Legacy orders bogging down IL&FS Eng

Legacy orders are still bogging down Hyderabad-based IL&FS Engineering and Construction Company, which was formerly known as Maytas Infra.

In September 2009, IL&FS had stepped in as a promoter of Maytas Infra, a company set up by the kin of Satyam Computer Services founder B Ramalinga Raju. It plunged into a crisis when a massive accounting fraud engulfed the information technology company three years ago.

“Our net profit has declined because we are still executing a significant part of the legacy orders. Besides, interest cost has gone up hurting the bottomline,” IL&FS Engineering chief executive officer, MD Khattar, told Business Standard.

The company had incurred a net loss of Rs 34.22 crore for the quarter ended June 2012. Currently, legacy works account for 50 per cent of the company’s operations.

According to Khattar, major legacy orders are irrigation works being executed in Andhra Pradesh. Most of the projects are four-six years old and have inadequate or zero margins. Only in a few cases out of the dozen-odd projects, there are cost escalation clauses.

IL&FS Engineering chairman Arun K Saha, however, said the company was stable today in terms of business directions. “We now know what we want to do and we have orders coming from different sources,” he said, adding 70 per cent of the company’s turnover would come from new projects by the end of the current financial year.

Last year, the company had inducted Saudi Binladen Group (SBG) of Saudi Arabia as a strategic partner. SBG has secured 20 per cent stake in the company by investing Rs 302 crore. Thereafter, the Saudi company came out with an open offer at Rs 195.72 per share. Post open offer, IL&FS and SBG hold 34.56 per cent and 32.39 per cent stake in the company respectively.

Now, the company expects SBG to propel its growth to larger projects, which would take it to a less-competitive niche area environment.