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Larsen & Toubro Ltd.

BSE: 500510 Sector: Engineering
NSE: LT ISIN Code: INE018A01030
BSE 16:01 | 17 Oct 1424.25 -0.55






NSE 15:49 | 17 Oct 1424.35 0.15






OPEN 1426.00
VOLUME 86519
52-Week high 1606.70
52-Week low 1183.40
P/E 31.71
Mkt Cap.(Rs cr) 199,858
Buy Price 1424.25
Buy Qty 474.00
Sell Price 1424.25
Sell Qty 34.00
OPEN 1426.00
CLOSE 1424.80
VOLUME 86519
52-Week high 1606.70
52-Week low 1183.40
P/E 31.71
Mkt Cap.(Rs cr) 199,858
Buy Price 1424.25
Buy Qty 474.00
Sell Price 1424.25
Sell Qty 34.00

Larsen & Toubro Ltd. (LT) - Chairman Speech

Company chairman speech

Dear Shareholders

Across the last eight decades L&T has kept pace with technological developments aswell as the evolving needs of the nation. Your Company is in every sense leading thechange.

My greetings and good wishes to you on the 80th anniversary of the formationof L&T.

The tiny partnership firm set up on May 1 1938 is now a leading engineering &construction conglomerate operating at the upper end of the technology spectrum. Acrossthe last eight decades we have kept pace with technological developments as well as theevolving needs of the nation. Your Company is in every sense leading the change.

Economic Scenario

In the last fiscal the Indian economy has emerged after grappling boldly with multiplechallenges. Structural reforms by their very nature are initially disruptive becausethey unsettle the existing ways of doing business and can often impact public perceptionsnegatively. However their long-term benefits outweigh the early tremors. The GST regimeand other reforms such as Insolvency & Bankruptcy Code Demonetisation and RERA arethe building blocks of a healthier more wholesome economic environment.

In addition to the volatility sparked by reform-led change industry encountered a hostof other challenges viz. muted private sector capex reduced investment opportunities inMiddle East markets and the increasing unpredictability of geo-political developments.

On the other hand some areas of public sector infrastructure capex have seen stronginvestment momentum and several large investment programs have been initiated. We are alsobeginning to glimpse the green shoots of private sector capex revival in the industrialspace. It is expected that the economic reforms initiated by the Government will expandthe tax base enhance revenues and in turn spur GDP growth and infrastructure allocations.

With private sector participation in roads airports power real estate and industrialcapex remaining subdued the needle of increased investment has largely shifted towardsthe public sector. The Government has also been focusing on development of infrastructureand energy facilities to drive strong sustainable economic growth. Rural reform isreceiving the attention it deserves. Larger allocations towards irrigation measures toinsulate farmers against the vagaries of the monsoon rural road connectivity and theproverbial last mile in rural electrification are heartening.

Positive markers at the national level include a wider tax base increased allocationof share of revenues to states strong Balance Sheets of some PSUs and larger quantum offunding from international development agencies such as JICA and World Bank. All of themhave provided a robust financial platform for building infrastructure facilities in thecountry.

On the global front the signals are mixed. Major governments are being lured intopopulist measures such as protectionism. Geo-political re-alignments are impactingtraditional trade flows and commodity prices and currencies experience never-beforevolatility. Amid all this we see encouraging signs of global growth revival.

Performance Overview

Your Company has turned in a commendable performance on key financial parameters in2017-18. Even though awarding of infrastructure projects continued to be unpredictable interms of timelines we registered a 7% growth in fresh order inflows of Rs.152908 croresover inflows in the previous year. The unexecuted Order Book at the end of 2017-18 standsat Rs.263107 crores which provides good revenue visibility in 2018-19. While executionwas impacted in 2017-18 due to disruptions caused by implementation of GST as well asbottlenecks in some projects due to tardy customer payments delayed clearances and landacquisition/right of way issue your Company clocked revenues of Rs.119862 crores. Thistranslates to a growth of 9.5% on a like-to-like basis over the previous year afteradjusting for Excise Duties which were subsumed in GST from 1st July 2017onwards.

Profit after Tax recorded an all-time high of Rs.7370 crore-representing a 22%increase over PAT of 2016-17.

It gives me great pleasure to inform you that the Board of Directors has recommended aDividend of Rs.16.00 per share. Corresponding dividend in the previous year was Rs.14.00per share.

International Business

The thrust on international business initiated almost two decades ago has contributedto your Company being recognized as a marquee player in the Middle East in the hydrocarbonand infrastructure sectors. This has ensured that despite fiscal contraction in oilproducing countries we continued to enjoy business traction throughout 2017-18. Therecent spurt in oil prices could trigger an increased round of investments in the regionopening possibilities for resurgent growth.

In line with our aim of diversifying the spread of our international business beyondthe Middle East we are also actively pursuing opportunities in East and North AfricaRegion (including Algeria and Egypt) and other 'near shore' geographies of East Asia(Bangladesh Myanmar Thailand Vietnam and Sri Lanka). The unexecuted Order Book frominternational markets stood at Rs.62500 crore which translates to 24% of the total OrderBook. Of the total international Order Book non-GCC business now accounts for 31% of theBook size.

Digital Future

Leveraging technology across all operations is a prime focus area. While ourdigitalization journey will extend far into the future some operational benefits arealready visible-better asset utilization improved labour productivity and sourcingefficiencies though the use of loT (Internet of Things) and other digital solutions.L&T Infotech and L&T Technology Services are our partners in this initiative andyour Company expects to continue harvesting the wide-ranging benefits of digitalization inthe years ahead.

Talent Management and Succession Planning

Our Human Resources policies and practices centre around moulding our employees intoleaders in their areas of work. Your Company's structured 7-step Leadership DevelopmentProgramme plays a key role in helping build a robust leadership and succession pipeline. Acomprehensive programme for monetary and non-monetary rewards incentivises excellence.

While I have handed over the reins of day-to-day operational management to the CEO& MD I am focusing on business portfolio rationalisation mentoring the nextgeneration of leaders and expanding the outreach of your Company's CSR initiatives.

Sustainable Development

The sustainability of business pivots on the quality of the ecosystem within which itoperates. It is therefore a moral imperative for responsible corporates to activelyimplement measures to improve business performance reduce social disparities andmitigate the environmental impact of industrial development. Our sustainability focus ison reduction of our carbon footprint and introduction of green technologies whileimproving the lives of the communities around us through health education water &sanitation and skill-building initiatives.

Total spends on CSR initiatives in 2017-18 by your Company amounted to Rs.101 croreunder eligible items as defined in the Companies Act. This translates to 2% of theaverage annual net profits of the Company over the last three years.


India is witnessing the increasing 'formalisation' of an economy which for decades hadsections operating below the radar. Structural reforms such as Demonetisation GST and theInsolvency & Bankruptcy Code have resulted in a larger pool of assessees and growth inthe volume of tax collection. The increase in tax revenues should enable the Government toinvest in essential infrastructure on a sustained basis.

While international business opportunities continue to remain reasonably healthy2018-19 is also expected to witness strong domestic growth aided by supportive fiscalpolicies and the focused development agenda being adopted by the Government. Businessprospects in different sectors provide a large canvas of opportunity which could be tappedin 2018-19. Segments which hold promise in the current year include:

1) Infrastructure

a) Roads-The Government has committed sizeable budgetary allocation to augmentingroad infrastructure.

We expect this momentum to continue aided by increased investments in expresswayprograms.

b) Railways-A thrust on railway electrification and track augmentation is pavingthe way for increased opportunities in your Company's railways business. We are geared totap these prospects as they develop.

c) Metro Rail-We have been participating in Metro Rail programs in multiple citiesin India and in two projects in the Middle East. The investment flow continues to gatherpace as more cities adopt mass rapid transit as an effective and eco-friendly solution tourban traffic congestion. Continued growth is expected in this business segment.

d) Urban Infrastructure-Your Company is a leader in providing building solutionsacross the urban spectrum-residential real estate commercial buildings affordablehousing hospitals educational institutions hotels and convention centres. Whileresidential buildings have seen a lull over the last few years other prospects in thisvertical continue to hold promise. The new frontier in urban infrastructure is SmartCities. A growing number of cities are adopting elements of smart city infrastructure suchas intelligent traffic management and surveillance systems smart electric grids &lighting fibre optic cabling and transport & logistics systems. Your Company has theunique advantage of in-house domain expertise to provide end-to-end offerings tocustomers. This enables us to play the role of a Master System Integrator for the SmartCities of the future.

e) Water Infrastructure-The water sector has seen sub-optimal investment levels inthe past. This could change for the better thanks to the growing realization that groundwater is being overexploited and that better irrigation facilities are essential toprovide a sustainable livelihood for our farmers. Your Company's diverse range ofofferings in the water sector will benefit from the Government's programmes to clean thecountry's major rivers as well as from bulk transmission and water treatment formunicipalities sewage & effluent treatment plants lift irrigation and inlandwaterways infrastructure.

2) Thermal Power Generation-A slowdown in the thermal power generation sectoracross the last few years has led to aggressive bidding as competitors vie for thelimited opportunities on offer. Your Company looks forward to prospects aggregating 6 GWwhich are likely to be awarded in the current year and these constitute targetedbusiness. We have successfully constructed gas-fired power plants in Bangladesh and willcontinue to tap similar prospects likely to come up in the neighbouring country in thecurrent year. We also continue to engage with our joint venture partners for increasedinternational business in our efforts to increase manufacturing capacity utilisation.

3) Power Transmission & Distribution (PT&D)

We have built strong business foundations in the PT&D space in India and the MiddleEast. Inroads have also been made into parts of East Africa Algeria and Egypt. This is inline with our objective of creating an international PT&D business covering dispersedgeographies. On the domestic front the thrust by the Government on strengthening powergrids through Central and State utilities as well as intensive electrification of ruralhouseholds is expected to yield good business in the current year. We also continue to seegood traction in international business prospects.

4) Hydrocarbon-Oil prices are rebounding from their historic low points. This willbrighten prospects for your Company's hydrocarbon business in the Middle East region whichhad seen contraction of spends over the last two years. We have adopted a policy ofjudicious bidding for projects with selected customers in the GCC region. Projects areselected based on a strong customer connect and the predictable prospects of streamlinedexecution.

Countries being targeted include Saudi Arabia UAE

Kuwait Oman Algeria and a few in East Asia. On the domestic front prospects inoffshore production onshore refinery capex fertiliser plants and pipeline projects are acause for cheer.

The Company has built up a good order book and possesses proven capabilities to harnessupcoming prospects.

5) Heavy Engineering-The Heavy Engineering business faced hurdles over the last fewyears due to shrinking global spends on hydrocarbon equipment compounded by the slow paceof revival of the nuclear power industry. Prospects for the current year are reasonablystrong with some signs of a higher level of ordering for hydrocarbon equipment. TheNuclear Power Corporation of India Ltd. has also progressed in its plan to build ten newnuclear power plants using its 700 MW indigenous design. The commencement of awardingorders for equipment is encouraging news for the Heavy Engineering business.

6) Electrical & Automation (E&A)-The Electrical & Automation businesscontinued to record stable operational indicators in 2017-18. It remains a market leaderin many segments within its wide range of low voltage switchgear. The range includes AirCircuit Breakers Moulded Case Circuit Breakers Switch Disconnector Fuses and otherelectric protection devices for application in industry agriculture and segments such asbuildings. Its expanding product spectrum covers building automation systems includingsmart meters and energy management systems and a range of customised energy distributionsolutions. Business opportunities for the current year are positive and likely tostimulate growth.

In line with its strategic plan to exit non-core businesses your Company signed anagreement with Schneider Electric to divest this business subject to regulatoryapprovals.

We envisage that these approvals could be forthcoming in timelines in excess of a year.

7) Realty-This sector has been impacted by Demonetisation RERA and the increasedfinancialization of savings where individuals shift their investments from real estate orgold to financial assets. While the industry continues to be weighed down by excessinventory and low absorption rates business is gradually improving and we expect 2018-19to be better than the last two years in terms of order inflows and offtake. Your Companyintends to continue with monetisation of its properties in Mumbai Bangalore and Chennaisubject to Government approvals.

8) Information Technology and Technology Services

(IT and TS)-After listing of L&T Infotech Ltd (LTI) and L&T TechnologyServices (LTTS) in mid-2016-17 the businesses have recorded above average growth whilemaintaining margins and returns on capital. Markets have responded positively and haverewarded the IPO shareholders through capital appreciation. At the heart of the success ofboth these subsidiaries is the customer-focused lineage of Larsen & Toubro. Whiledrawing extensively on the domain knowledge and operational expertise of their parentcompany they have also leveraged its international client base which includes globalmajors.

The focus of the businesses is on increased digital offerings with special emphasis onclient mining talent management enhanced utilisation of resources and superior serviceoffering. These listed subsidiaries are well equipped to address and overcome globalchallenges including increasing protectionist policies while maintaining healthyshareholder returns.

9) Financial Services-This business which was listed in 2011 continues to performwell and had a loan book of Rs.83654 crore at the end of 2017-18 representing a strongYear-on-Year growth of 26%. Its growth momentum continues in both lending and investmentmanagement where the average AUM has risen to Rs.66000 crore in 2017-18. Digital and dataanalytics have facilitated operations even as growth in focused businesses asset qualityfee income and operational excellence measures are enabling the business to increasereturns on capital. Equity capital was raised in end-2017-18 and your Company subscribedto the equity issue in order to maintain its equity stakes since it believes that growthcapital infusion will be return accretive.

10) Development Projects-Your Company owns a portfolio of concession assetscomprising roads a transmission line power generation a container port and a metrorail. The metro rail project and some hydel plant projects are currently underconstruction. In the current year we have divested five road concessions to an InvestmentTrust and will continue to evaluate options for monetisation of value created in theremaining concession assets.

Strategic Plan

Your Company formulated its 5-year strategic plan-LAKSHYA-spanning the years from2016-17 to 2020-21 (both years inclusive) and has largely been on track in execution ofthis plan. The overarching goal is to enhance Return on Equity (RoE). Levers to achievethis include maintaining steady growth in revenues with improvement in margins control onworking capital divestment of non-core businesses endeavouring to turn aroundunder-utilised facilities minimising capital expenditure avoiding investment in longgestation or asset heavy businesses and higher pay-outs to shareholders. Both 2016-17 and2017-18 have shown that our efforts are yielding positive results. Your Company isconfident of continuing its RoE enhancement journey during the current year as well.

I would like to conclude by thanking Team L&T as well as our customers vendors andother stakeholders who have made it possible for your Company to maintain its trajectoryof growth during a challenging phase of the Indian economy. I also wish to thank my fellowBoard members for their invaluable support.

Thank You.

A.M. Naik

Group Chairman.