L&T Chairman and Managing Director A M Naik spoke to ET NOW on L&T’s order book position and the company’s plans for the power &
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defence sectors. Here is the transcript of the full interview.

You recently mentioned that last one month the company bagged orders worth Rs 10,000 crore and you expect another Rs. 10,000 crore over the next 4 to 6 weeks. So, is the slowdown a thing of past?

L&T is actually a project company and majority of the infrastructure projects, oil and gas projects are government funded. So more than 60% of L&T business is one way or the other connected with government policies, programmes and so on. Things slowed down-apart from a general slowdown- but slowed down during the code of conduct. So nearly 4 months activities did not really happen but with the Prime Minister’s 100 days programme everyone started moving. Tenders held up have become active. and you can say it is partly the result of that that things have begun to move.

Give us a number –Rs 10,000-Rs 15,000 crore- over the next two months what is the kind of order influence that you are looking at?

Well, in excess of Rs 12,000 crore is what I am looking at in the next 4-6 weeks..

Margins of companies have been under pressure lately. You see that also improving going forward?

I do not think I can say that we were always under pressure on margins because year after year we have improved it by half a percent but you can say, yes, margins are under pressure to an extent on new activities, new activity is power. At the stabilised level it will again have the same margin which we normally have in a project business – in excess of 10-10.5%. So, on the whole we are not doing any business at the cost of dropping price.

Give us a sense of the sectors where action is picking up because you have a large exposure in many of the critical sectors?

Oil and gas have started moving, particularly upstream, the ONGC side of it and I am sure one or two private players also will now start investing. The Middle East is starting to pickup again in oil and gas and refinery and petrochemicals and so on in mid and downstream. So, two of our operating companies which are in upstream oil and gas and midstream both have seen more revival of activities. So, this is good news. Infrastructure is now beginning to come forward with the government policy pushing a lot on building infrastructure. We see activities on roads; we see activities on bridges and so on. Power has been perennially- particularly private sector- going to China, I am sure there is more realisation that high quality products are made in India by BHEL, L&T and others. Our facilities were not ready at that time. Now we are ready so we have seen lots of activities, although more than 50,000 megawatt is already ordered on China.

Coming specifically to roads, I mean we hear from a lot of engineering companies that they are finding it difficult to cope with the kind of orders that are coming in. I mean a lot of projects are being tendered but we have not seen many big orders for L&T from the road sector, is it something of a conscious decision not to get too much of an exposure into roads where the margins are pretty low?

That is true, and not true, both. First of all in the last 6 months only 8-9 roads have been decided and L&T had bagged 2, the recently one in Chennai and earlier one in Maharashtra and both are the big road packages. So you can have 3 packages of Rs 600-800 crores, you can have 2 packages of Rs 1500 crores but you can also have one of Rs 4000 crore. So far such a big road package has not started coming but our both contracts are good size packages. I would say very emphatically that we continue to be a leader in roads as well.

What is the kind of funding requirements that you have in the next few months?

We have Rs 5000 crore capital expenditure, right, all time high in a lean time that we started investing, in creating new 11 manufacturing facilities. All of them are funded, we do not need to raise any equity for that and should be need it for more and more developmental projects with means the BOT and BOO and so on, I am sure we have scope for raising more debt and I am also sure that we have a scope for raising more equity as we go along, but, for the next 8-10 months 12 months we are fully funded.

When it comes to another critical sector which is power, you recently bagged a big order from Jaypee, now going forward you will have to compete with BHEL when it comes to large orders for supercritical boilers. Now NTPC is also in the process of giving out some big tenders what is the kind of expectations or the capability that you have to meet up with the kind of challenges that are there?

We have been working on it for more than 2 years. In fact my new boiler plant will be ready in next 45 days and it had no work to start. The reason is that the NTPC tender which was supposed to come up one and a half years back got delayed. The tender is still not out and once you get the order it takes 3 to 6 months to complete engineering, then another 6 to 9 months to receive materials, so after receiving the contract actual manufacturing, fabrication really starts after 12 months which means that we should have had our recent orders which we got from Jaypee about 12 months ago, right. However our turbine 2 orders which are under execution for APJ and Co and new turbine factory will be commissioned in March. So for the current new orders that we have got the factory is going to be ready much ahead of time. L&T is fully prepared for 4000 megawatt capacity really to take on.

One year from now where do you see the power company headed in terms of revenues?

I do not think I will speak about revenue, I can only speak about order backlog because the power plant execution time is around 4 years and the first 9 to 12 months goes basically in engineering and so on and so forth and revenue picks up actually after the order is received 15 to 18 months thereafter and remains at the peak for any project in second and third year. In the fourth year again it begins to come down because you are now doing erection and commissioning and start up and so on and so forth. So I would, if you ask me, what will be the revenue in 11-12, well, I expect it to be in excess of 8000-10,000 crores but if you ask me what will be next year maybe 2000 crores. What will be the order backlog by next year, I expect it to be 20,000 crores.

Another sector which you are very passionate about is defence. We have been talking about it over the last few years but we have not seen much of an action on the ground. You have signed a joint venture with EADS, now going forward how do you capture the opportunity that is coming your way?

Well, L&T has been very deeply involved in India’s defence sector for more than 14-15 years. Except that we were involved more for prototyping and design and engineering and working with DRDO, the Defence Research Organisation. Since the private sector was not allowed to participate in the major programmes under TOT (technology transfer) and consequently I think our exposure- of private sector as a whole – has not been to the fullest extent of their capabilities.

Notwithstanding that L&T still went ahead and have created a factory for composites in Baroda, precision manufacturing in Coimbatore, the shipyard and the heavy engineering in Hazira, a very large shipyard- world-class shipyard- for defence is coming up in Kattupalli. In addition to that L&T EADS, electronic warfare, all of those systems, radars that is spread over Pune and Bangalore. So you can see we are covered on 5 locations for different degree of specialisation which is required for India’s defence need. I think what we need now is an encouragement for all of us to exploit the facilities that we have created and really come up with a meeting with India’s urgent need of defence and that means a level playing field between the private sector and the government sector, longstanding kind of report which was declaring 7 to 8 or 10 companies from private sector for defence ratnas so that they can get on with participating in the various major programme of India’s defence as yet to really take off.

But when it comes to joint venture with EADS you have not yet got the approval for the joint venture, it is just an MoU which has been signed between the two…

Now the approval is nearly finalised now because it is waiting for foreign investment clearance and it will come very soon. It is a proper process that takes 10-12 weeks but the joint venture preparation, training and getting ready is being done anyway.

source: Economictimes

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