Towards A New Core
As its restructured operations begin to pay off, L&T holds its position in the top 10 ranks
The rejigged business operations of Larsen & Toubro are holding the galleon steady in the latest BW Real 500 rankings. Last year, the conglomerate posted an increase of 8.71 per cent in total assets and income, a key parameter to earn one’s stripes in the popular rankings. So, it comes as no surprise that L&T is in the top 10 ranking once again in 2017.
Gone are some of the older, less profitable and capital-intensive businesses. For instance, in October, L&T sold its unlisted arm EWAC Alloys to UK-based ESAB Holdings in a deal worth Rs 520 crore, while it also hived off its cutting tool unit to IMC International Metalworking Companies BV for approximately Rs 175 crore. In the months ahead, L&T has drawn up plans to hive off a further 6-7 businesses to free cash and focus on its core businesses of engineering and construction.
In a recent interview to BW, A.M. Naik, now chairman, after handing over executive responsibilities to S.N. Subrahmanyan, stated that L&T may not appear the same in a few years. “We have redefined our core in a new emerging situation. I want defence to grow from 10 per cent to 15 per cent of the company. I want hydrocarbons, 6 per cent today, to become 10 per cent. L&T in 2021 will have a different core. But when all is over, everyone will say this is the new L&T,” he points out.
In 2017, L&T recorded a good set of figures despite the slow-moving economy backdrop and a slower bidding and awarding process. In fact, L&T bagged fresh orders of Rs 1.42 lakh crore, up 5 per cent from FY16. Last year, the group clocked a steady performance with revenue rising to Rs 1.1 lakh crore, up 8 per cent from FY16. On 30 September, its consolidated order book was Rs 2.57 lakh crore, rising 2 per cent from the previous year.
L&T seems to be firing on all cylinders. All its major business segments are now key focus areas in the government’s development agenda, including water resources, power, affordable housing and smart cities. That apart, more private sector participation in defense, roads and railways is expected to give a fillip to the company’s future prospects.
Defence is a major focus, and L&T expects to significantly grow its revenues from this segment in the next 10 years. The ‘Make In India’ initiative of the government will help corporate bodies such as L&T, which has already bagged one of the biggest orders awarded to the private sector last year, of tracked artillery guns. In defence, L&T has partnerships with various companies and agencies.
Besides, last year it saw a revival in hydrocarbons as oil prices are once again on an upswing. It is seeing rising interest in areas such as gas production and downstream petrochemical projects. Further, offshore capex and upgrading of current capacities is further augmenting this important growth sector of L&T. It derives nearly 59 per cent of its revenues from overseas clients in this space.
Realty is another big growth area with projects in Mumbai, Bengaluru and Chennai. Sales are back to pre-demonetisation levels. All in all, in coming quarters, L&T is focusing on improving return on equity through reduced working capital and greater operational efficiencies. Post-GST, the economic momentum is expected to gather pace. GDP growth has come in at 6.3 per cent, exhibiting strength on the ground. All this is expected to boost L&T in coming years.