected if you want investment, because the demand is there. With 1.2 billion people, there is demand for almost anything.
Many of the coal blocks are not allotted for two years; we hear it will be done next month, but it gets delayed again. These are things which can be set within a matter of weeks, but has been pending for years. When you look at for what trickles in for the power industry, most of it gets imported from China because of that 30% indirect subsidy on account of managed currency. There also is the indirect subsidy of 10-12% and on top of that we have Indian taxes of 11-12%. So now you have a gap of 54-55%, due to which Indian power equipment manufacturers do not have work. I think these are the serious problems in power industry.
Cement has slowed down, but I won’t say as much as power. Steel also has slowed down, but those who have committed to the funding are still going on. It is the new funding, the new projects I don’t see. Nobody has stopped the work which is going on at this stage, but the question is if there new projects in pipeline. With the current political environment and the kind of situation you see everyday, very few people will think about going ahead and making a big investment till they see political stability. So political stability plays a big role and currently that is not there.
Q: You had earlier cut down your order inflow guidance to 5% in FY12. With the way things are going, do you think you can get any growth in FY13 on order inflow?
A: Next year it is going to be very challenging, but we are doing our level best to see what we can do outside India We are putting all our efforts in that direction, and should that materialise and mature which normally takes a long time, I think we will have second half where we will begin to make up from outside India rather than from within India.the Indian prospects are not going to be that good and
I hope we succeed in what we are trying to do outside, we did about 1.5 billion this year from outside India and I think we want to take it to 2.5 billion next year and if that happens we will have just about that 5% growth otherwise it will be zero growth or negative but we are hoping that we will make some success outside India.
Q: You did concede that it takes a lot of time and effort to convert those global orders; do you think there is 50% chance that you are staring at flat to negative order inflow growth in FY13?
A: I would say its not 50%, but 25-30% that growth could be flat and hardly 5-10% chance that it could be negative. 50-60% chances are that we will recover from outside India because of the amount of investment we have made for the last one year. We have been opening up new offices for hydrocarbons, and almost all companies qualify L&T up to USD 1 billion projects. We have also opened up many gates for building infrastructure outside India and Gulf, and I only hope that we will bring about some relief.
About two-three years ago, people used to say that one L&T is not enough in India and you need four- ten. Today, the same L&T don’t have enough work, so what must be the condition of others. The sales are not going to be impacted because of the backlog, but that will have tailing effect on FY13-14.
Q: Do you think the competitive intensity, especially in a difficult time, will reach such proportions that even margins will be under pressure in FY13 in a difficult order inflow environment?
A: The point is it’s a normal situation where if there are not enough orders and if many companies are chasing the same orders, obviously the pressure on margin comes. We are now putting all our efforts to do cost cutting to a point where the impact will be minimal, but its only natural that the pressure will come on margin. But that is making all of us believe that we will have to make good by drastic cost reduction. So lots of economic measures in L&T are currently on the way to make sure that the impact is minimal.
Q: You would be aware that the government has circulated the draft note for the duty of imports on power equipment and what is being proposed is 14% but 5% import duty, 5% special additional duty and 4% countervailing. This is at a slight departure to what the Maira Committee had recommended. Are you okay with this format or this formula?
A: Not really because it doesn’t help indigenous power producers because the countervailing duty does not have any moderating opportunity, so it’s an extra cost. Also, it does not offset our taxes which were considered to be 11%. So 10+4 is what was recommended and that is how it should be done.
Q: So 5+5+4 does not make you competitive?
A: It’s not a question of competitive; it’s a question of whether it offsets the tax burden and the answer to that is no. 5+4 is 9 and what we need is 14. The CVD and excise is anyway additional burden on the producer and we as well will pass on to them. So that 5% CVD and excise duty should have really been 10% on import duty. I don’t know what they get out of changing this. We have been resisting this as well as the power producers have been resisting it.
Q: In the next three quarters, do you expect minimal order inflow and are you confident of even reaching the 5% order inflow guidance if the Q4 is very tough this year?
A: We have quite a few projects from infrastructure right now in pipeline, both within India and elsewhere and we are working hard to make sure that happens and if that did then we should be at least not negative. We will be somewhere between same or 5%.
Q: Zero to 5%?
A: Yes.
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CA. Rajesh Desai
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CA. Rajesh Desai
RAJESH DESAI
15% order-book growth for L&T may remain a dream
In a CNBC-TV18 exclusive, AM Naik says that the global economy is in a challenging enviornment and that L&T is unlikely to see 15% order-book growth.
“If you want to keep up with the growth momentum of 15-20%, you need to have your order book also grow by 15%,” he reasons. “Unfortunately, we have this year, a situation where such a thing is not happening.”
With the way the current year has panned out, Naik is skeptical about performance in FY13 too. “At this point, it appears to be even more challenging, how do we get over it and still really find our way into coming back into growth trajectory,” he says.
If you look at L&T, in the core sectors, infrastructure, the strategic sectors, whether it is defence, nuclear or aerospace, all are under pressure have problems that need to be dealt with.
“We are all going through a very challenging time and in last several decades, hardly has there been a situation where the global economy is in bad shape and the European crisis happened at the same time,” Naik points out.
There is now a restriction of code of conduct on account of the upcoming elections. However, according to Naik, once the five state elections get over, growth could be better. Meanwhile, it is going to be business as usual. “I sincerely hope that 2012 emerges better than what we all felt in the last six months that 2012 will really even further the slowdown,” he says.--
CA. Rajesh Desai
RAJESH DESAI
Shares in Larsen & Toubro gain 3.1%, after earlier gaining as much as 4.3%, after Japan's Kyodo News quotes a Mitsubishi Heavy Industries Ltd. executive expressing interest on Monday in acquiring a stake in L&T Shipbuilding "within a few years."
Mitsubishi Heavy currently provides L&T Shipbuilding with technological assistance, ranging from design drawings to quality control, under a tie-up agreement signed by the two companies in December.
However, L&T says no discussion has taken place on a stake sale.
"So far we have no discussions on this at all," said .V. Kotwal, President of L&T Heavy Engineering, tells Reuters. "But if in future such a situation arises, definitely we will be looking at it on merit," he added, referring to a stake sale. "Right now there is no such agreement or discussion."
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CA. Rajesh Desai
RAJESH DESAI
| Conference Calls reminder - Larsen & Toubro Limited at 04:00 PM on 22 Oct. . |
| Call numbers 022 3065 0058 |
MUMBAI | Mon Oct 22, 2012 2:11pm IST
(Reuters) - Larsen & Toubro(LART.NS), India's top construction and engineering company, beat estimates with a 42.4 percent rise in net profit for the July-Sept quarter, the company said on Monday, helped by a one-time gain and higher revenue booking.
The Mumbai-based engineering conglomerate said net profit rose to 11.37 billion rupees during the second quarter of the fiscal year from 7.98 billion rupees a year earlier. Excluding a one-time gain during the quarter, L&T reported a net profit of 9.15 billion rupees.
Market expected a profit of 8.76 billion rupees, according to Thomson Reuters I/B/E/S.
Sales rose 17.3 percent to 131.95 billion rupees.
(Writing by Henry Foy; Editing by G.Ram Mohan)
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Karishma Suvarna
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CA. Rajesh Desai
RAJESH DESAI
Net income rose to 11.4 billion rupees ($213 million) in the three months ended Sept. 30, from 7.98 billion rupees a year earlier, the Mumbai-based company said in a statement today. That exceeded the 8.8 billion-rupee median of 27 analyst estimates compiled by Bloomberg.
Sales rose 17 percent to 132.3 billion rupees, as India’s push to attract $1 trillion of infrastructure spending by 2017 stoked construction of factories, ports and railways. The builder also posted a 2.14 billion rupees gain from the unit- stake sale, it said without elaboration.
Larsen, the best performer on the Sensex Index this year, rose as much as 2.6 percent to 1,674.9 rupees in Mumbai trading, and changed hands at 1,665 rupees at 2:35 p.m. local time. The benchmark BSE India Sensitive Index rose 0.6 percent.
The company won 209.7 billion rupees of orders in the quarter, 30 percent more than a year earlier. Its total order book stood at 1.59 trillion rupees as of Sept. 30.
“The rebounding of industrial production and improved credit demand was seen in many sectors towards the end of the quarter,” Larsen said in the statement. “A few steps taken by the government recently underscore its commitment for accelerating the pace of economic development.”
India’s economy expanded 5.5 percent in the quarter ended in June, faster than the three-year low of 5.3 percent in the previous quarter. Prime Minister Manmohan Singh’s government last month eased ownership rules for retailers and airlines as part of efforts to lure investments and boost growth.
To contact the reporter on this story: Vipin Nair in Mumbai at vna...@bloomberg.net
To contact the editor responsible for this story: Neil Denslow at nden...@bloomberg.net
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CA. Rajesh Desai
Rajesh Desai
L&T during trading hours today, 8 March 2013, said that its strategic business unit viz. L&T Integrated Engineering Services (L&T IES) recently inaugurated its offshore development centre (ODC) for Calsonic Kansei (CK) at Chennai. This partnership initiative called Calsonic Kansei Engineering Centre India-L&T (CECI-L&T) will extend CK's presence in India by replicating their engineering function to support project development, L&T said in a statement. Over the initial phase of five years, CECI-L&T will focus on expansion and optimisation of activities in this facility.
L&T IES' partnership with CK is an enablement of business opportunity in the southern capital of India, giving an immediate prospect for a geographical uplift, L&T said. This strategic initiative will focus closely to support CK's Indian customers. L&T IES will facilitate the ODC with test labs and advance functional areas over the period of time. L&T IES' bilingual engineers are the mainstay feature of this project, L&T said. The progress made in a short span of time has been impressive to establish core function teams at CECI-L&T, including design and analysis, material research, supplier localization and global process standardization, L&T said in a statement.
L&T after trading hours on Thursday, 7 March 2013, said that the company as a licensee of CMI Energy, Belgium, has signed an agreement with CMI Energy, Belgium for extension of L&T's license territory to manufacture and supply small heat recovery steam generators (HRSGs) installed behind gas turbines below 80 megawatts (MW) to South East Asia and the Middle East. Under this agreement, L&T will have the exclusive rights to apply CMI technology in these markets for manufacturing and supplying single wide HRSGs installed behind gas turbines below 80 MW. L&T and CMI Energy will jointly develop/improve the existing CMI design to suit the client requirements in the extended territory. This will allow CMI and L&T to improve their competitiveness in the regions, L&T said.
HRSGs are used widely in combined cycle power plants and cogeneration applications in process industry. Over the past decade, the market for small HRSGs represents 24% share in terms of number of units sold worldwide, L&T said. This market is poised to grow by 3.5% per year over the next decade, L&T said. CMI Energy and L&T intend to be the key players in this market by attracting a minimum 10% market share, L&T said in a statement.
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CA. Rajesh Desai
Rajesh Desai
Staying optimistic key to surviving tough times: L&T CFO
CNBC-TV18 honours India Inc’s top chief financial officers (CFOs) in a gala even in Mumbai. The CFO of Larsen & Tubro, Shankar Raman won the best CFO of the year award. In a special interview to CNBC-TV18, Shankar Raman says, staying optimistic was the only key to survive in this difficult business environment.
CNBC-TV18 honours India Inc's top chief financial officers (CFOs) in a gala event in Mumbai. The CFO of Larsen & Tubro , Shankar Raman won the best CFO of the year award. Kevin DSA of Bajaj won the best CFO award for the auto sector. In the banking space NS Kannan of ICICI Bank bagged the top honours. Sridhar Ramamurthy of Hindustan Unilever won the award for best CFO in for the FMCG sector.Also Read: Invest in L&T for long term: Doctor
In an exclusive interview to CNBC-TV18, Shankar Raman says, staying optimistic was the only key to survive in this difficult business environment. "We had to keep our options open for any strategies that we were to pursue as a company and always have a plan B because you are not very sure about plan A. The uncertainty taught us couple of things, it taught us how to manage volatility, how to remain certain in an uncertain environment," he adds.
Below is the verbatim transcript of Shankar Raman's interview on CNBC-TV18
Q: It has been a very difficult year, what has stood by you for the last one year that has helped you overcome all the economic and financial challenges that you had to deal with?
A: We had to remain
optimistic. The biggest challenge was always to look at the cup as half
full because we went through situations where it was difficult to be
very decisive about our moves. We had to keep our options open for any
strategies that we were to pursue as a company and always have a plan B
because you are not very sure about plan A.
The uncertainty
taught us couple of things, it taught us how to manage volatility, how
to remain certain in an uncertain environment. This means we had to pull
levers which are within our control and try to reduce the risk element
there and hope and pray that something catastrophic does not occur.
Q: What is your outlook for this new fiscal that we are about to enter? Do you see the prospects for the Indian economy improve and respond to this question while keeping the Budget in mind given what the Finance Minister do as an attempt to bring fiscal deficit under some control?
A: There were a lot of announcements about what needs to be done. The biggest challenge for all of us in the system is going to convert the sentence into actionable points. The solution lies beyond the Budget document and the entire bureaucracy and the policy framework has to get facilitative.
Q: After the cumulative effort of the government (which they keep touting), like Sachin Pilot, Corporate Affairs Minister talk about the Cabinet Committee on Investment (CCI), Finance Minister talk about the fiscal deficit, are you seeing a difference on ground in terms of reviving several big projects that were stuck?
A: There is a movement forward but whether it is adequate, I am not yet sure. However, I do see some anxiety in the minds of people to push ahead and convert the intent into action. There have been some clearances that have been announced. We have also seen National Highways Authority of India (NHAI) making some conciliatory moves in terms of resolution to stuck projects.
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CA. Rajesh Desai
Rajesh Desai
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CA. Rajesh Desai
Rajesh Desai
L&T’s Executive Chairman AM Naik slogging to find his successor
AM Naik lets the cat out of the bag when he admits there are a few bones in his body crying out for rest. "I am slogging, day and night - 18 hours a day still. You think I would be doing it if I could help it?" Naik had, a little over a year ago, given up the post of managing director to long-time colleague K Venkataramanan, retaining the post of executive chairman for himself. He had been MD of L&T since 1999 and chairman since 2003.
IIAS, a shareholder proxy advisory service founded by Anil Singhvi (a former CEO of cement maker Gujarat AmbujaBSE 3.10 %) and Amit Tandon (a former MD of Fitch Ratings), had opposed a resolution seeking approval to persist with Naik as executive chairman at the annual general meeting of L&T later in the year. IIAS had said that Naik should have stayed on as non-executive chairman. Naik's plan, in April last year, was to hand over the businesses reporting to him - 17 of them - one by one to Venkataramanan.
Today, Naik has stopped operating out of the L&T headquarters in Mumbai's old commercial district of Ballard Estate; neither does he sit at the sprawling factory campus in Mumbai's northern suburb of Powai. Instead, for the past two months the executive chairman has chosen the Landmark building, a few kilometres away on the Western Express Highway, as his main office. He is the only director working out of that office.
But that's a feeble indicator of Naik attempting to gradually detach himself from the engineering and construction giant. Rather, he is as firmly in the saddle as he's ever been, and is worrying about the company's next 10 years.
NO HEIR APPARENT
Naik is worried because there is no obvious near-term successor for the chairman's post visible - not at least to him. "If I was running a new economy company, I would have lined up 10 successors without a problem.
If I was in charge of a bank, a financial services company, CPG, FMCG, IT...[such companies], there would have been no succession problem. But there are no Indians available [to take on the leadership role] in the entire industry - or anywhere in the world. I gave the last five searches over the last four years to five different firms - without any restrictions - to create a team from any nationality. It is not yet possible."
On the way to the airport terminal that L&T is constructing, Naik points to an elevated Metro corridor that Reliance Infrastructure is building and says: "No IIT engineer will come to supervise this. They all want an AC office. I am now the chairman of the governing board ofIIM Ahmedabad. In the past 15 years not a single person from IIM Ahmedabad has chosen to get into manufacturing or the old economy or infrastructure."
ANSWER MAY LIE WITHIN
But would Naik stand a better chance of finding a successor from within than combing the entire India Inc? S Krishna Prakash, managing partner for India at global CEO search firm EMA Partners says: "The problem is typical of successful corporations. A person from outside will always find it difficult to make an impact. The answers lie within and it is probably best to catapult professionals from within to larger roles and take a bet on their own people."
Naik has been criticised for getting a go-ahead to be executive chairman till 2017. This means that when Venkataramanan retires as MD in 2015, Naik will have two more years to go. Perhaps after painting a mental picture of one such critic, Naik thunders: "Let that man come and run this company."
Naik's solution to not finding a suitable successor has been to split the behemoth with Rs 61,471 crore in annual revenues into smaller - and presumably more manageable - fragments. "The earlier I can get the independent businesses listed one by one through IPOs and let them live on their own, the easier it will be to find my successor for each of these simplified companies."
Naik adds he started almost all the new businesses in the past 35 years (he has spent 49 years with L&T) and is therefore able to feel the pulse of each one of them. The argument thus goes that how would a chairman inexperienced in these diverse operations be able to get a grip on so many of them.
READY TO GO PUBLIC
Naik takes L&T Finance as an example of the spin-off-and-list strategy. It was listed last year and the chairman's is keen to get 4-6 more such arms listed independently. L&T and L&T Finance are the only two listed entities of the group that has consolidated revenues of around Rs 74,000 crore now. L&T is divided into strategic business units (SBUs) - some 70 of these. The SBUs are clubbed under 23 strategic business groups (SBGs); once an SBG hits Rs 5,000 crore in annual revenues, it is given the status of an independentcompany (IC). The IC is then slowly primed to become a subsidiary that can seek its own listing on the bourses.
L&T has 17 businesses which can be potentially taken public. Twelve of these are within the parent as ICs and five are unlisted subsidiaries. Naik reveals that two more - transportation and infrastructure - have grown big enough to become ICs. So if one goes by Naik's thinking, it will take 19 chairpersons to replace him. "My problem is the next 10 years," he shrugs. One of his key tasks is to identify potential leaders from within but here too he complains that these few good men being groomed are being lured away by competition with "3-4 times salaries" and CEO designations.
Naik's critics point out that this is a bit of a chicken-and-egg situation as professionals may have legitimate aspirations and the top-rung at L&T staying on way beyond 60 is a reason for the exodus at the middle level.
Naik of course says the exodus is one more reason for him to stay on and steer the ship. "Many people think L&T is doing well. But I think L&T has a long way to go before it becomes a globally competitive company. Just step outside of India and see if L&T can compete with them [global rivals]. You have to make sure that your company is capable of competing with the best in the world and still makes money and creates shareholder value."
Two businesses he is visibly passionate about are defence and power, which have the potential of redefining what is core to L&T in size and scale. But there are caveats. "If the power sector can get out of the mess it is in, it can become a Rs 15,000-crore business for us. The same is with shipbuilding which is not doing well because of the defence policy. But if that changes, just one frigate can add Rs 5,000 crore."
Naik adds that the Indian defence policy is holding back the company. "How is it that we are ready to accept defence supplies from foreign private sector players but not from the Indian private sector," he asks. For all his feisty enthusiasm, there have been rumours about his health. Naik also suffered personally when his granddaughter passed away at the age of two-and-a-half six years ago.
What keeps him going? "The fear of failure. I have a tremendous fear of failure. My reputation is on the block as I am not used to failing. [But] the fears are that new talent is not coming in, and that my leadership pipeline is poor." And the biggest fear of them all is that, when it is time to ride into the sunset, L&T won't have sufficient good men at the helm of its ICs. Naik may just not let go till he finds them.
CA. Rajesh Desai
Rajesh Desai
Larsen & Toubro (L&T) subsidiary L&T Construction has secured new orders worth Rs 3057 crore across various business segments in June 2013. The company’s Building and Factories Business has secured orders worth Rs 1808 crore for the construction of an office space, residential building and a hospital from customers across the country.
The Water and Renewable Energy Business has bagged orders worth Rs 628 crore. A major order is from the Water Resource Department, Jharkhand for construction of the Kharkai barrage with gates and allied works including civil, mechanical, and electrical systems. Another turnkey order is from West Bengal Power Development Corporation Limited for supply of equipment, material, erection and services for plant water systems of the Sagardighi Thermal Power extension project units 3 Et 4 (2x500MW). The Company also received orders for various utility development works at Gurgaon from a private developer, including an additional order on operating projects.
In the Power Transmission and Distribution Business, orders worth Rs 442 crore have been received from the Delhi Metro Rail Corporation for design verification, detailed engineering, manufacture, supply, installation, testing and commissioning of electrical and mechanical system including fire and hydraulic system for underground stations of Delhi Mass Rapid Transport System project phase-3. Additional orders have also been received in domestic and international markets of ongoing projects.
New orders worth Rs 179 crore have been secured in Heavy Civil infrastructure and Metallurgical and Material Handling Businesses from various ongoing projects
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CA. Rajesh Desai
Rajesh Desai
“The company’s power segment has reported 38% yoy fall in profit before interest and tax for the quarter declined by 38% at Rs 98.52 crore against Rs 159.86 crore in a year ago quarter,” L&T said in a statement.
Net sale grew 5% at Rs 12,555 crore on yoy basis.
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CA. Rajesh Desai
Rajesh Desai
Larsen & Toubro's (L&T) subsidiary L&T Construction’s Heavy Civil Infrastructure Business has secured an order worth $1403 million from the ArRiyadh Development Authority, Kingdom of Saudi Arabia for the design, construction and commissioning of a metro project in Riyadh, Saudi Arabia.
The company has secured the order as a joint venture partner of ArRiyadh New Mobility Consortium. The total value of order is $5941.93 million. The consortium comprises Larsen Et Toubro, Ansaldo STS, Italy, Bombardier Transportation, UK, Impregito S.p.A, Italy and Nesma Et Partners- Saudi Arabia.
The project is to be implemented during a period of four years, which will be preceded by eight months to prepare the detailed designs and to carry out the enabling works, the coordination for utilities diversion and the site preparation works, and followed by months for system demonstration, trial runs and project handing over. The scope involves design, construction and commissioning of Line 3 (41 km of Driverless Train Operation) to carry approximately 5000 passengers per hour per direction.
The contract includes construction of bridges, tunnels, elevated a underground stations, depots, roads, systems for CCTV and public announcements, SCADA with allied systems, etc. This project would be the first of its kind in the Kingdom.
The rail systems will be undertaken by AnsaLdo STS and rolling stock by Bombardier Transportation. The entire infrastructure facilities together with electromechanical and plumbing systems will be executed by the integrated joint venture comprising AT, Innpregilo and Nesma.
The Consortium’s design engineering will be by Hyder an Idom and the Project Management will be done by Worley Parsons. This order was won against stiff global competition. It aligns well with L&T’s expansion plans in the international arena.
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CA. Rajesh Desai
Rajesh Desai
CA. Rajesh Desai
Rajesh Desai
L&T announced that the water & renewable energy business of L&T Construction, a leading player in the water infrastructure and renewable energy sectors in India, has secured new orders worth Rs 1141 crore in August 2013 in various business segments.
The water supply & distribution business, secured an order from the Public Health Engineering Department, Rajasthan for an integrated drinking water supply project linking towns and villages in Rajasthan. The scope includes supply and laying of transmission pipelines, construction of clear water reservoirs and pumping stations.
Another turnkey order was received from the Public Health Engineering Department, West Bengal for the design, construction and commissioning of a 52 millions of gallons per day (MGD) water treatment plant, the company said in a statement.
The company also strengthened its position in Tamil Nadu by securing a water supply project for Cuddalore Municipality from the Tamil Nadu Water Supply & Drainage Board, the statement added.
In the waste water business, orders have been secured from Delhi Jal Board for the supply and laying of internal and peripheral sewer lines in various parts of Delhi.
The industrial water systems business has received a turnkey engineering, procurement & construction (EPC) order from an infrastructure provider for constructing plant water systems for an upcoming project near Raichur, Karnataka, the statement said.
The water & renewable energy business caters to turnkey infrastructure projects including water supply & distribution, desalination plants, waste water networks, water & waste water treatment plants, industrial water systems and lift irrigation systems. In the field of renewable energy, the business provides best-in-class EPC services for projects on photovoltaic and concentrated solar power plants, wind power plants, micro-grid systems, smart-grid systems and integrated security solutions. The business is playing an important role in creating a water-surplus, energy-secure and green future.
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CA. Rajesh Desai
Rajesh Desai
t L&T surged 3.54%. The company after market hours on Friday, 18 October 2013, said its recurring profit after tax rose 7% to Rs 978 crore on 10% growth in gross revenue at Rs 14648 crore in Q2 September 2013 over Q2 September 2012. The company attributed top line growth to pick-up in execution of various jobs.
L&T said that the upward trend in order inflow was sustained in the second consecutive quarter of the year. Order inflow rose 27% to Rs 26533 crore in Q2 September 2013 over Q2 September 2012. L&T said that its order book at Rs 1.76 lakh crore as on 30 September 2013, increased 11% on year-on-year basis. International order book constituted 15% of the total order book.
L&T said that the macro-economic environment continues to remain weak and uncertain on account of the twin deficits, tight liquidity, persistent inflation and heightened volatility in the financial markets. Investment climate in the economy is yet to show sign of recovery. Deferral of new projects and delayed decision making/execution features the weak performance of the core sector this far, L&T said. The recent government measures such as improved allocation of resources to kick-start the stalled projects are, however, a welcome move to improve the investment sentiment, L&T said.
The company said its strategy of business development in select international markets has started yielding results as is evident from the increased share of international business. The company continues to focus on emerging prospects in the Middle East and other select international markets as part of its twin strategy to hedge against domestic slowdown and attain global competitiveness, L&T said in a statement. With its growing order book, increased international presence, and improved competiveness, the company is hopeful of meeting its growth aspirations in the near and medium term, L&T said.
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CA. Rajesh Desai
Rajesh Desai
Deutsche Bank: (Target price Rs 1,090)
The results show that unlike previous cycles, L&T is an early beneficiary of sticky market share gains, which should drive new orders. From here, value unlocking and ability to deliver on medium targets of RoE rising to 20 per cent could drive re-rating. Any turnaround in sector fortunes could be icing on the cake.
We raise our 12M SOTP based target price for (a) earnings upgrade, (b) rolling forward our exit multiples on a 12m basis and (c) raising E&C exit multiples to 15x - in line with the market (same as earlier).
Key risks are execution delays in the domestic business and quarterly volatility in earnings.
Jefferies: (Target price Rs 1,075)
We maintain that as revenue recovers in the course of the year, margin uptick will lead to the company maintaining margins for FY14E. L&T's working capital has risen YoY, driven primarily by higher loans and advances to subsidiaries apart from lower contractee advances. Factoring in higher working capital requirements and interest costs, we have marginally reduced our FY15E EPS estimates by 1 per cent.
While it may seem distant today, we believe the company's ability to manage order flow and earnings through the downturn will see multiple re-rate over the next 12 months.
Macquarie: (Target price Rs 1,210)
Q2FY14 numbers are reassuring and should reduce the Street's skepticism on the company's ability to meet guidance, especially revenues.
Margin performance was commendable despite large one-off charges. As concerns on FY14 recede, focus should shift to FY15 where we expect execution to gather further momentum with little downside risk to margins.
Citigroup: (Target price Rs 990)
In a nutshell, they were a mixed bag, did not get us too excited, but suggested that 2HFY14 numbers could rebound in line with our expectations (tad below management guidance). All in all, 2Q had enough for us to keep the faith and maintain Buy. Our target price inches up on small changes to EPS, roll forward of multiples and increase in subsidiary value to Rs 307.
Barclays: (Target price Rs 984)
Management guides for earnings momentum to improve further in 2H FY14. Order inflow growth at 27% y/y for 2Q FY14 was strong, and L&T appears favourably positioned in several large orders. L&T is managing a very tough macro environment better than peers, in our view. We raise our 12-month price target on the back of a 1-2.5 per cent increase in our earnings estimates for FY14-16.
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CA. Rajesh Desai
Rajesh Desai
CA. Rajesh Desai
Rajesh Desai
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CA. Rajesh Desai
Rajesh Desai
View from Sharekhan
Larsen & Toubro
Recommendation: Buy
Price target: Rs1,165
Current market price: Rs1,067
Surge in overseas business and subsidiaries add value
Key points
Order inflow going strong; international opportunity shinning in: Larsen & Toubro (L&T) has shown an excellent track record of order inflows even in the current difficult time. The average quarterly order inflow run rate has stepped up consistently in the last two years; from Rs17,000-18,000 crore in FY2012 to Rs25,000-26,000 crore in H1FY2014. Amidst all this, the share of international order has gone up remarkably in the last three years, from 6-7% in FY2011 to 13-14% in H1FY2014. We believe that the "going international" strategy is paying off and the international order is likely to grow further. Further the upcoming mega events in the Middle East and North Africa (MENA) region (Dubai Expo 2020 and FIFA World Cup in 2022 in Qatar) could provide a significant opportunity for L&T as well. According to various industry sources, infrastructure investment inflow could be around $7-8 billion for Dubai Expo 2020 and $140 billion in Qatar over the next five years. L&T already has a meaningful presence in this region with 15% of the total order book coming from this region.
Finding channels of funds for IDPL; trigger for RoE improvement: As an attempt to improve its return on equity (RoE) in the next three to four years, L&T is looking for equity investors in its infrastructure development arm, Infrastructure Development Projects Ltd (IDPL). In this regard, the company is looking at three options: (1) fresh issue to sovereign funds or pension funds; (2) overseas listing of road projects in a business trust model; and (3) monetisation of assets in Dhamra Port and Hyderabad Metro (18.5 million square feet (sq ft) of built-up space is available for commercial exploitation). The company has identified six operational road projects which could be clubbed under a business trust and be listed in the overseas market. Recently, the Expert Advisory Committee (EAC) of the Union Ministry of Environment and Forests (MoEF) has recommended environmental clearance for Dhamra Port's second phase expansion, where the company is looking to sell stake. Recently, IDPL bagged a road project in Odisha on public-private partnership (PPP) model which could generate an internal rate of return (IRR) of 18-20%.
Introduced FY2016 estimates; maintained Buy with a revised price target of Rs1,165: Since our management meeting note (released on September 25, 2013), the stock has moved up by 28%. We maintain our view that L&T would continue to be the most preferred stock within the infrastructure space due to advantages like the size of the company, its delivery track record and its diversified presence. Hence, we retain our positive stance on the stock and roll over our target price/earnings multiple to the average of FY2015 and FY2016 estimates for the stand-alone entity. Further, we feel an improving outlook for its technology subsidiary (L&T Infotech) and the expectation of a banking licence for its financial subsidiary (L&T Financial Holdings) are likely to add to its consolidated valuation. Consequently, we arrive at a revised price target of Rs1,165 (based on sum-of-the-parts [SoTP] valuation method). Despite the recent run-up, we retain our Buy rating on the stock since it still trades close to a one standard deviation (on the negative side); hence it leaves scope for re-rating of multiples in line with its historical mean premium over the Sensex.
CA. Rajesh Desai
Rajesh Desai
L&T needs younger leadership; succession to be in place by '16: A M Naik
Interview with Chairman, Larsen & Toubro
Larsen & Toubro Chairman A M Naik wears the Indian tri-colour and his company’s logo on his jacket because, he says, he is as passionate about protecting India’s manufacturing sector from the onslaught of Chinese imports as he is about the future of L&T after he retires in 2017. In an interview with Shyamal Majumdar & Malini Bhupta, Naik talks about his succession plan, which involves a distributed leadership model and his strategy for a leaner L&T, where the structure of half of the businesses will be “simplified”. Edited excerpts:
Are you seeing any green shoots that the government keeps talking about?
I don’t think anything will happen till a stable government comes to power.
How do you rate the UPA government’s performance over 10 years?
The figures speak for themselves. Manufacturing growth, for the third time after Independence, is in the negative territory. Manufacturing accounted for 17 per cent of GDP a couple of years ago but is now down to 13 per cent. The two sectors that could have saved the day — infrastructure and manufacturing — are in a mess. Infrastructure projects worth Rs 8.75 lakh crore and investments to the tune of Rs 2.5 lakh crore are stuck. Today, foreign companies don’t want to invest in India.
Where has India gone wrong?
We largely export commodities like cotton, copper, organic chemicals, plastic, salt, sulphur, iron ore, stones and other raw materials, which constitute our top 10 exports. Our imports are boilers, turbines, electrical equipment, nuclear inter-boiler and project goods. If these equipment were manufactured in India, tens of thousands of jobs would have been created. For every billion dollars in trade deficit, 50,000 jobs are lost. Every other country is protecting its interests, but we seem to be an exception.
What about L&T’s huge debt, especially IDPL; do you have a plan to reduce it?
Our debt is Rs 62,000 crore. Of this, Rs 28,000 crore is in L&T Finance, which is on its own. It is proportionately coming to us because it is a subsidiary. L&T’s debt is Rs 8,000 crore; Rs 25,000 crore is in IDPL. This is my other priority, as I want to make the company asset-light and bring down debt by Rs 10,000 crore in three years’ time. At the consolidated level, our debt should be less than Rs 30,000 crore. Our net worth is Rs 40,000 crore. All the projects are non-recourse but still, as a parent company, we are worried and need to lighten it.
Getting talent into infra companies has bothered you for quite some time.
Yes, nobody wants to join an infrastructure company. We are facing an issue at all levels. Since L&T is very diversified, it is a recruitment haven for others but we cannot get people from other sectors to work in the infra sector.
That brings us to the succession issue at L&T. Do you have a plan in place, considering you are to retire in 2017?
It is a challenging situation. For example, we have been searching for a leader for the hydrocarbon business for quite some time. Internally, we don’t have an inventory of leaders. Though I started building the pipeline 10 years ago, attrition at the middle level is high, as multinationals are hiring due to a boom in the energy business. Today, a CEO gets $4-5 million in a year in the hydrocarbon sector. Also, I won’t get best talent globally, as they have reservations about working for an Indian company. And, live in India, where quality of life is an issue. So, we have decided to move our business headquarters to Dubai. We have found an Italian who will take over one part of the hydrocarbon business. He will look after upstream to begin with.
Are you facing the same issue across verticals?
I don’t run one company only. There are 21 companies within L&T and I need to address this question for all of those. I have to create 21 organisations, hire 21 CEOs and build 21 international organisations.
What is the road ahead?
I have appointed two directors (S N Subrahmanyan, who heads the engineering and construction projects division, and Chief Financial Officer R Shankar Raman) who are just over 50 and have an innings of 12-15 years.
Will L&T have an executive chairman after you?
I don’t know if there will be an executive or non-executive chairman after me. I am almost like the founder of the company and will finish 50 years in March 2015. We are not working because we want to hang around. Nobody (at the senior level) is working here for salary. I have three senior people retiring this year. So, succession is not just about replacing one person.
I am personally mentoring 19 people today. I need only two executive assistants, but I have 13. I am training people who may be relevant only 10-12 years later.
Do you think everyone is making a big deal about your retirement and L&T’s succession?
I am going to be 75 in September 2017 and will not continue because I don’t have the energy; you need a younger person. But ask me this a year before I turn 75. If we set up a strong management structure, there will be no need for me to continue. I don’t want people to say I did not leave behind a proper succession plan.
Some senior people are retiring this year. Who will replace them?
I have a plan on who will take over which piece of L&T in 2015 and 2016. Somebody will also emerge as CEO a year before I retire. That will take care of 70 per cent of L&T but the balance 30 per cent needs priority.
What will L&T look like in a few years and who will replace you?
The company needs to be simplified and some businesses need to be sold; the others will have their own CEOs. L&T has to act like a shareholder now and not act like management. At L&T Finance, for example, I take interest only from a strategic point of view. That’s the model I would like to follow for other businesses, too. Who will replace me? I have no idea and the board and the nominations committee will take a view on this. At L&T, 21 companies are merged into one. Like other diversified conglomerates, there will be many CEOs in the times to come.
Will the new CEO be an internal candidate?
I cannot say that. If we find a superlative person from outside, we will see or will select an internal candidate. There may be a chairman who manages all the 21 companies but he may be a non-executive chairman. Fifty per cent of business will remain as those are, but the rest will be simplified.
Do you have a committee to identify the CEO?
We have 21 search firms working with us.
What is your prescription to revive manufacturing in India?
I have suggested 25 per cent safeguard duty on all imports from China till they become a market economy. Second, we must review our free trade agreements. The third is to rationalise taxes for export-oriented manufacturing. Fourth, exports have to be incentivised. Fifth, port and logistics infrastructure needs to be improved.
CA. Rajesh Desai