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Larsen & Toubro Limited (L&T) is an engineering and construction organization, and one of the largest companies in India's private sector with additional interests in manufacturing, services and Information Technology.
The company was founded in Bombay (Mumbai) in 1938 by two Danish engineers, Henning Holck-Larsen and Soren Kristian Toubro, beginning with the import of machinery from Europe. L&T rapidly took on engineering and construction assignments of increasing sophistication. Today, the company sets engineering benchmarks in terms of scale and complexity.
Larsen & Toubro Limited (L&T) is an engineering and construction organization, and one of the largest companies in India's private sector with additional interests in manufacturing, services and Information Technology.
The company was founded in Bombay (Mumbai) in 1938 by two Danish engineers, Henning Holck-Larsen and Soren Kristian Toubro, beginning with the import of machinery from Europe. L&T rapidly took on engineering and construction assignments of increasing sophistication. Today, the company sets engineering benchmarks in terms of scale and complexity.
Larsen & Toubro Limited (L&T)
BSE:500510 NSE:LT Bloomberg:LT@IN Reuters:LART.BO
ISIN Demat: INE018A01030
Face Value: Rs. 2 CMP Rs. 1580 (Apr. 11, 2007)
Low – Rs. 902.63
Last Dividend : Rs. 11 per share (Interim)
Business Profile
Larsen & Toubro Limited (L&T) is an engineering and construction organization, and one of the largest companies in India's private sector with additional interests in manufacturing, services and Information Technology.
The company was founded in Bombay (Mumbai) in 1938 by two Danish engineers, Henning Holck-Larsen and Soren Kristian Toubro, beginning with the import of machinery from Europe. L&T rapidly took on engineering and construction assignments of increasing sophistication. Today, the company sets engineering benchmarks in terms of scale and complexity.
The company`s businesses are divided into six key segments. Engineering and construction, heavy engineering, contruction, electricals and electronics, information technology and machinery & industrial products covering following products/services line - Aerospace Equipment , Bulk Material Handling, Cement & Allied Machinery, Chemical Plants, Cogeneration and Captive Power, Construction Equipment , Construction Services, Control & Automation Systems, Cutting Tools, Defence, Eutectic & Welding, Fertilizer Projects, Fertilizer, Petrochemical & Heat Transfer Equipment, Hydrocarbon & Related Projects, Hydraulic Equipment , Industrial Valves & Allied Products, Information Technology , Iron & Steel Castings, Medical Equipment, Minerals & Metals, Mining & Construction Machinery, Nuclear Power Plant Equipment, Oil & Gas & Special Projects, Petrol Pumps, Plastics Processing Machinery, Power, Paper & Pulp Equipment, Rubber Processing Machinery etc.
Engineering & Construction – Projects
L&T's engineering & construction track record consists of successful implementation of turnkey projects in major core and infrastructure sectors of Indian industry. L&T has integrated its strengths in process technology, basic and detailed engineering, equipment fabrication, procurement, project management, erection, construction and commissioning, to offer single-point responsibility against stringent delivery schedules. Strategic alliances with world leaders enable L&T to access technical know-how and execute process-intensive large-scale turnkey projects to maintain its leadership position. Supported by a track record of over six decades covering all industrial sectors and infrastructure projects, ECCD is well equipped with the requisite expertise to undertake lump-sum turnkey (LSTK) construction with single-source responsibility.
L&T's core competencies in engineering include highly qualified and experienced personnel from various disciplines, state-of-the-art 2-D and 3-D CAD facilities with sophisticated plant design systems and basic engineering capabilities. L&T is the only Indian EPC company pre-qualified for executing large, process-intensive projects for oil & gas, refinery, petrochemical and fertiliser sectors.
Heavy Engineering
L&T is acknowledged as one of the top five fabrication companies in the world, with engineering and manufacturing capabilities that are among the most sought after in industry. . Its globally-benchmarked workshops are located in Mumbai, Hazira, Baroda and Kansbahal. Operating at the high end of the technological spectrum, L&T has led Indian industry in introducing new processes, products and materials in manufacturing. L&T also has the logistics capabilities of fabricating and supplying over-dimensional equipment to tight delivery schedules.
Construction
ECC - the Engineering Construction & Contracts Division of L&T is India's largest construction organization. The company`s engineering construction & contracts division has built some of the country`s prized landmarks - India's first indigenous hydrocracker reactor, The world's largest continuous catalyst regeneration reactor, The world's biggest fluid catalytic cracking regenerator, The world's longest product splitter, Asia's highest viaduct - built for the Konkan Railway, The world's longest LPG pipeline etc. L&T's leading edge capabilities cover every discipline of construction - civil, mechanical, electrical and instrumentation.
Electrical & Electronics
L&T is a major international manufacturer of a wide range of electrical and electronic products and systems. In the electrical segment, the Company is India's largest manufacturer of low tension switchgear, and is rapidly establishing itself in international markets. Its products are widely sold in markets in Europe and Australia. L&T also manufactures custom-engineered switchboards for industrial sectors like power, refineries, petrochemical, cement, etc. In the electronic segment, L&T offers a wide range of meters and provides complete control and automation systems for diverse industries. Medical equipment and systems manufactured by L&T include advanced ultrasound scanners and patient monitoring systems.
Infotech
L&T Infotech provides software consultancy services and solutions including ERP offerings, Enterprise Applications Integration, Embedded Systems, Mainframe applications, etc. primarily in the telecom, utilities, banking financial services & insurance (BFSI), healthcare and manufacturing domains. It offers comprehensive, end-to-end software solutions and services in Banking, Securities, Insurance, Petrochemicals, Energy, Manufacturing (Automotive & Construction Equipment, Semiconductor and Electronics, Industrial Products, Consumer Packaged Goods, Utilities & Process and Product Engineering Services (Communications & Embedded Systems). L&T Infotech has achieved PCMM Level 5 certification for all of its development centers. The client base comprises large MNCs including some of the Fortune 500 companies. It is ranked by NASSCOM as the 10th largest software & services exporter from India in the year 2006.It also operates in Germany and Canada through its wholly owned subsidiaries Larsen & Toubro Infotech Gmbh and Larsen & Toubro Information Technology Canada Limited respectively.
Infrastructure Development
L&T INFRASTRUCTURE DEVELOPMENT PROJECTS LIMITED (L&TIDPL) develops infrastructure projects on a Build-Operate-Transfer (BOT) or Build-Own-Operate-Transfer (BOOT) basis. Since the operations and maintenance activity is undertaken for a specific tenure, these projects are in the form of Special Purpose Vehicles (SPVs). L&TIDPL is the holding company for such infrastructure and tech park development projects. L&TIDPL's portfolio is well diversified with a balanced mix of projects across various sectors such as roads, bridges, ports, airports and tech parks.
• SPVs with Operational Projects
L&T Western India Tollbridge Limited
L&T Transportation Infrastructure Limited
Narmada Infrastructure Construction Enterprise Limited
International Seaports (Haldia) Private Limited
Kakinada Seaports Limited
L&T Infocity Limited
Cyber Park Development & Construction Limited
Gujarat Toll Road Investment Company Limited
GVK Jaipur Kishengarh Expressway Private Limited
• SPVs with Projects under implementation
L&T Panipat Elevated Corridor Limited
L&T Krishnagiri Thopur Toll Road Private Limited
L&T Vadodara Bharuch Tollway Limited
L&T Western Andhra Tollways Private Limited
L&T Interstate Road Corridor Limited
Second Vivekananda Bridge Tollway Company Pvt. Limited
Bangalore International Airport Limited
L&T Tech Park Limited
L & T Urban Infrastructure Limited
Visakhapatnam Industrial Water Supply Company Limited
The Dhamra Port Company Limited
The above projects are at various stages of development/construction and are expected to generate revenues in the subsequent years. Details of some of the SPVs:
L&T WESTERN INDIA TOLLBRIDGE LIMITED (L&TWIT)
L&TWIT completed construction of a two lane bridge across River Watrak including its approaches in Ahmedabad–Vadodara Section of National Highway [NH-8] in February, 2001. An agreement was entered into with the Government of India and the Government of Gujarat for tolling rights for a concessional period of 10 years.
L&T TRANSPORTATION INFRASTRUCTURE LIMITED (L&TTIL)
L&TTIL completed construction of additional 2 lane bridge at Athupalam on River Noyyal in Coimbatore and a 28 km bypass at Coimbatore Section of National Highway [NH-47] in December 1998 and January 2000 respectively. An agreement was entered into with Government of India and Government of Tamil Nadu for tolling rights. The total concession period including construction is for 32 years for the bypass and 21 years for the bridge.
NARMADA INFRASTRUCTURE CONSTRUCTION ENTERPRISE LIMITED (NICE)
NICE constructed a second two lane bridge at Zadeshwar across the Narmada River in November 2000, on National Highway 8 (NH-8) under an agreement entered into with the Government of India and the Government of Gujarat. The concession involving tolling rights is over a period of 15 years.
KAKINADA SEAPORTS LIMITED (KSPL)
KSPL is set up for operation of the existing deep water port at Kakinada on Operate, Manage, Share and Transfer (OMST) basis with provision for development of further facilities on BOOT basis. Approval has been received from Government of Andhra Pradesh for development of Phase I and Phase II of the project with a total project cost of Rs.330 crore. The development work has already started and is expected to be completed by February 2008.
INTERNATIONAL SEAPORTS (HALDIA) PRIVATE LIMITED (ISP-HALDIA)
ISP-Haldia constructed Berth No.4A at Haldia Dock Complex of Kolkata Port Trust for handling bulk cargo with licence for a period of 30 years. The port was operational ahead of schedule and the commercial operations started in January 2004. The facility has been performing at near maximum capacity levels for the last two years and the port handled 3 million tons of coking coal per annum.
L&T INFOCITY LIMITED (LTIL)
LTIL is engaged in (i) Development of Information Technology Parks and (ii) Design, Construction, Marketing and Operation & Maintenance of IT Parks and allied infrastructural facilities. After fully developing the first phase and the second phase, i.e., Cyber Towers and Cyber Gateway, the two multi tenanted facilities at the Hitec City, Madhapur, Hyderabad, LTIL embarked on other projects like Build to Suit (BTS) facilities to major players like HSBC, Deloitte and Motorola. The developmental efforts put in by LTIL have brought about a metamorphosis to the IT face of Hyderabad city. In addition to the above mentioned projects, BTS IT facilities for HSBC at Colombo, Kolkata and Hyderabad have become fully operational and started contributing to the revenue streams. LTIL has been accorded the highest grading as a Developer, i.e., DR – 1 by ICRA. This grading indicates (i) very strong project execution capacity, (ii) the prospects of execution of real estate projects as per plan are the best and (iii) the ability to transfer the ownership as per the terms is the highest.
International operations
L&T has an international presence, with a global spread of offices. A thrust on international business over the last few years has seen overseas earnings growing to 18 per cent of total revenue.
L&T has also expanded its focus to the Middle East, China, South East Asia, Russia, CIS, Mauritius, African and SAARC countries. L&T is currently developing markets for its construction services in the Indian Ocean rim countries, Africa and Latin America. As a traditional manufacturer of a wide range of electrical and electronic products and systems, the company is India`s largest manufacturer of low tension switchgear. L&T forayed into the Chinese market with its medical equipment business. L&T's China strategy covers sourcing of materials, setting up of a manufacturing base and gaining market access. Accordingly L&T has set up a new manufacturing base for high-end air circuit breakers in China. A modular fabrication yard is being set up in the Sultanate of Oman for Engineering Projects Division. The Company has entered into a joint venture in Saudi Arabia for manufacture and marketing of switchboards.
Financial performance
For the period April–December 2006, the order booking was higher at US$ 5200.36 Mn., registering 41% increase over the corresponding period of the previous year. PAT for the nine-month period April–December 2006 at US$ 159.11 Mn. is higher by 29%, when compared to the corresponding period of the previous year. Excluding extra ordinary and non-recurring items, the PAT rose smartly by 69% over the corresponding previous period.
Group PAT for the nine-month period April-December 2006 at US$ 346.55 Mn. is higher by 82% when compared to the corresponding previous period. Excluding extra ordinary and nonrecurring items, the increase in PAT is 89% over the corresponding previous period. The total income of the Group for the nine-month period April-December 2006 increased to US$3200.59 Mn. from US$ 2661.60 Mn. achieved in the corresponding period of the previous year.
Construction equipment business registered 51% increase in both direct and indirect sales revenues, following increase in infrastructure investment. Similarly, Welding and Industrial Products business reported revenue growth of 19%. Due to the boom in the construction activities, Ready Mix Concrete business reported a 31% increase in the revenues.
For the nine-month period, the E&C order booking was higher by 43% at US$ 4335.22 Mn., over the corresponding previous period. The segment order backlog as at December 31, 2006 is at US$ 7738.44 Mn. The orders have been bagged across sectors such as Oil and Gas, Power, Roads, Ports, Airports and other urban infrastructure sectors.
Brief Financials (in US$. Mn.)
Period ending (months)
31-Dec-2006(9)
31-Mar-2006 (12)
31-Mar-2005 (12)
Net sales
2568.31
3238.66
2990.81
Other Income
65.07
102.17
52.91
Total Income
2633.38
3340.84
3043.72
Cost of goods sold
2362.55
3035.99
2792.08
OPBDIT
270.83
304.84
251.64
PAT
159.17
226.84
224.67
Gross Block
-
497.75
463.49
Equity capital
12.72
6.16
5.93
EPS (US$)
-
1.65
1.73
DPS (US$)
-
0.49
0.63
BV (US$)
-
7.39
5.71
P/E range (x)
-
12.47 - 35.52
5.02 - 15.16
Debt / Equity (x)
-
0.32
0.57
Operating margin (% of OI)
10.3
9.1
8.3
Net margin (% of OI)
6
6.8
7.4
US$/Rs. Exchange rate
44.12
44.62
43.79
Recent developments
The Dhamra Port Company Ltd (DPCL), 50:50 joint venture Company of the Company & Tata Steel Ltd, has achieved financial closure for development of an all-weather deep port at a location north of the mouth of river Dhamra in Orissa. A consortium of lenders led by the Industrial Development Bank of India (IDBI) agreed to part finance the project cost of Rs 24.6 bn. The Company is working with BNP Paribas for ECA funding. Dhamra Port will be the deepest all-weather port of its kind in India with a draught of 18.5 meters, which can accommodate super cape-size vessels up to 180,000 DWT. This will be a boon to the mineral hinterland of north Orissa, Jharkand, West Bengal and Chattisgarh which are in close proximity to the port & where a large number of steel plants and mineral based industries are located besides many more which are on the anvil. The cargo of mineral & mineral based industries being highly freight sensitive, a deep fraught port will be of great advantage as such cargo can move in larger vessels leading to lower incidence of sea freight on the landed cost. The port has highly mechanized and advanced material handling facilities. The port project includes a 62-km rail connectivity to the main Howrah-Chennai line at Bhadrak. The port will eventually have 13 berths to handle over 83 million tons of cargo per annum. Of these the first two berths with a handling capacity of up to 25 mn tons of hulk cargo per annum will come up in the first phase. When fully developed the port will handle all types of cargo such as dry bulk, break bulk, liquid and container cargo. Apart from Tata Steel who is a co-promoter of the port, a number of other steel plants, mines and industries in the region will use the port which is going to become eastern India's major gateway to the world. The Company's Engineering Construction & Contracts Division will be constructing the modern port with all facilities while International Dredging seaport Company Ltd, a JV of the Company and Dredging international of Belgium, will carry out the dredging work.
L&T has set up a Dh48 million ready mix concrete (RMC) plant with a capacity of 240 cubic metres per hour in Jebel Ali, Dubai. The plant will be operated by ECC, L&T's Construction Division, and will meet the growing demand for ready-mix concrete in the UAE. In India, L&T manufactures and supplies about three million cubic metres of L&T concrete per annum through 60 plants spread across the country. These plant operations are supported by a fleet of 500 transit mixers, six mobile concrete pumps and 100 static concrete pumps. The company enjoys 28 per cent market share. L&T plans to expand the total number of plants in India to 150 by the year 2009-10. L&T proposes to expand its operations in other emirates, specifically Abu Dhabi and Ras Al Khaimah, and also Sohar and Muscat in Oman.
L&T laid the keel for the first ship within 17 weeks of commencing operations at its shipbuilding yard at Hazira, near Surat. A 180-tonne keel block - the heaviest ever by an Indian Shipyard -The Company had marked its entry into this field in April 2006 by securing an order from the Netherlands-based Rolldock (earlier Zadeko Ship Management) for four heavy lift semi-submersible cargo ships, technically described as RORO/LOLO Semi Submersible vessels. Till date, over 900 tonnes of steel fabrication have been completed in a fast track schedule.
The Company has signed a Joint Venture with A.A. Turki Contracting & Trading Corporation (ATCO) of the kingdom of Saudi Arabia. The new venture, to be known as 'Larsen & Toubro ATCO (Saudia) LLC', will be registered as a local Company in that country, It will focus on electromechanical construction for the hydrocarbon and power sector construction.
Larsen & Toubro Infotech Ltd (L&T Infotech), subsidiary of the Company, has signed a definitive agreement to acquire GDA Technologies, Inc, and all of its design centers in the USA and India.
L&T has planned a capital expenditure for 2006-2007 and 2007-2008 at around USD 700-750 million. The Company has invested Rs.671 crore towards capital expenditure for building tangible assets in year 2005-06. Hazira Works is being developed as a major hub for fabrication of heavy equipment and ship building. Capacity build up is under way at Coimbatore for electrical and industrial machinery products.
The Company is doubling capacity at its automation facility at Mahape, Navi Mumbai. From its existing 50,000 sq. ft., the control and automation (C&A) facility will be enlarged to 120,000 sq. ft., and is scheduled for completion by May 2007.
In October 30, 2006, L%T has inaugurated a State of-the-art factory for low voltage switchgear at Wuxi in the Jiangsu province of China. Set up as a wholly owned subsidiary of India's largest switchgear manufacturer, Larsen & Toubro (Wuxi) Electric Company Ltd (LTW), is the Company's first manufacturing facility in the electrical sector outside India.
During the year 2005-2006, the Company has divested its stake in two of its Associate companies, namely, L&T-John Deere Private Limited and L&T-Niro Limited. The Company also exited the Dairy & Milk Processing equipment business forming a part of the Engineering & Construction Projects Division and Glass container business forming part of the Machinery & Industrial Products
The Company has promoted and expanded L&T Infrastructure Development Projects Limited to develop projects across all sectors in Infrastructure i.e. roads, bridges, ports etc. Larsen & Toubro Urban Infrastructure (L&T UIL), a division of Larsen & Toubro subsidiary L&T IDP, has formed three special purpose vehicles (SPVs) to develop an integrated township with Chennai-based realty firm Arun Excello. The township, christened Estancia, will be located at Vallancheri on GST Road in South Chennai, and is expected to be completed in three phases on a project outlay of Rs 15 billion within a four-year time. The first SPV will develop the residential zone comprising 2,000 apartments on around 3 million square feet spread over 37 acres of land, at a cost of Rs 7 billion. In the second SPV, Rs 6 billion has been parked to develop an IT park over 27 acres with 2.7 million square feet of office space. The third SPV will develop a retail mall, hotel and serviced apartments over 1-million sq ft at a cost of Rs 2 billion on 11 acres of land.
Company has set up L&T Infrastructure Finance Company Limited to fund projects in the booming infrastructure segment.
L&T have also announced entry into shipbuilding – a business that will add a new dimension to their manufacturing capability. While operations have been initiated at companies Hazira works, company is actively seeking other options in the east as well as the west coast of the country. It is planning to set up a major state-of-the-art ship building yard valued at Rs 15 billion. The new greenfield ship building yard would come up on a 1,000-acre area and have capability to make all types of ships, including high tech designs like CNG, LNG carriers and containers upto 300,000 dead weight tonnes (DWT). Though India has 28 ship building yards, none of them have the capability to manufacture high tech or sophisticated ships. The largest ships built in the country are of 45,000 DWT.
In February 2007, Larsen & Turbo (L&T) has amalgamated Datar Switchgear with itself for an unknown value. Datar switchgear is a Nashik-based company and the remaining legal formalities in this regard are expected to be completed within the next one or two months. Datar Switchgear is spread over four acres in Ambad in Maharashtra Industrial Development Corporation (MIDC) facility in Nashik. It was engaged in the manufacture of electrical and electronic products. The company was a pioneer in the production of circuit breakers. The move is aimed at extending its presence in the low voltage electrical business.
Some important Memorandum of Understanding's (MoU's) signed by L&T
In November 2006, company signed an agreement with Mitsubishi Heavy Industries Ltd (MHI) of Japan for transfer of technology for the manufacture of super critical boilers that can meet the requirements of the mega power projects being planned for the country. Under the agreement MHI will grant an exclusive licence and transfer the know how and technical information to the Power Business Unit of the Company. The areas covered under this agreement include design, engineering, manufacture, testing, inspection, erection, installation, commissioning, operation, repair, services and retrofitting of super critical boilers including pulverisers. The licence that is for a period of 20 years would cover output range from 300 MW to 1000 MW or nominal super critical coal fired thermal power plants. MHI has also expressed interest to be a JV partner of the Company in this business area. The investment in the venture is about Rs 450 Crores
In February 2007, The Boeing Company signed a MoU with L&T for the joint exploration of business opportunities in India 's defense sector. While offering defense products to India, Boeing's business strategy aims to transform product sales into a springboard for private and public industrial partnerships. A unit of The Boeing Company, Boeing Integrated Defense Systems is one of the world's largest space and defense businesses. Headquartered in St. Louis, Boeing Integrated Defense Systems is a $32.4 billion business. It provides network-centric system solutions to its global military, government and commercial customers. It is a leading provider of intelligence, surveillance and reconnaissance systems; the world's largest military aircraft manufacturer; the world's largest satellite manufacturer; a foremost developer of advanced concepts and technologies; a leading provider of space-based communications; the primary systems integrator for U.S. missile defense; NASA's largest contractor; and a global leader in sustainment solutions and launch services.
In February 2007, L&T and European aerospace and defence group EADS took the first step towards joint exploration of business opportunities in defence and aerospace. EADS is a global leader in aerospace, defence and related services. In 2005, EADS generated revenues of € 34.2 billion and employed a workforce of over 113,000. The EADS Group includes the aircraft manufacturer Airbus, the world's largest helicopter supplier Eurocopter and the joint venture MBDA, the international leader in missile systems. EADS is the major partner in the Eurofighter consortium, is the prime contractor for the Ariane launcher, develops the A400M military transport aircraft and is one of the largest industrial partners for the European satellite navigation system Galileo.
The Company has reached an understanding with Swedish heavy vehicle major Scania to distribute its range of multi-axle trucks in India. These heavy-duty trucks, in the 300-500 hp range, will cater to the needs of the construction and mining sectors. The trucks will complement the Company's range of hydraulic excavators that are widely used in mining and construction projects around the country.
L&T Infotech, a wholly-owned subsidiary of L&T, signed a MoU with Dassault Systèmes (DS), France to provide consulting, development and implementation services around DS end-to-end PLM portfolio. DS is a world leader for Product Lifecycle Management (PLM) software solutions, using the power of 3D representation. DS reported revenues of USD 1.48 billion for F. Y. 2006. The first end-to-end implementation by the partnership of L&T Infotech and DS is for the Heavy Engineering Division of L&T for a range of DS products in order to facilitate knowledge management and to reduce the cycle time for engineering design, as well as for product delivery.
Major Orders in hand
L&T and its international consortium partners of Paul Wurth Italia and India have bagged an EPC (Engineer-Procure-Construct) package, valued over Rs. 1400 crores, for the expansion of Vizag Steel Plant of Rashtriya Ispat Nigam Limited (RINL). L&T's contract-value in this project is around Rs. 810 crores. L&T will construct this blast furnace -- a state-of-the-art 3800 cu.m. unit with a capacity of 2.5 million tonnes of hot metal per year. This is the second biggest blast furnace in India. L&T's Construction Division, ECC, will execute this contract in consortium with Paul Wurth Italia within a stringent time-frame of 30 months. Paul Wurth Italia (the merged entity of Paul Wurth of Luxembourg and SMS Demag of Italy) is the world-leader in iron-making technology through the blast furnace route. This consortium is already executing a similar sized blast furnace order for Tata Steel in Jamshedpur where the project is scheduled to be commissioned by early next year.
Maersk Oil Qatar has awarded L&T, a contract valued in the order of a quarter of billion dollars for its Block 5 development in Qatar, consisting of two new offshore platform top-sides, a flare platform and interconnecting bridge. This is one of L&T's largest overseas project orders. To be executed in 28 months, the Block 5 Package 14 project consists mainly of two 2300-tonne topsides with facilities for oil production and export. L&T is also building its own 3000 T Heavy Lift Pipelay Vessel, to be completed by 2008, which will further increase its value addition and capability for such projects. This particular order for Maersk will be executed by L&T in alliance with its project partners Aker Kvaerner and Seaway Heavy Lifting of the Netherlands, acting as subcontractors. L&T is building a world-class fabrication facility at Sohar in Oman with deep water capability and all-weather delivery into such projects, starting with the flare platform and bridge for this project.
The Company has bagged three orders amounting to Rs 355 crores from Delhi Metro Rail Corporation (DMRC) for the second phase of the Delhi Metro project. These orders will be executed by ECC, the Company's Construction Division.
The Company has secured an order valued at Rs 418 crore (USD 94.33 million and AED 346.68 million) from the Abu Dhabi Water & Electricity Authority for the construction of six major electrical substations in the Al Ain sector of Abu Dhabi.
The Company won two major contracts of an aggregate value of US$ 86 million from the leading Chinese petrochemical Company Sinopec. The Company has been contracted to design, manufacture and supply of three ethylene oxide reactors, each weighing in excess of 1000 tonnes.
L&T has won a contract valued over Rs 5400 cores from the GMR-led Delhi International Airport Pvt Ltd for the expansion and modernization of the Delhi International Airport. It is an end-to-end contract that involves design and construction of a state of the art passenger terminal, and one of Asia's longest runways. The contract also involves connecting taxiways, satellite Fire lighting facilities, etc.
L&T in Joint Venture (JV) with Alpine Mayreder Bau GmbH, Austria has bagged an order valued at Rs 456 crores from NTPC Ltd (a Government of India Enterprise) for the execution of 4 x 130 MW Tapovan Vishnugad hydropower project in Uttaranchal.
Larsen & Toubro (Oman) LLC, has secured orders valued at USS 120 million (Rs 550 crore) for the construction of multi-storied apartments and villas at Sohar in the Sultanate of Oman.
The Company has won a large scale turnkey contract valued at Rs 1150 crore from Indian Oil Corporation Ltd (IOCL) for setting up a captive cogeneration power plant in Panipat, Haryana.
The Company, along with its consortium partner, Haldor Topsoe AS of Denmark has been awarded an order worth around USD 150 million from Saudi Formaldehyde Chemical Company Ltd (SFCCL) in Saudi Arabia
The Company has received an order valued at around Rs 7500 million for the six laning of NH-8 from Vadodara to Bharuch in Gujarat. The contract was awarded by the National Highways Authority of India on Build-Operate-Transfer basis through international competitive bidding. The 83.3 km stretch of NH-8 between Vadodara and Baruch, forms part of the Golden Quadrilateral and is an important link in the high-density corridor connecting Mumbai and Delhi. This stretch is adjacent to the Second Narmada Bridge, which is already under operation on BOT basis by the Company. The project will be domiciled in a special purpose company called L&T Vadodara Bharuch Tollways Ltd, formed exclusively for the project. The highway passes through the districts of Anand, Vadodara, and Bharuch and cuts through various urban centres with a number of road and rail crossings. The proposal envisages construction of 10 major and 36 minor bridges, 11 new flyovers, 2 new ROBs, pedestrian and cattle crossings at specified locations and other junction improvements. The Company would put in place modern toll collection systems and highway traffic management system.
L&T is building the Second Vivekananda Bridge in Kolkata. The Company's Construction Division, ECC, is the EPC contractor for this bridge. The scope of work includes detailed engineering survey, design and construction of the main bridge, viaducts, ramps and approach roads at both Howrah and Kolkata Metro side. The design partners for this project are Consulting Engineering Services Pvt Ltd., India, and Parsons & Brinkerhoff, Bangkok. The bridge is designed to carry six-lane traffic on both carriageways. The commissioning of this main bridge will serve as a new transportation link between the twin cities of Howrah and Kolkata Metro, and will connect two important National Highways, NH-2 and NH-6, with NH-34, thus giving direct access to the North-Eastern part of the country.
Economic trends and its implication on the Company
As per the study of FDI confidence index survey, India is amongst the top 10 countries behind China, followed by Mexico, Poland, Brazil and Russia, in attracting the foreign direct investment into the country. The booming Indian economy will continue to have favourable impact on the business of the Company
Focus of the Government on Infrastructure will result in more opportunities during 2006-2007 in Roads, Airports, Bridges and Ports. Six expressways are identified to be developed through an international competitive bidding process. Major allocations have been planned for urban infrastructure projects, including Mumbai and Bangalore metro rail projects and other projects in Maharashtra, Madhya Pradesh and Gujarat. Government is keen on development of Airports, modernization of airport terminal buildings and other related developments. The Indian Government has been emphasizing on execution of majority of the infrastructure projects through BOT (Build Operate Transfer) /PPP (Public Private Partnership) route. Transportation Infrastructure Sector (TI) Division will be expected to garner a good proportion of the infrastructure BOT projects. Companies Ready Mix Concrete (RMC) business will also benefit due to this and due to further development of Urban Infrastructure, speciality hospitals, academic centres, high rise apartments, sports complexes, development of mega townships in and around IT Parks etc. Further road connectivity projects across the country, flyovers, conversion to concrete roads, Metro rail projects, acceptance of cement substitutes etc. will contribute growth in RMC division.
The Indian Electrical industry has grown by 17% during the year 2005-2006. The governments thrust on energy sector, specifically the power sector and rural electrification covering about 40,000 villages in 2006- 2007 with a further emphasis on 100% metering of electricity with convenient and tamper-proof methods. Metering & Protection Systems business will benefit significantly from (i) the power sector reforms and (ii) the '100% compulsory metering' directive under the Electricity Act. Huge growth in the Infrastructure sector like airports, ports and roads, growth in segments like commercial and residential complexes, malls, IT parks, hospitals, stadiums etc, will help Electrical Standard Products and Electrical Systems & Equipment division comprising of low tension switchgears, moulded case circuit breakers, air circuit breakers, switch boards, energy meters, petrol dispensing pumps, and electronic control and automation systems.
The Government of India has planned to add 14000 MW of Nuclear power generation capacity in the next fourteen years. The recent Indo-US Nuclear co-operation deal is likely to give a fillip to the Indian Nuclear Power program. L&T's Heavy Engineering Division (HED) which manufactures and supplies custom engineered critical Equipment and Systems to the core sector industries like Fertilizer, Refinery, Petrochemical, Chemical, Oil & Gas, Thermal & Nuclear Power, Aerospace and Equipment & Systems for Defence applications expects good business prospects from this sector. Implementation of Kelkar committee recommendations for Defence procurement is expected to bring about higher business potential. The inclusion of offset clause in contracts exceeding Rs. 300 crore for Defence procurement will have a positive impact on the Defence industry in the country.
Due to announcement of some of the major policies in Power sector like National Electricity Policy, Captive Power Policy and Tariff Policy, the power sector is expected to witness a renewed surge. Presently there are several gas projects which are on hold due to nonavailability of gas at competitive prices. This situation is likely to improve due to significant gas finds in India and abroad. Coal-based plants are receiving impetus due to the allotment of coal blocks to private parties. Norms for captive and group captive power projects have been liberalised in June 2005. With the oil prices soaring world wide, activity levels were high in the Hydrocarbon Upstream sector. Opportunities exist for the Engineering & Construction Projects Division in the offshore platforms, replacement and modification of pipelines and platforms.
Large investments are expected in the refinery sector in the next few years, leading to capacity expansion, clean fuel projects and downstream projects. Expansion of Petrochemical industry in India and booming oil economy of the Middle East offers attractive prospects especially with the emphasis on refining/ petrochemical complexes. With domestic demand for oil expected to grow at the rate of 4-5%, India is wooing private capital for oil exploration. In addition to the enhanced activity in the Middle East region under the scheme of monetization of Gas reserves, onshore gas processing activity is expected to provide new opportunities in India as well. Large number of projects planned in Oil & Gas Sector worldwide will benefit Industrial Valves business. There is a good potential for Process Plant Equipment division due to Coal to Gas and Gas-To-Liquid (GTL) projects and large investments planned in Middle East for Petrochemical & Methanol and GTL. In the Indian market, opportunities exist in Ammonia revamp, Naptha cracker expansion and Refinery expansions.
Water supply projects are a point of focus for almost all State Governments due to the enormous demand supply gap. Company expects large value orders involving Water Treatment process. The Water Business Unit of L&T achieved a major breakthrough by securing three packages in water transmission projects in Kerala aided by Japan Bank for International Cooperation.
Ship-Building/Ship Repair industry has been identified as a thrust area by the Indian Maritime Policy. International Shipbuilding market is currently booming. L&T's Heavy Engineering division is entering Ship Building activities for construction of commercial vessels and warships for the navy as well as the coast guard.
Design and Engineering off-shoring trend continues to gain ground in North America, a
leading market. The trend in European Market is also encouraging.
With the formation of "Special Economic Zones" in the country, opportunities have opened up for supply of Process Plant Equipments to the SEZs which are treated at par with exports.
Ambitious growth targets in the coal sector will encourage demand for L&T-'Surface Miner'—The new machine for coal and limestone mines around the country.
Upswing in the Indian healthcare market, emergence of health tourism will benefit Medical Equipment & Systems business.
Capacity addition is being undertaken in a significant way in various industries like steel, auto and auto ancillaries, textiles, power generation, IT, healthcare etc. Also, turn-around in cement and metal sector has initiated a new capital expenditure cycle. This has created many opportunities for Company.
Continued thrust on core infrastructure development, the focus on rural economy are expected to fuel the industrial growth. The demand for construction equipment is expected to grow at CAGR of over 25% over next 3 years. The construction equipment demand is expected to be healthy backed by strong growth in privatized mining activity.
Large-scale infrastructure development in Gulf provides attractive opportunities for the Electrical Standard Products, Electrical Systems & Equipment and Control & Automation businesses. The size of switchgear market in China, addition of power generation capacities and investment in infrastructure development, further supplements the business prospects in the international markets for the Company's electrical products.
The National Highway development will accelerate the demand for petrol filling stations with increase in vehicular traffic, which will give boost to Petroleum Dispensing Pumps & Systems business.
The Control & Automation business will benefit from the revival of core manufacturing sectors like metal, cement, oil & gas and water.
Risks and Concerns
The Engineering & Construction segment contribute 84% of the Company's turnover during the year 2005-06. This segment has its typical risk characteristics inherent in a project centric business.
Effective management of this risk is critical to the success of the Company's E&C business. The penalty for delayed delivery and shortfall in performance is usually steep and can erode profitability.
Most of the Company's contracts are secured through a process of competitive bidding. A wrong assessment of the various activities and their duration may result in an improper cost estimate and commitment of an unrealistic delivery schedule.
Markets in which the Company operates are witnessing penetration by small players and entry of multinational corporations. Increased competitions to have an adverse influence on the Company's market share and profitability.
The Company has ventured into select markets outside India . Each of these countries is unique and the Company's success in these geographies depends on how quickly it is able to adapt to local conditions.
Non availability of fuel (especially gas) may delayed commencement of many power projects both in the public and private sectors.
Availability of talent of requisite quality and number is posing a major challenge for the Company.
Competition from Chinese manufacturers and lowering of import duties, have put pressure on prices of industrial products, particularly rubber & plastic machineries, crushing equipment & systems, and surface miners.
Higher interest cost will affect profitability of the Company.
In Defence business, nomination of Defence Public Sector Units (PSUs), Ordnance Factories and Purchase Preference to PSUs (extended till 2008) continue to be a deterrent.
Steps taken by Management to control risk factors
The rising input costs, both material and services, were offset by the improved efficiencies in procurement and execution.
The Company is pursuing various cost optimization initiatives with the help of renowned consultants in all its major businesses. Global sourcing of inputs, critical review of logistics support to mega projects, reducing rework with detailed planning and improved engineering designs, superior labour productivity through 'Total Productivity Management' and 'Lean Manufacturing' practices, are some of the initiatives taken to optimise costs.
In the light of severe competition for technical and managerial skills required for high-end technology projects and products, the Company is investing in "human capital", which is vital for the future growth of the businesses. Talent management is being addressed by setting up dedicated training centres, providing career development opportunities and offering exciting assignments, both offshore and on-site.
The efforts taken in efficiently managing the treasury operations has helped the Company to contain its net interest cost at 4.5% p. a. for the year, despite the hardening interest rate scenario. Initiatives in repaying expensive debt, optimizing the funding mix between foreign currency and rupee credit lines and close monitoring of funds employed by the businesses have contributed significantly towards this end. For infrastructure projects, company is raising money from domestic banks as well from international borrowing.
Company has divested non core businesses such as dairy machinery, tractors and glass packaging profitably, unlocking value in the process.
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