Falling oil prices not to affect Gulf projects of Indian firms

But slump in prices is likely to hit orders if energy clients put new projects on hold, industry executives say

A slide in crude oil prices would not affect ongoing projects being executed by Indian capital goods companies in the Persian Gulf but could hit orders if energy clients put new projects on hold, said industry executives.

Larsen & Toubro, Punj Lloyd, Voltas and KEC International are executing projects in the region. About 30 per cent of Punj Lloyd's revenue and 60 per cent of its order backlog are from the Persian Gulf and the Commonwealth of Independent States, according to the company's balance sheet.

Around 19 per cent of Larsen & Toubro's orders in the first half of 2014-15 came from the Persian Gulf. In the first half of 2013-14 the company had 28 per cent of its orders from that region, according to a report by Kotak Institutional Equities. The report added that 70 per cent of Larsen & Toubro's orders were in oil and gas, power transmission and distribution, and metro construction projects.

With the price of oil sliding, countries in the Persian Gulf would have to raise additional debt or cut subsidies, ratings agency Standard & Poor’s said in a report in November.

Crude at $50 a barrel is below the breakeven price for most of the region’s economies. Indian companies, however, feel ongoing infrastructure projects in the region will not be hit.

“The momentum of infrastructure projects should continue as the local governments have accumulated wealth over the years. We are not getting a sense that the governments will go slow on infrastructure projects related to transport, power or water,'” said Larsen & Toubro's Chief Financial Officer, R Shankar Raman.

The company's hydrocarbon business could be affected as oil companies halt drilling new fields. Raman feels there still are potential orders in refining and fertilisers.

“The economics of investment in the hydrocarbon sector will obviously change if crude remains at these levels. The uncertainty can impact hydrocarbon orders, but we do not see an impact on infrastructure orders from the region,” he added. Voltas did not comment for this report. The company’s project business is about Rs  4,500 crore, of which Rs 1,600 crore is in the Persian Gulf.

“Lower orders could be a possibility if energy clients put their projects on hold,'' said Atul Jain, president and chief executive officer, pipeline and tankage, Punj Lloyd.

He said existing contracts would not be affected. “We have fixed price contracts and fluctuating oil prices have no bearing on them,'' Jain added.

“We are executing projects in Saudi Arabia, Abu Dhabi and Oman, which have decided to keep pumping oil to maintain their market share and revenue. We do not have any projects in Iran and Russia, which are likely to experience a strain,” said Ramesh Chandak, chief executive officer of KEC International.

CRUDE NEARS $50 A BARREL

• Larsen & Toubro, Punj Lloyd, Voltas and KEC International are executing projects in the region
   
• About 30 per cent of Punj Lloyd's revenue and 60 per cent of its order backlog are from the Persian Gulf and the Commonwealth of Independent States
  

 

Around 19 per cent of Larsen & Toubro's orders in the first half of 2014-15 came from the Persian Gulf. In the first half of 2013-14 the company had 28 per cent of its orders from that region
 

The uncertainty can impact hydrocarbon orders, but companies do not see an impact on infrastructure orders from the region
 

Larsen & Toubro says the momentum of infrastructure projects should continue as the local governments have accumulated wealth over the years