L & T Forced To Pick Steel In Lieu Of Dues

The financial crunch at steel companies is beginning to hit their equipment suppliers as well.

Engineering and construction giant Larsen & Toubro has been forced to buy steel from Ispat Industries, Jindal Vijaynagar Steel, Malavika Steel and Bellary Steel in lieu of the over Rs 100 crore owed to it by these steel companies.

A M Naik, managing director & CEO at Larsen & Toubro said, "We are buying steel from domestic steel manufacturers to recover our money from them. It is getting to be a major problem as a lot of money is locked with these companies."

Another senior executive at L&T said, "Though these steel companies do not manufacture the kind of steel we require, we are forced to buy their product as there is no other way to recover our money."

The company has made a separate provision for dues owed to it by domestic steel manufacturers and called it 'doubtful debts.'

Y M Deosthalee, senior vice-president at L&T said, "We have provided for doubtful debts and are in the process of recovering the outstanding amount from steel companies."

With global prices for steel plummeting to 10 year low levels, domestic steel manufacturers are reeling under pressure.

International prices of hot-rolled coils have dipped to less than $180 per tonne, which is close to the cash cost levels of local producers. Consequently, local steel makers are finding it difficult to repay their dues.

During the quarter ended September 30, 2001, L&T's operating margin in the engineering and construction division stood at 9.5 per cent.

Analysts say the 9.5 per cent operating margins for L&T in its core business - engineering and construction - is the lowest in the past 10 quarters.

With no orders coming from the fertilisers, petrochemicals and power sector, L&T is taking a fresh look at all its businesses.

The drying order book in the local market has forced the company to seek business abroad. It has once again roped in Boston Consulting Group, Germany, to appraise the company with latest developments in the overseas market.

Earlier, BCG had restructured the company's businesses and pointed out thrust areas. L&T had initiated a transformation process to emerge as a knowledge-based premium company.

At present, L&T is expediting its plans to emerge as a multinational firm. The company has already booked exports worth Rs 100 crore for this fiscal and expects to close the year at Rs 150 crore.