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“We have gone for huge hedges across various commodities like iron ore, coke, copper, aluminium etc and thereby are trying to mitigate the price increases. This is a work in play but it is a fact that there will be a small effect on margins and we may have to live with it,” says SN Subrahmanyan, CEO & MD, L&T.

The infrastructure segment has booked a mega order from the Middle East; there was a good pickup in the execution momentum of large value orders in the portfolio as well. Will infrastructure continue to remain a key driver? Walk us through some of the other revenue drivers in Q4?
The order inflow grew by 10% for the year and nearly 46% for the quarter. Yes, we have had some good orders during the quarter. For some reason, it seems to be getting loaded over the last quarter but that is the way it is. Maybe because the year ending for all the governments are also around March and maybe spending happens around that time. So that is the way it is.

Our revenue has picked up. In the last 24 months, we have not worked for eight to nine months including the huge de-mobilisation that we had to do two to three times when the labour went away. Again we had to mobilise. This exercise went on during Covid-1, Covid-2, Omicron waves, but now more than 2,82,000-2,85,000 labourers are at our various sites and that is very important for the project business.

Yes, the commodity price hikes and logistical issues continue to bother us. We thought Covid was over, everything was done and dusted and then this war in Europe disrupted some of these things. Due to price increases, we have been deferring some of the orders and logistically certain supplies from Europe and other places are taking more time to reach than normal. But these are things that we need to overcome.

But revenues have grown by 15% for the year and we have done fairly well in Q4 also. The momentum has come back, the backlog is at its highest at nearly Rs 3,60,000 crore. So, there is plenty of work to do, plenty of things to be done, plenty of things to achieve. We are busy and we expect this momentum to continue.

Client pressures are there, our own delivery pressures are there and that is a good thing to have because we come to the office at 7:00 and go back at 10:00 at night and still think about work.

So you are red flagging rising input costs for crude and other commodity prices. At the same time, you are saying that going forward you are hoping to reduce the margin cut that has been at play. How will you make sure that margins stay here or go up?
There will be some pressure on margins. The simple reason is that 85% of the contracts are covered by some form of price variation clauses, base prices, reimbursement clauses and such, about 15% of the contracts are not covered with price variation clauses. So when cement prices shoot up by 70%, copper, aluminium by 65-70%, solar prices by nearly 100%, and nickel, cadmium prices by nearly 100%, there is bound to be some effect somewhere.

Some of these price increases are more than what the PV clauses can provide for and we can see the performance of some of the steel and other companies where they are showing extraordinary results compared to what we can show. So, in a way, it does affect us. We do feel aggrieved about it but this is a situation that has come to be and we need to see how to sort it out.

So if one were to take the present prices and forecast, we do anticipate some pressure on margins. As an organisation, we have tried to go back to our clients on some of these clauses. There are contract clauses which allow us to ask for reimbursement. In certain cases, we are deferring some of the work. Instead of buying pipes or sheets today, we are buying it after two months. We are also appealing to our sites for some late billing because the WPI after two months catches up to what it needs to be today.

So these are some of the things that we are attempting. It is also a fact that we have gone for huge hedges across various commodities like iron ore, coke, copper, aluminium etc and thereby are trying to mitigate the price increases. This is a work in play but it is a fact that there will be a small effect on margins and we may have to live with it. But the good thing is also that we are now forewarned and in the new contracts that we are quoting for, we are insisting on base prices or PV clauses. We are not taking any contracts without such clauses.

In a contracting company, a certain amount of sales comes from existing backlog and some come from anticipated jobs. In a mix of both, we will try to overcome it but it is a fact that there will be a small effect on margin.

Your debt-equity ratio is lower than the previous year and you have already made public your intention to be debt-free by the end of the year. How far are you from this goal?
We do not have much debt. Our debt is about Rs 1,24,000 crore and Rs 84,000 crore of that is from L&T Financial services. The financial service business has to borrow money and lend money. So 1,24,000 minus 84,000, the net debt on the books is about Rs 40,000 crore. In that Rs 40,000 crore, Rs 13,000 crore debt belongs to Hyderabad Metro which will be gone soon. Another Rs 6,000 crore belongs to Nabha Power which is also in an advanced stage of moving away. So Rs 20,000 crore debt will come off. That leaves Rs 20,000 crore of debt which is basically L&T’s working capital requirement. Frankly, we do not have any debt beyond Hyderabad Metro and Nabha Power right now.

The larger plan, of course, is to double the revenues by FY25. Are you on track for that? Can the order book go up 12% to 15%?The company would be in three parts – the EPC, the manufacturing and the services. The EPC will continue to grow in 11-13% range because that is the nature of the business, we cannot do more and we also do not want to spread ourselves beyond the existing geographies which is India, Middle East, certain parts of Africa and some parts of far East.

I do not think we have any intention to go beyond this. Within these geographies, 11% to 13% growth is a fair enough target to have for the EPC and projects business which is about Rs 110,000 crore. That by itself will go to about 2,00,000 crore or Rs 1,90,000-2,00,000 crore by 2026.

The manufacturing and hi-tech precision manufacturing business will continue to grow between 12% and 15%. Factories are full today. We do not have any intention to add to the existing factory capacities because we have invested far ahead of time. Of course, we are doing a lot of factory work and bringing in a lot of digital and factory initiatives to make deliveries online and get world class quality. That will continue to be the endeavour and that will double itself.

The factory turnover, all put together, today is about Rs 9,000 crore. That will go to about Rs 18,000-20,000 crore. The service businesses are LTI,

and LTTS, which today are in the region of about $4.2 billion. That will double to nearly $8-9 billion.

As for the possibility of an acquisition in the space as we go forward, nothing is planned as such. It is pure speculative, but we have done one successfully Mindtree and therefore we have an appetite to do something else once stabilisation is brought into play. If that happens, IT services business could be worth another $10 billion. The financial services will continue to grow especially on the retail side and that could be a $2 million business by 2026. If all this pans out, the turnover will be Rs 2.7-3 lakh crore.


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