Captains Speak

Published: Dec 29, 2021
Updated: Dec 29, 2021

Larsen & Tourbro Healthy order book, despite Covid

Revealing that the order inflow at Larsen & Toubro has zoomed by 76 per cent during Q3FY21 to Rs 73,233 crore, P Ramakrishnan, Vice-President (Corporate Accounts & IR), adds that the consolidated order book as at December 31, 2020 stood at a record high of Rs 331,061 crore — a growth of 8% yoy. “The international orders constitute 20% of the total order book,” he points out. According to him, the order inflow for 9 months of FY21 was down by 3% yoy to Rs 124,846 crore. Strong order booking in Q3FY21 is partly due to pentup demand and partly due to incremental demand. The order inflow of the core infrastructure segment for Q3FY21 was Rs 45,574 crore, a jump of 80% yoy, led by receipts of two packages of marquee orders of high speed rail. The order book of the infrastructure segment at the end of December 2020 stood at Rs 245,316 crore, of which international orders were about 19%.

The power segment order book at the end of December 2020 stood at Rs 13,710 crore, with no major orders bagged in Q3FY21. The order book of heavy engineering at the end of December 2020 stood at Rs 3,645 crore, with the Q3FY21 order inflow standing at Rs 998 crore. The defence order book at the end of December 2020 stood at Rs 8,795 crore, with the Q3FY21 order inflow being Rs 705 crore. The order book of the hydrocarbon segment at the end of December 2020 stood at Rs 45,887 crore, with the Q3FY21 order inflow being Rs 12,820 crore. There was strong domestic ordering activity in infra and hydrocarbon; however, the prospects for thermal power generation remain muted. According to Mr RamAkrishnan, while private capex is yet to pick up momentum, the government focus is on key sectors like Metro/RRTS/HSR, Roads and Expressways, Water, Renewables and Power Transmission and Distribution. The prospects (tendering, bid or award stage) pipeline at the end of December 2020 is about Rs 265,000 crore, of which about Rs 220,000 crore is domestic and the balance is international. This order prospect is for Q4FY21. The infra segment ordering prospect is also good and the company is optimistic about ordering activity in the near term. Portfolio diversity mitigates cyclicality and a large proportion of orders from the govt/PSUs reduces credit.

INPUT COSTS

Explaining that the “fall in revenue for the quarter ended December 2020 was largely due to strict Covid-19 safety protocols, which continued to have an impact on project site execution,” Mr Ramkrishnan adds that the company has also pulled back to some extent on certain orders’ execution due to the rise in steel and cement costs. In addition, the Covid restrictions have also impacted the operations of the Hyderabad metro operations. However, there was sequential improvement in execution on higher work force mobilisation and supply chain normalisation. Most of the labour, numbering about 180,000 workers, is back and most sites are back to normal operations. The supply chain issues have also been largely resolved. About 50% of the contract of the company is cost-plus. Only orders for which an LoA is received are part of the order book, and thus there will be a timing difference. Of the order book, about Rs 91,000 crore is multilateral funding projects. Slow-moving orders out of the order book were minuscule.

According to Mr Ramakrishnan, with the spectre of the pandemic lingering, business pursuits need to factor in the safety precautions warranted to ensure responsible conduct towards the new emerging opportunities and growth prospects. Against such a backdrop , the company will focus with cautious optimism on (a) large project wins, (b) smart execution of its large order book, and (c) preservation of liquidity and optimum use of capital and other resources. A major part of the order book of the power segment is yet to cross the margin recognition threshold. On a sequential basis, the margin has stabilised and better execution and productivity improvement can improve margins. In Q3FY21, the company received an advance of Rs. 450 crore from a high speed rail order. It sees an opportunity in the international side for about Rs 40,000 crore worth of orders in water, power, t&d, renewables, etc. Recent policy pronouncements have been encouraging for the domestic industry. About Rs 28,000 crore worth of projects were recently cleared by the defence ministry. In the hydrocarbon segment, the company see orders largely from the middle and downstream. According to him, the company in Q3FY21 infused Rs 500 crore in the Hyderabad metro and this is part of the earlier guided amount (Q2FY21) set aside of about Rs 2,000 crore for the Hyderabad metro. As most of the customers are repeat customers, the company adopts a conciliation approach, especially with repeat customers. Hopefully in the next 3 quarters, some of the claims which are already expensed out in the P&L will be collected as the clients largely understood the expenses incurred during Covid.

HYDERABAD METRO

Regarding the Hyderabad metro, in Q3FY21 the revenue was Rs 50 crore, of which revenue through passenger ridership was about Rs 30 crore. The operating expenses were Rs 50-60 crore, depreciation Rs 75 crore, and interest cost was about Rs 365 crore. Of the investible surplus of Rs 45,000 crore, about Rs 7,000 crore is from finance services, about Rs 7,000 crore from ITeS, and the balance from the core business of the company. Once the company funds L&T Finance, the Hyderabad metro and pays off its debt, the surplus will substantial reduce by the end of the current fiscal.

The realty business of the company comprises both residential and commercial. The company’s realty development is currently on its own land in Mumbai, Bengaluru and Chennai, which is good enough for the next 7 years. The company is not investing in lands and growth will be through JVs only. The realty portion of the order book is about Rs 45,000 crore. The majority of this is under execution while the non-moving real-estate order book currently is Navi Mumbai Airport. The company will strive to maintain the working capital of the last fiscal for the current fiscal as well.