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Larsen & Toubro Ltd.

BSE: 500510 Sector: Engineering
NSE: LT ISIN Code: INE018A01030
BSE 13:33 | 25 Jun 1285.25 -10.25






NSE 13:24 | 25 Jun 1285.85 -14.00






OPEN 1307.40
VOLUME 41638
52-Week high 1469.60
52-Week low 1107.57
P/E 35.50
Mkt Cap.(Rs cr) 180,160
Buy Price 1285.05
Buy Qty 59.00
Sell Price 1285.95
Sell Qty 267.00
OPEN 1307.40
CLOSE 1295.50
VOLUME 41638
52-Week high 1469.60
52-Week low 1107.57
P/E 35.50
Mkt Cap.(Rs cr) 180,160
Buy Price 1285.05
Buy Qty 59.00
Sell Price 1285.95
Sell Qty 267.00

Larsen & Toubro Ltd. (LT) - Chairman Speech

Company chairman speech

Dear Shareholders

The Indian economy across the last year has demonstrated a high order of resilienceand remains an island of stability amidst global volatility. Meanwhile setting its sightson the future the Government has initiated a number of structural reforms whose positiveoutcomes should be tangible in long term growth.

The global scenario is being coloured by protectionist policies in various hues adoptedby a few developed countries. While such populist measures tend to impede trade anddiscourage revival of the investment cycle it is up to international industry to addressthese challenges by reconfiguring its offerings and recasting its operations. In theMiddle East relatively low oil prices and consequent fiscal pressure has led tocontraction of developmental spends.

Against this backdrop the projected GDP growth of India at around 7% is encouragingdespite being temporarily impacted by demonetisation. I believe that the medium termprospects in India are favourable and that the structural reform process will continueover the next few years culminating in an uptick in the investment momentum.

The Government's increased emphasis on infrastructure development through a number offlagship programmes has been widely welcomed. Infrastructure spends have a multipliereffect enabling pan-industry growth while contributing to an enhanced quality of life.Your Company is uniquely positioned to respond to these initiatives of the Government. Ourcapabilities in turnkey execution of large scale infrastructure are virtually unmatchedand we look forward to the speedy transition of these publicly-announced proposals intoimplementation mode.

We also await progress in the Government's Smart City programme. Our integratedcapabilities covering all aspects of security mobility intelligent infrastructureetc. will help in maximizing the benefits of this initiative and ensure acceleratedexecution. Another significant area of interest for your Company is ‘Make-in-India'.We aim to leverage our proven manufacturing capabilities at the upper end of thetechnological spectrum to manufacture complex equipment and systems in sectors such asdefence aerospace and thermal and nuclear power.

Performance Overview

The Company has performed well in all key performance parameters during 2016-17.Despite facing delays in bidding and award processes the Company bagged fresh orders ofRs 142995 crore recording a growth of 5%. Group Revenues at Rs 110011 crore grew by 8%during 2016-17 despite impediments due to demonetisation tardy realisations fromcustomers in some projects and delays in obtaining clearances and work-front availability.The Order Book of the Company stands at a robust level of Rs 261241 crore providing goodrevenue visibility for 2017-18. The Company recorded an impressive growth of 43% in theGroup Profit After Tax for the year at Rs 6041 crore.

The Company successfully listed two of its subsidiaries L&T Infotech Limited (LTI)and L&T Technology Services Limited (LTTS) during 2016-17 in its pursuit of creationand unlocking of value for the shareholders of the Company. It gives me immense pleasureto share with you that the Board of Directors of your Company has recommended a bonusissue in the ratio of 1:2 and a pre-bonus dividend of Rs 21 per share. The correspondingdividend in the previous year was Rs 18.25 per share.


The Company continues to pursue international business opportunities in selectgeographies with a view to diversify geographical concentration risks. The Company has anestablished presence in GCC countries predominantly in the Infrastructure and Hydrocarbonsectors. While capex spends in the Middle East have generally contracted some areas inhydrocarbon and core infrastructure are still witnessing investments and these provide afavourable opportunity basket for your Company's growth in the region. Apart from the GCCregion we are looking at selective prospects in North Africa East Africa and somecountries to the east like Myanmar Malaysia and Vietnam. The unexecuted Order Book frominternational markets stood at Rs 69757 crore which translates to 27% of the total OrderBook.

Digital Trends

Digital technologies are fundamentally changing the way the world lives and works.While these trends may be less visible in the engineering construction and manufacturingsectors the Company has decided to move forward in this space. Digitalization has beenidentified as a core theme in our Strategic Plan and a major program to digitizeprocesses is already underway in our Construction business. These will be progressivelyextended across the Company with the aim of achieving higher efficiencies with theresultant favourable impacts on revenues and profitability.

Our Technology companies LTI and LTTS are significant partners in this Digitalizationjourney for the Group and are participating in developing solutions and implementing them.

Talent Management and Succession Planning

Your Company views its people as central to the success of its journey of valuecreation. Accordingly our Human Resources policy focuses on creating a vibrant workenvironment to attract and retain talent across the organisation. The Company has a 7-stepLeadership Development Program which aims to build a leadership pipeline at various levelsof management. Senior executives at different levels nurture second lines of leadership.

As a firm believer in leading through example I have put in place a succession plan atthe apex level of your Company. I have actively mentored the Chief Executive Officer &Managing Director (CEO & MD) designate of L&T which has resulted in seamlesstransition.

Sustainable Development

Sustainability and Social Responsibility are an integral part of the Company's businessstrategy. Your Company believes in sustainable utilisation of natural resources andenhancing social equity to realise its growth objectives while creating value forstakeholders. Significant initiatives have been undertaken in reducing carbon emissionswater management and waste water discharge. Your Company's CSR programmes also focus onhealth education and skill-building to contribute to a better quality of life for theneedy sections of society.

Total spends on CSR initiatives in 2016-17 by your Company amounted to Rs 101 croreunder eligible items as defined in the Companies Act which translate to 2% of the averageannual net profits of the Company over the last 3 years.


The Government is committed to introducing structural reforms to revive the investmentcycle boosting tax revenues through widening of the tax base strengthening indigenousmanufacturing and bringing about infrastructure development in rural and urban areas.Implementation of GST is expected to have far reaching effects by inducting large parts ofthe informal economy into the formal system ultimately leading to increased tax revenues.Introduction of GST is considered as progressive and a step in the right direction. YourCompany does not see any adverse impact due to GST implementation.

The domestic economy is expected to steadily improve in the current year on the back ofstructural reforms and supportive monetary policy. The Government has reiterated itsemphasis on infrastructure build-out in the areas of transportation augmentation of waterresources power affordable housing and smart cities. Increased private sectorparticipation in the Defence business affords strong business opportunities for yourCompany. Various upcoming projects provide the Company with a broad perspective of theopportunity basket opening up in 2017-18. Segments within the group that hold promise inthe current year include –

1) Infrastructure

a) Roads – The Government has kick-started major road projects and hascommitted significant budgetary allocations for roads and highways development in 2017-18.The Company expects this impetus to gain strength aided by increased investments inspecialised bridges and tunnels.

b) Railways – Your Company has been a major partner in the Dedicated FreightCorridor program currently being piloted by the Indian Railways. The Indian Railways hasplanned high levels of outlay over the next few years on track modernisation new railwaylines and supporting infrastructure. Your Company will participate in those programs asand when the opportunities arise.

c) Metro Rail – Your Company has been successfully executing Metro Railprojects in multiple cities in India over the last few years and is also executing twosuch projects in the Middle East. The Government looks at Metro Rail networks as the idealsolution to decongest urban traffic. Metro Rail projects have been planned in a number ofmetro and non-metro cities in India as part of the urban development program and shouldprovide a steady stream of growth opportunities for your Company.

d) Urban Infrastructure – Building robust urban infrastructure and providingaffordable housing are major thrust areas identified by the Government. Your Company iswell placed to capitalise on major opportunities in the areas of affordable housinghospitals office space and facilities for educational institutions. Building Smart Citiesand Digital India is a major theme pursued by the Government and your Company has been atthe forefront of nation building by aligning its capabilities to meet changing needs. YourCompany sees emerging business opportunities in the areas of city surveillanceintelligent traffic management systems smart governance systems transport &logistics and optical fibre cabling – all of which constitute different components ofsmart city infrastructure. Your Company has the unique advantage of in-house domainexpertise across business verticals to provide end-to-end offerings to customers and canassume the role of a Master System Integrator for the customer.

e) Water Infrastructure – The Government is actively pursuing plans to improvewater management systems across the country in view of falling water tables and widespreadwater shortages. This is giving rise to large business opportunities which your Company iswell positioned to exploit. Areas of focus include water storage and supply managementeffluent treatment sewage treatment lift irrigation and emerging opportunities in inlandwaterways infrastructure.

2) Thermal Power Generation

The thermal power sector has been facing multiple challenges in the last few yearswhich is aggravated by under-utilisation of capacity particularly in manufacturing ofturbines. Strong focus on power from renewables has also led to muted awards in thethermal power space. While the Company has state-of-the-art facilities for equipmentmanufacturing and excellent project management capabilities it continues to facecompetition for projects bid out by central and state utilities. Though some of theCompany's market share has been lost to competition on aggressive pricing the Companycontinues to sight reasonably large business opportunities from state and centralutilities in 2017-18. The Company is also attempting to increase manufacturing capacityutilisation by engaging with our joint venture partners for increased internationalbusiness.

3) Power Transmission & Distribution

Domestic power distribution sector holds significant business opportunities with thethrust of the Government on augmenting and strengthening grid infrastructure at bothcentre and state levels. The Company is also well established in transmission &distribution projects in Middle East countries and continues to see traction in thatregion. The year 2017-18 holds good prospects in the area of power transmission &distribution.

4) Hydrocarbon

Despite contraction of spends in the Middle East due to lower oil prices your Companyis still seeing opportunities in the areas of gas production and downstream petrochemicalprojects. Strong customer connect with a few selected clients in the region has yieldedsome significant order wins and the outlook for the business in the region is positive.The domestic market is also seeing business potential in the areas of offshore capexrefinery upgradation and expansion new fertilizer plants LNG re-gasification terminalsand cross country pipeline jobs. The Hydrocarbon business has turned around in the year2016-17 on the back of close-out of challenging international legacy projects profitableexecution of on-going orders on hand and increased operational excellence measuresundertaken by the business.

The Company has built up a good Order Book and has capabilities in harnessing upcomingprospects.

5) Defence Sector

Thrust on import substitution through indigenisation of defence equipment manufactureand the Make-in-India initiative is opening up the Defence sector to significantlyenhanced private sector participation facilitated by conducive policy measures. Multipleprograms earmarked for domestic private sector players are being kick-started in allbranches of the armed forces. Your Company is a leading player in collaborating with theMinistry of Defence in building up indigenous expertise on various defence platforms forthe past many years. The Company collaborates with technology partners wherever requiredand is currently well poised to participate in some large programs being launched foraugmentation of defence equipment for the Army and the Navy. In 2016-17 the Company alsoreceived a large order for manufacture of tracked artillery guns the largest such ordergiven to the private sector till date. The Company's shipyard at Kattupalli augments theability of the Group to bid for large naval orders. Defence is a major focus area for theCompany and the business expects large prospects in the coming years.

6) Heavy Engineering

The Heavy Engineering business has been facing shrinking prospects due to muted oilprices coupled with global over-capacity in the process plant equipment segment. Nuclearpower sector is still grappling with the aftermath of the Fukushima accident though Indiaremains committed to the expansion of nuclear power installed capacity for developing aclean source of energy. The issues of Civil Liability for Nuclear Damages are now beingresolved and would pave the way for establishing new nuclear power plants in the nearfuture. The Company is well placed to harness the opportunities when they come up.

7) Electrical & Automation (E&A)

The Electrical & Automation business recorded stable performance in 2016-17 despitesluggish industrial demand challenges posed by liquidity crunch and aggressivecompetition. The Company presents an array of best-in-class low-voltage and medium-voltageproducts which provide a competitive edge in the domestic market. The Electrical businesshas launched new products to cater to the theme of Smart Cities. It focuses on renewableand alternative energy generation by introduction of smart/ premium meters solarsolutions a new range of Moulded Case and Modular Circuit Breakers and a contemporaryrange of Bus Bar trunking solutions. With investment in R&D efforts a number ofpatents to its name a country-wide network of distributors presence in the Middle Eastregion through subsidiary companies and focus on operational excellence the businessexpects to continue delivering profitable growth.

8) Realty

This business launched by your Company a few years ago continues to deliver steadyrevenues and profits despite the sector being impacted by excess inventory flatrealisations and lower absorption rates. The Company's Realty portfolio comprisesresidential and commercial real estate development activity mainly centred in Mumbai anddevelopment of own land parcels in Powai Bangalore and Chennai. Demonetisation led to amajor slowdown in retail real estate sales during 2016-17. The real estate segment isgradually recovering from this downturn and sale of apartments is nearly back topre-demonetisation levels. The Company managed to close two major transactions ofdivestment from a residential project at Chennai and a retail mall at the Company'sSeawoods project in Navi Mumbai. The Government has recently introduced legislation aimedat regulating the sector which augurs well for the business.

9) Information Technology and Technology Services (IT&TS)

As mentioned earlier the Company has successfully completed Initial Public Offeringsof Larsen & Toubro Infotech Limited (LTI) and L&T Technology Services Limited(LTTS) during the year 2016-17. The exceptional gains of Rs 1709 crore from divestment ofthe Company's part stakes in these subsidiaries have accrued to the shareholders' funds.With the focus on client mining talent management enhanced utilisation of resources andsuperior service offering these listed subsidiaries are geared to face global headwindsand increasing protectionist policies in developed world markets while maintaining healthyshareholder returns.

10) Financial Services

This business which was listed in 2011 continues to grow and had a loan book of Rs64500 crore at the end of FY17. The business has adopted prudential norms forprovisioning of the non-performing assets and is taking efforts to reduce thecost-to-income ratio. It is focusing on portfolio rationalisation right-sizing ofmanpower and improving the quality of assets in an effort to enhance Return on Equity.

11) Development Projects

Your Company currently has a portfolio of concession assets in the areas of roadspower generation & transmission a container port and a metro rail. While thecontainer port a thermal power plant and most of the road projects are operational themetro rail project at Hyderabad is under construction. This is the largest‘transit-oriented-development' project in the country and execution is progressingsatisfactorily. The project is likely to be fully commissioned in FY19. As a part of itsLakshya objectives the Company is evaluating various options of divestment andrestructuring of the road concessions business.

Strategic Plan

Your Company has embarked on its five year strategic plan (Lakshya) for achievingimprovement in key performance parameters leading to enhanced Return on Equity over theplan period. The strategic plan lays emphasis on profitable growth harnessing emergingopportunities in defence nuclear power and smart cities productivity improvementsthrough digitalisation reduction in working capital levels and unlocking of shareholdervalue through divestments of non-core businesses.

The Company completed the first year of its Lakshya Plan in 2016-17 and is on course toachieving various objectives of the plan. The Company divested its General Insurancebusiness during 2016-17 in line with its stated objective of exiting non-core businesses.Apart from recording improved profitability the Company has achieved higher Return onEquity also aided by reduction of net working capital levels.

Over the next few months

I will be handing over my executive charge to the CEO & MD designate Mr.S.N.Subrahmanyan and will continue as Chairman of the Group.

Before I conclude I would like to acknowledge the contributions made by team L&Tand thank our customers vendors and other stakeholders who made it possible for theCompany to maintain its growth momentum and improve financial performance. I also takethis opportunity to thank my fellow Board Members for their steadfast support and theconfidence they have reposed in our pursuit of delivering high quality sustainablegrowth.

Thank You


Group Executive Chairman