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BusinessL&T has competitive advantage in large and complex projects: CFO

L&T has competitive advantage in large and complex projects: CFO

Published: 14th Feb 2021 2:15 pm

New Delhi: Infrastructure major Larsen & Toubro (L&T) expects the government’s increased capex outlay for FY2021-22 would allow the firm to bid for more large and complex projects where it has a competitive technological advantage, a top company official said on Sunday.

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“The advantage of this large programme would be that it can distribute the capital expenditure programme among several players… Obviously, given the engineering expertise and technological advantage that L&T has, the more complex the project is, the larger the scale is… L&T as a company will have very distinct competitive advantage,” the company’s Whole-time Director and Chief Financial Officer R Shankar Raman told PTI.

The government’s bid award process has seen accelerated activity in the past six months and the company expects the programmes laid out in the Budget to see speedier bidding and quicker finalisation of awards for the sector to get the required thrust, he said.

L&T would continue to bid for more large and complex projects to create a projects pipeline, Raman added.

For 2021-22, the Union Budget has proposed a sharp increase of 34.5 percent in capital expenditure (capex) with a provision of Rs 5.54 lakh crore for central government projects, and additional Rs 2 lakh crore provision for capex by states and autonomous bodies.

“It’s a bit too early…but if we are targeting let’s say Rs 2 lakh crore, we need to pursue opportunities worth about Rs 8 to 10 lakh crore. So, one out of four projects or one out of five projects is what we are likely to win given the nature of the projects, the spread of the projects and the complexities involved,” he noted.

Sectors such as road transportation, metro systems, dedicated freight corridor, state roads and expressways, renewable energy, water and healthcare will offer greater opportunities in the times to come, Raman said.

The small and medium companies are also likely to benefit from the large capex push as all will have work to choose from, he said.

Raman further said the company will look at divestment process of certain non-core assets at a later stage when the market is conducive.

“The market at the moment is not very conducive for sale of assets which are not distressed because I think there is a fair bit of distressed assets available. So obviously the first priority for the investors is to evaluate those assets and see what is the best bargain that they can run. I would expect that on the back of economic recovery, and improved utilisation of some of these facilities that we have to divest, the prospect for divestment would get better in 2022,” he added.

The company completed divestment of its electrical and automation business to Schneider Electric in August 2020, while it sold off its UK-based marine electrical solutions unit Servowatch to Rolls Royce in August 2020.

The company CFO was of the view that the private sector will still take about 12 months to revive its own capex plans post improved manufacturing activities.

“I think it will take a little time, despite all the encouragement the government is giving in terms of… enabling the banks to lend and by introducing incentives which are production linked.

“This comes on the back of possibly 8 to 9 months low economic growth that had preceded the COVID-19. So, we are really talking about dealing with something close 15-16 months of adverse conditions,” explained Raman.

The company had posted a 3 per cent increase in consolidated net profit to Rs 2,648.33 crore for the quarter ended December 2020.

The consolidated order book of the group stood at a record Rs 331,061 crore as on December 31, 2020, registering a growth of 9 per cent over the March’20 level.

Larsen & Toubro is an Indian multinational engaged in EPC (engineering, procurement and construction) projects, hi-tech manufacturing and services with over USD 21 billion in revenue.

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