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Larsen & Toubro Ltd.

BSE: 500510 Sector: Engineering
NSE: LT ISIN Code: INE018A01030
BSE LIVE 15:40 | 22 Aug 1119.25 -7.25






NSE 15:59 | 22 Aug 1117.70 -9.40






OPEN 1136.00
VOLUME 63736
52-Week high 1222.67
52-Week low 863.54
P/E 36.72
Mkt Cap.(Rs cr) 156,757
Buy Price 0.00
Buy Qty 0.00
Sell Price 1119.25
Sell Qty 5.00
OPEN 1136.00
CLOSE 1126.50
VOLUME 63736
52-Week high 1222.67
52-Week low 863.54
P/E 36.72
Mkt Cap.(Rs cr) 156,757
Buy Price 0.00
Buy Qty 0.00
Sell Price 1119.25
Sell Qty 5.00

Larsen & Toubro Ltd. (LT) - Chairman Speech

Company chairman speech

Dear Shareholders

The year 2015-16 saw the Indian economy charting a measured course towards objectivesset out by the Government two years ago. While investment momentum is still muted in somesectors the positives to have emerged are the incremental but important steps taken bythe Government in fiscal correction inflation containment subsidy reduction efforts toreinvigorate tax administration and a thrust on increased investment in key infrastructuresectors. Private sector and industrial capex however remains subdued on account ofpaucity of funds in the private sector.

The global scenario offers less cause for cheer. The world economy encounteredchallenges at many levels last year. These include significant volatility Eurozoneinstability depression in crude oil and commodity prices currency depreciation inemerging markets and a lingering slowdown in China. India's GDP growth - 7.6% as comparedto 7.2% in the previous year - and reduced fiscal deficit of 3.9% sends out encouragingsignals for the future.

I believe that the forthcoming year holds promise of improvement as far as investmentmomentum is concerned. The Government's focus on a slew of recent initiatives places yourcompany in a favourable position. Our capabilities in high-tech design and manufacture areunmatched in industry. This enables us to extend the 'Make in India' theme to the upperend of the technological spectrum as well as to the strategic sectors of defence nuclearpower and aerospace. Our three-decade long association with national defence organisationsensures that we have the credentials to partner with them in the design and manufacture ofdefence equipment. We also possess in-house capabilities to design equip and build thehabitats of the future - Smart Cities.

Performance Overview

While new order acquisitions have been muted due to your Company's focus on disciplinedbidding on infrastructure projects the financial performance as a whole has beenencouraging and has been lauded by Capital Markets. Order Inflows which are the mainstayof your Company's dominance in the project business clocked in at Rs. 136858 crores atthe Group level which represents a decline of 12% over the corresponding inflows of thePrevious Year. The muted inflows were the outcome of increased competitive price pressuresin the power generation and hydrocarbon sectors.

The unexecuted Order Book stood at an all-time high of Rs. 249949 crores andrepresents a 7% growth over the Order Book at the end of the Previous Year. This robustOrder Book position provides your Company with multiyear forward visibility on Revenuesand Margins. The Company grew revenues in 2015-16 to ^ 102632 crores despite challengesfaced in project execution in the form of delayed clearances and tardy progress paymentsfrom customers. This represents a 12% growth over revenues in the Previous Year. Lossesincurred on Hydrocarbon projects in 2014-15 were largely avoided in 2015-16 and Profitsafter Tax at the Group level grew to Rs. 5091 crores representing a growth of 7% over thecorresponding Profit in 2014-15.

It gives me pleasure to announce that your Company has recommended a Dividend of Rs.18.25 per equity share on a face value of Rs. 2 per share for the year. The correspondingdividend during the previous fiscal was at Rs. 16.25 per equity share.


GCC countries our staple international markets are experiencing fiscal stress due tolow oil prices and opportunities in the hydrocarbon space have been reduced. Coreinfrastructure such as power transmission & distribution hospitals urbaninfrastructure roads and rail networks however continue to see investment and theseareas have yielded significant order wins for us. We are also focusing on select countriesin Africa and some parts of South East Asia. We believe that the opportunity basket thatis likely to be provided to us in international markets will still be sufficiently largeenough to enable a healthy geographically-diversified revenue mix. The unexecuted OrderBook from international markets stood at over Rs. 70000 crores which translates to 28%of the total Order Book. This largely comprises orders from diverse infrastructure areassuch as metro rail power transmission & distribution road & expressways andhydrocarbon sectors.

Going Digital at L&T

Larsen & Toubro is implementing solutions using digital technologies to makequantum improvements in all key areas of work. A major step in this direction has been thesetting up of a Digital Group which will ideate initiate and implement solutions todeliver results to the business.

The areas where solutions are being developed and deployed are Tracking and Monitoringperformance on all equipment deployed at construction sites by installing sensors andgateways; improving productivity and safety of workmen through tracking and tagging;optimising logistics and material consumption through GPS and RFID; project monitoring& control through data and visuals captured in real-time and use of modern geospatialtechnologies including LiDAR and UAVs for surveys.

Another key area is Analytics that will pull in the data from all these initiativesinto an Analytics engine to deliver trends actionable insights and forecast scenarios forproactive and corrective action.

As technologies and business processes evolve the group will continue to developbreakthrough solutions and evangelize the digital transformation.

Talent Management

Your Company views its people as the cornerstone of business and its Human Resourcespolicy is geared towards developing individuals along with the organisation. The Companyhas a 7-step leadership development program which aims to build a leadership pipeline atvarious levels of management.

Sustainable Development

Your Company is committed to conserving natural resources and enhancing social equityto achieve sustainable progress while creating value for stakeholders. Significantinitiatives have been undertaken in the areas of climate change and water conservation.Your Company's sustainability performance in energy conservation and carbon emissionintensity reduction was showcased in the UN - Paris Climate Change Summit 2015. TheCompany's campuses in different parts of the country are focused on becomingwater-positive and zero wastewater discharge units.

Your Company's CSR programmes focus on health education skill development and water& sanitation interventions to contribute to a better quality of life for the needy.

The total spends on CSR initiatives in 2015-16 by your Company amounted to Rs. 120crores under eligible items as defined in the Companies Act which translates to 2.36% ofthe average annual net profits of the Company over the last 3 years.


The thrust given by the Government on core infrastructure and 'Make in India'initiatives continues to give us a healthy basket of opportunities to tap. Increasedallocations by the Centre and States on infrastructure spending higher levels of outlayby cash-rich Public Sector enterprises and significant funding of infrastructure projectsby bi-lateral and multi-lateral lending agencies is propelling the investment momentumforward. Several upcoming projects provide us with a broad perspective of the opportunityhorizon opening up for us in 2016-17.

Segments that hold promise in FY17 include -

1) Infrastructure:

a) Roads - The new political dispensation at the helm of affairs has kick-startedinvestment in roads and FY16 saw a significant uptick in ordering of EPC road contracts bythe National Highways Authority of India. We expect this impetus to continue and to beaugmented by investments in specialised bridges and tunnels as well as highway orders insome Middle East countries.

b) Railways - In FY16 your Company continued to build on its success in baggingorders for the Dedicated Freight Corridor program currently being piloted by the IndianRailways. The balance of orders in this program are likely to be ordered out in FY17 andyour Company will participate in those bids as well. Some Middle East countries are alsoplanning investments in conventional rail networks and your Company will participate inthose programs as and when the opportunity arises.

c) Metro Rail - Your Company has been successfully executing Metro Rail projects inmultiple cities over the last few years. Urban development authorities are increasinglyviewing metro rail networks as the ideal solution to urban traffic decongestion and ourassessment is that this area is likely to see increased spending in FY17 and beyondthrough the launch of new projects in a number of cities across the country. Execution of2 large metro rail projects won in Saudi Arabia and Qatar in FY14 is progressing well.

d) Urban Infrastructure - While private sector investments in Urban Infra have seenlower investments particularly in residential real estate your Company continues to seea healthy pipeline of prospects in affordable housing hospitals office space for ITmajors and facilities for educational institutions.

e) Smart World and Communication -

Larsen & Toubro has consistently aligned its capabilities to national priorities.Presently there is a growing need for creating Digital India and smarter secure andintelligent solutions to enhance quality of life. This has led to the rise of smartcities advanced security solutions and communication infrastructure.

In response to this L&T has integrated its range of comprehensive offerings inthis sector to set up a dedicated Smart World & Communication business vertical whichoffers end-to-end solutions as a Master Systems Integrator in the areas of SecuritySolutions Communications Network and Telecom Infrastructure and Smart Infrastructure.With adequate data and superior analytics these smart world solutions will empower cityleaders and planners to make better more informed decisions anticipate problems toresolve them proactively coordinate resources to operate more effectively andefficiently thereby enhancing the overall quality of life.

f) Water Infrastructure - This area has seen relatively poor investments over thelast decade and such under-investment in basic water management resources is leading toseasonal water shortages across the country. Recognising this critical need theGovernment has increased allocations in this essential sector recently and your Companyexpects to see a surge in revenues from the increased spends. This will be augmented bythe opening up of fresh investment avenues in the allied segments of Waste WaterManagement and Lift Irrigation programs.

2) Thermal Power Generation:

This sector has been constrained with overcapacity in the manufacturing of boilers andturbines delayed environmental clearances dearth of fuel availability increaseddifficulty in obtaining water linkages as well as long-term funding. FY16 however saw anumber of projects being ordered which your Company could not win due to intense pricecompetition. FY17 is likely to witness ordering of projects aggregating around 8-10 GW andyour Company is hopeful of garnering a significant share.

3) Power Transmission & Distribution:

FY16 continued to see strong ordering by Central and State power transmission utilitiesas well as by countries in the Middle East. Your Company has secured major orders in thissector and expects the investment momentum to continue into FY17.

4) Hydrocarbon:

Low oil prices have dampened investments in oil production facilities. Some Governmententerprises however continue to invest in oil production with a view to bolsteringIndia's fuel security offering opportunities for your Company to leverage its EPCcapabilities.

With India's commitment made in Paris on climate change investment in clean fuelprojects is likely to give opportunities to the Hydrocarbon business.

We are also eyeing opportunities in the domestic fertiliser sector as plants opt forcapacity augmentation. On the international front your Company is eyeing opportunities ingas production processing and associated pipeline networks in the Middle East.

5) Defence Sector:

The current Government has made the most credible effort so far to indigenise themanufacture of defence equipment. For L&T with its long-standing association with theMinistry of Defence extensive R&D and manufacturing muscle this presents a majoropportunity. We are participating in several bids for ships and artillery guns amongother programs. Any order wins for naval vessels will help improve the capacityutilisation at the Kattupalli Shipyard.

6) Heavy Engineering:

The domino effect of the fall in crude prices has led to shrinking orders for oil &gas projects globally and under-utilisation of manufacturing facilities for hydrocarbonequipment. The integrated steel-making & forging facility set up to meet the needs ofthe hydrocarbon and nuclear power sectors has also been negatively impacted. The CivilLiability for Nuclear Damages Act has been a major roadblock and the same is now beingresolved with the formation of a f 1500 crore insurance pool thus opening upopportunities for establishing new nuclear power plants in the near future for which yourCompany is well placed. This could spark a resurgence in nuclear power investments whichwould augur well for your Company's heavy engineering business.

7) Metallurgical & Material Handling:

With global overcapacities in steel and a fall in commodity prices investment in theferrous and non-ferrous sectors in India has shrunk considerably. This has adverselyaffected a business which is already impacted by underutilisation.

Fortunately the outlook is more positive. The green shoots of recovery in the miningsector is expected to provide a fillip to the Material Handling segment. The businessexpects to improve utilisation in 2016-17.

8) Electrical & Automation (E&A):

The Electrical & Automation business has registered muted growth in 2015-16 due tosluggish demand from the industrial agriculture and building sectors. The Company's arrayof best-in-class low-voltage and medium-voltage products continues to provide acompetitive edge enabling the company to make the most of the expected revival ofdomestic demand. During the year your Company launched a series of contemporary FinalDistribution products in the categories of MCBs (Miniature Circuit Breakers) RCCBs(Residual Current Circuit Breakers) Control Accessories and Distribution Boards as wellas a full programme of Bus-bar trunking systems for modern buildings and IntelligentControllers for agricultural markets. With a focus on operational excellence the businessexpects to continue delivering profitable growth

9) Realty:

This business which was launched by your Company a few years ago continues tocontribute to revenues and margins through delivery of superior quality projects. Projectsunder execution in Mumbai and Navi Mumbai are progressing well and a residential housingproject launched recently in Bangalore has been received favourably by way of advancebookings. The business is slated to shortly launch another project in Chennai as well asthe second phase of its project in Powai Mumbai. With a substantial land bank fordevelopment in hand this business is expected to deliver steady and profitable revenuesover the next few years.

10) Information Technology and Technology Services (IT&TS):

The IT&TS business vertical continues to grow and prosper and your Company intendsto list these businesses through Public Offerings in 2016-17. With the focus on clientmining and growth seen in multiple verticals such as BFSI Automotive Aerospace

Industrial Products and Process Engineering sectors the business is slated to registercontinued growth and profitability.

11) Financial Services:

This business which was listed in 2011 continues to grow and had a loan book of overRs. 57000 crores at the end of FY16. The business is focusing on portfoliorationalisation right-sizing of manpower and improving the quality of assets in aneffort to enhance Return on Equity.

12) Development Projects:

Your Company currently has a portfolio of concession assets in the areas of roadspower generation & transmission and a metro rail. Most of these projects areoperational and as such the infrastructure projects portfolio is going through a majorrestructuring exercise for the Company to continue its efforts to become more asset light.The metro rail project in Hyderabad which is one of the largest'transit-oriented-development' projects in the country is progressing satisfactorily andis likely to be fully comissioned in FY19.

13) Strategic Plans:

Your Company has recently concluded deliberations on the strategy for the next 5 yearsand has finalised the contours of this plan. Highlights of this plan include:

• Focus on execution of the large Order Book in hand while selectivelyparticipating in new bids

• Gearing up to tap emerging opportunities in the Defence Railways Mining SmartCities and Digital business

• Consistently growing revenues over the plan period

• Steady reduction of Net Working Capital levels

• Exit from the General Insurance business

• Monetisation of road port and power assets within the plan period

These steps are expected to result in improved Free Cash Flows Profit after Tax andReturn on Equity.

In conclusion I would like to thank my fellow Board Members L&T-ites customersvendors and other stakeholders who have collectively enabled sustainable and profitablegrowth of the business.

Thank You


Group Executive Chairman