L&T sees a Rs 20,000-crore opportunity in water solutions

Infrastructure major Larsen & Toubro is looking to book orders worth Rs 20,000 crore this financial year as it looks to tap into a growing need for water solutions in the country, including waste water treatment and irrigation projects.

The company on Monday announced that it has won an EPC order worth Rs 1,394 crore from the Madhya Pradesh government for the execution of an irrigation project.

With this, the company has booked orders worth Rs 12,000 crore under the Water & Effluent Treatment vertical, so far in the present financial year.

By the end of FY18, L&T had an order book of Rs 28,000 crore in this vertical.

“We are positive about the prevailing market scenario,” S Rajavel, Senior Vice President and Head, Water, Smart World & Communication, told Moneycontrol. “There is great potential. There is a huge need for waste water treatment, drip irrigation and other solutions. Several government schemes are being introduced. The growth story is unstoppable for the next few years,” he added.

Rajavel pointed out that the company’s topline has been growing at a compounded growth rate of 25-30 percent in the last three years.

Industry estimates put the vertical’s turnover at about Rs 10,000 crore in the last financial year.

Water business

The water business is broadly divided into water supply and distribution, waste water treatment, and third is the large water projects.

The order L&T bagged on Monday in Madhya Pradesh  — the fourth from the state — falls under the large water segment. About 40 percent of the present order book consists of similar projects. The second-largest contributor are the waste water treatment projects.

Talking about the business model, Rajavel said that an order typically takes 24 to 36 months to deliver. “These are just like any other infrastructure projects, and require a lot of heavy duty work,” he said. A project includes an initial survey, procurement of materials and installation of pipelines that mostly are cross country.

The company has commercial agreements for each project. “The government gives advance and we get payments at each stage. Cash flow is not a problem,” said the senior executive.

But he added that volatility in raw material prices is a challenge. One of the major raw materials used in projects is the different kinds of pipes.

There are also right of way (RoW) issues. “The pipelines are laid cross country, and sometimes we have to get into litigation. We set the things right, and then the government makes the payment for land,” said Rajavel.

The water vertical has a staff of over 4,000 people.

International expansion

The vertical, an independent company within the organisational structure of L&T, has international operations in five countries. “We have projects in UAE, Qatar and Oman. We recently expanded in Tanzania and also have a couple of projects in Sri Lanka,” said Rajavel.