'The scene is good so far'

Q&A: A M Naik

Larsen and Toubro (L&T) is one company which seems to be bucking the slowdown trend. The engineering and construction behemoth has projected an order book of Rs 66,000 crore by March 2009, a growth of 30 per cent over the previous year.

The company is, however, likely to close the year with a better-than-projected order book of Rs 75,000 crore, though it is not certain about the growth prospects in the next financial year, A M Naik, L&T Chairman and Managing Director, tells Nevin John in an interview.

The global slowdown is affecting infrastructure companies. How has it impacted the order flow at L&T, which already has a Rs 65,000 crore jumbo order book?
We are expecting the order book to grow to over Rs 75,000 crore in this financial year, more than Rs 9,000 crore over and above the guidance. Our guidance for 2008-09 was 30 per cent growth, but we could improve it to nearly 50 per cent.

This is essentially because of orders from unexpected sectors. For instance, the company has bagged over Rs 5,000-crore order from the Railways. So far, the scene is good. But it will be difficult to predict the growth in the next financial year since the slowdown is creeping into all corners. We will have to see how many infrastructure projects will be launched in the coming days.

After the fall in commodity prices, most of the buyers have started renegotiating their orders. Have any of L&T’s customers asked for renegotiation?
Most of our project orders have price protection against increases of commodity costs. In a situation where commodity prices have decreased, we will pass on the benefits to our customers for all such orders. We take orders for projects that have completed financial closure.

This ensures that our order book is robust and can be relied upon to accurately predict our future revenue for at least two years. In the present condition, we will not take any orders, which do not fulfil our commercial terms.

The government and the central bank have announced various packages to stimulate the slowing economy. Do you think these packages are enough for a bounce-back?
The stimulus package announced by the government is constrained by budgetary spending and inflation. These fiscal measures will give some additional effect. For the multiplier effect, the infrastructure sector alone needs more than $100 billion investment this year.

The slowdown has put pressure on most of the firms to take additional measures to counter the drop in sales. What steps has L&T taken in this regard?
In all fronts we are trying to become smart and innovate. We have taken some steps to cut input costs for improving profit margin. Further, the company is enhancing its productivity.

Do you think the credit situation will improve soon?
For the next couple of years, it will be difficult for all sectors since the whole economy is affected by the financial meltdown.