Business climate will remain muted till March 2019: L&T CEO SN Subrahmanyan
, ET Bureau|
Updated: Nov 17, 2017, 03.52 PM IST
India’s business environment will remain subdued and challenging until March 2019, with good growth likely only after the next general elections, engineering major Larsen & Toubro’s chief executive SN Subrahmanyan said.
In an interview with ET, Subrahmanyan also raised concerns about state firms in the defence sector, which he said could be a game changer but private firms faced unfair competition from the public sector.
“From September 2018, things will change as the country gets into election mode,” he said in an exclusive interview to ET.
Declining Order Inflow
“Only after March 2019 we will be able to see improvement when this dispensation comes back or a new dispensation comes to power in Delhi. Real growth will start in 2019 after March-April. Till then things will be a little subdued and challenging,” he said.
Subrahmanyan, who took over the reins of L&T at the start of the July-September quarter, has seen declining order inflow, and delayed payments from customers grappling with the launch of the goods and services tax (GST).
“Everything will sound negative for some time because some very fantastically transformational reforms are taking place. Be it the RERA Act, Banking Regulation Act, companies being pulled up by NCLT (National Company Law Tribunal) or GST; these are all far-reaching reforms and good in the long term. But there is bound to be some churning while they are implemented right now. The government is well intentioned but these changes won’t happen overnight,” he said.
The engineering major, pegged as a proxy for Indian infrastructure and industrial growth, cut its order inflow growth guidance of 12-14% for 2017-18 after a 9% decline in it in the first half of the year. It now expects to end the year flat on previous year, or marginally better. Subrahmanyan adds a disclaimer that he is “cautiously optimistic” it would be better than last year. “When we gave the order inflow guidance, we thought that the Navi Mumbai Airport will take off, the high-speed corridor will take off and so on and so forth. Orders and tenders are getting deferred by a quarter or two quarters, some projects are delayed and maybe that’s causing some stress in the sector. Some time and patience is needed,” he said.
The company has a robust order book of over ?2.5 lakh crore, to be executed over the next three years, but its customers have GST issues. “Government departments can’t bill right away if there is a new tax clause; it has to go through a process of being approved by committees and the board of the company. That process has taken some time and led to payment delays in the last 2-3 months. Hopefully, it will be normal by next quarter. We see it as a temporary cash flow issue. I don’t want to get into specifics right now on the extent of impact,” he said. L&T turned to the Middle East, hoping to offset the domestic slowdown but that market has its own issues, making the company cautious.
“We have a good backlog in the Middle East and we are concentrating on executing these jobs. We can’t keep taking orders as there are limited resources available. Having said that, due to the oil price rise, embargo on Qatar and issues in Saudi Arabia, we are being reasonable in expectation. Orders from the Middle East have already seen a decline and we are making sure we only take orders that pass our filters. We are not desperate to take any order,” he said.
L&T expects growth to be India-centric, led by the public sector as the private sector continues to work on deleveraging and resolve other issues that it faces. It sees huge opportunity in infrastructure as the government has announced ambitious projects like ‘Namami Gange’, ‘Sagar Mala’, high speed corridor, airports and other mega projects. But the company is still waiting to get big defence orders after it made huge investments in the business.
In an interview with ET, Subrahmanyan also raised concerns about state firms in the defence sector, which he said could be a game changer but private firms faced unfair competition from the public sector.
“From September 2018, things will change as the country gets into election mode,” he said in an exclusive interview to ET.
Declining Order Inflow
“Only after March 2019 we will be able to see improvement when this dispensation comes back or a new dispensation comes to power in Delhi. Real growth will start in 2019 after March-April. Till then things will be a little subdued and challenging,” he said.
Subrahmanyan, who took over the reins of L&T at the start of the July-September quarter, has seen declining order inflow, and delayed payments from customers grappling with the launch of the goods and services tax (GST).
“Everything will sound negative for some time because some very fantastically transformational reforms are taking place. Be it the RERA Act, Banking Regulation Act, companies being pulled up by NCLT (National Company Law Tribunal) or GST; these are all far-reaching reforms and good in the long term. But there is bound to be some churning while they are implemented right now. The government is well intentioned but these changes won’t happen overnight,” he said.
The engineering major, pegged as a proxy for Indian infrastructure and industrial growth, cut its order inflow growth guidance of 12-14% for 2017-18 after a 9% decline in it in the first half of the year. It now expects to end the year flat on previous year, or marginally better. Subrahmanyan adds a disclaimer that he is “cautiously optimistic” it would be better than last year. “When we gave the order inflow guidance, we thought that the Navi Mumbai Airport will take off, the high-speed corridor will take off and so on and so forth. Orders and tenders are getting deferred by a quarter or two quarters, some projects are delayed and maybe that’s causing some stress in the sector. Some time and patience is needed,” he said.
The company has a robust order book of over ?2.5 lakh crore, to be executed over the next three years, but its customers have GST issues. “Government departments can’t bill right away if there is a new tax clause; it has to go through a process of being approved by committees and the board of the company. That process has taken some time and led to payment delays in the last 2-3 months. Hopefully, it will be normal by next quarter. We see it as a temporary cash flow issue. I don’t want to get into specifics right now on the extent of impact,” he said. L&T turned to the Middle East, hoping to offset the domestic slowdown but that market has its own issues, making the company cautious.
“We have a good backlog in the Middle East and we are concentrating on executing these jobs. We can’t keep taking orders as there are limited resources available. Having said that, due to the oil price rise, embargo on Qatar and issues in Saudi Arabia, we are being reasonable in expectation. Orders from the Middle East have already seen a decline and we are making sure we only take orders that pass our filters. We are not desperate to take any order,” he said.
L&T expects growth to be India-centric, led by the public sector as the private sector continues to work on deleveraging and resolve other issues that it faces. It sees huge opportunity in infrastructure as the government has announced ambitious projects like ‘Namami Gange’, ‘Sagar Mala’, high speed corridor, airports and other mega projects. But the company is still waiting to get big defence orders after it made huge investments in the business.
