Centre's decision to rationalise GST is positive: L&T's S N Subrahmanyan

During pandemic, private capex was almost zero and orders came largely from govt and multilateral projects. Today, private investment is returning strongly, Larsen & Toubro (L&T) CMD S N Subrahmanyan

With the government promising major reforms, including goods & services tax (GST) rationalisation, corporate India is preparing for large-scale investment, says Larsen & Toubro (L&T) Chairman and Managing Director S N Subrahmanyan. In an interview with Dev Chatterjee and Vishal Chhabria, he says the business environment in the country has turned positive. Edited excerpts:

 

What’s your view on the GST reforms?

 

GST is one of the most significant reforms in India. It brought in the concept of “one nation, one tax”, simplifying compliance and making interpretation easier. Disputes are now minimal. 

That said, after five or six years, it is natural to review the system and make rationalisation based on feedback. The government’s decision to revisit GST is positive.

 

The attempt is to keep the atmosphere positive and to keep the business atmosphere in a forward-looking lane. And then it is for the business to see where they garner the resources from. At L&T we appreciate this effort.

 

Are you witnessing private-sector capex picking up? And, are you getting enough orders from the private sector?

 

L&T has three main businesses: Projects, manufacturing, and services. Projects include construction, hydrocarbons, and energy; manufacturing covers heavy and precision engineering; and services include L&T Mindtree, LTTS, L&T Finance, and L&T Realty.

 

During the pandemic, private capex was almost zero and our orders came largely from government and multilateral projects. Today, private investment is returning strongly. 

We see demand in electronics, power, steel, automobiles, paints, and chemicals. Companies into smaller consumer products and chemicals too are investing. Private-sector projects are once again playing a meaningful role in our backlog and pipeline, which is encouraging for growth.

 

There is a reasonable number of private-sector projects in the backlog or in the pipeline as we see today. So, I am confident that the private sector will play a part in our overall pie and that is how it will move on from the moment we see it.

 

L&T had an order backlog of almost ₹6 trillion in June. How do you plan to execute it? 

 

Our backlog equals 2.5-3 years of sales. Execution will require mobilisation, but such a backlog boosts our confidence. It also allows us to be selective about new contracts and avoid irrational terms. The responsibility is huge, but it energises our teams. There is a strong sense of purpose and excitement within the company. 

 

In the June quarter, the company received orders of close to ₹1 trillion. Is ₹1 trillion a quarter going to be the new normal? How do you see it improving in the coming quarters?

 

We do not set targets like that. We have a budget and intend to achieve it. The idea is to keep creating records. Let us hope that keeps happening.  

 

What kind of order pipeline do you see over the next one year across businesses? 

The pipeline looks robust in India and West Asia. Our information-technology (IT) businesses are doing well. L&T Mindtree recently won its largest ever deal from Paramount and LTTS is growing strongly.

 

L&T Finance has undergone a complete transformation. From being wholesale-focused with multiple subsidiaries, it is now 98 per cent retail. We exited mutual funds, wealth management, and insurance, shut down infrastructure lending, and brought in a new leadership with strong technology adoption. The turnaround has been impressive. 

Overall, across projects, IT and finance, the outlook is positive.

 

The L&T group’s market cap is nearing $100 billion, helped by overseas orders. How do you see that market?

 

We are an original aatmanirbhar company. We call ourselves an Indian multinational but predominantly we are Indians at heart. And therefore, all our businesses have to have a reasonable share in India. But some businesses — hydrocarbons, power transmission, renewables and large infrastructure — have done well in West Asia. Now we are focused on select areas. Saudi Arabia has been a strong market, and we’ve now expanded into Qatar, winning large hydrocarbon orders from national oil companies. We have been present in Abu Dhabi for a long time. As long as oil prices remain stable, the West Asian economy will do well, and so will we.

 

In India, with its 7 per cent-plus economic growth, we will continue to do well. There is competition, so we have to manage that.

 

How do you see L&T Realty and Finance evolving? Any plans for an initial public offering for the real estate business? 

Real estate was a natural extension of our construction business. We have a huge land bank in Powai after we shifted our plants to Hazira (Gujarat) and Coimbatore.

 

Former chairman A M Naik had this vision that as Powai was getting crowded with so many residential buildings, roads remaining what they were, getting there and all the equipment we were making were all 200 feet, 300 feet, 1,400-1,500 tonnes, etc, there was no chance of easily moving them from Powai. So, he took land in Hazira and Coimbatore and built factories there.

 

What is the Lakshya 2026 strategy?

 

The last strategic plan was of four years because of the pandemic. We have just started the next plan, which is from 2026 to 2031.

 

Are you satisfied with the way shareholder returns have been delivered, and what’s the road ahead?

 

Yes. Our market cap has grown 3.3 times, profit after tax 2.7 times, and cash flows three times. We’ve consistently paid over 40 per cent of profits as dividend, and in recent years gave a bonus and buyback.

 

How is artificial intelligence (AI) changing the workflow in your company? How is L&T bringing in AI in the group? 

We are implementing AI in the group companies, including L&T Finance, and our shop floor. In L&T Finance’s micro loans business, we take a picture of a customer in the house and AI helps the company to identify the white goods in the background, thus giving a picture of the customer’s financial status. This is just one example. We are open to implementing AI across our businesses as we think it would be transformational.