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Larsen and Toubro
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« Mar 12
Chairman's Speech (Larsen and Toubro) Year : Mar '13
Dear Shareholders,
 
 It has been a challenging year for Indian industry. The economy,
 impacted by decelerating GDP growth, mounting fiscal deficit and high
 Current Account Deficit, has seen lacklustre investment momentum in
 infrastructure, energy and industrial capital expenditure.
 
 The few positives to emerge from this scenario were the clutch of
 fiscal reforms introduced in the latter half of the year with a view to
 revving up the economy. These measures range from phased deregulation
 of diesel prices, formation of a Cabinet Committee on Investments,
 direct transfer of subsidies to beneficiaries and efforts to reduce the
 losses of state-owned power distribution companies. These measures will
 need to be sustained and supplemented by a slew of others to
 effectively recharge the economy and restore its growth trajectory.
 
 Performance Overview
 
 Against the backdrop of this challenging environment, your Company has
 turned in a commendable performance on all key performance parameters.
 
 Order Inflows which are the mainstay of any company engaged
 predominantly in Engineering & Construction business, clocked in at Rs.
 88,035 Cr representing an impressive 25% growth over the previous year.
 The unexecuted Order Book at the year-end stands at Rs. 153,604 Cr.
 This provides a healthy revenue and margin visibility over the next few
 years. Project execution was largely on track - borne out in the 14%
 growth in Gross Revenues which came in at Rs. 61,471 Cr. Profit after
 Tax registered Rs. 4,911 Cr which translates to a growth of 10% over
 the previous year.
 
 At the Group level, Gross Revenues displayed a growth of 16% and stood
 at Rs. 75,195 Cr for the year under review.  PAT, at Rs. 5,206 Cr
 represents a growth of 11% over the previous year.
 
 It gives me pleasure to announce that your Company has recommended
 dividend of Rs. 18.50 per equity share on a face value of Rs. 2 per
 share for the year. The corresponding.  dividend during the previous
 fiscal was at Rs. 16.50 per equity share.
 
 In addition, I am glad to share that, in the 5th anniversary year, your
 Company has also recommended bonus shares in the ratio of 1:2 (i.e.,
 one bonus equity share of Rs. 21- each for every two equity shares
 of Rs.2/- each held).
 
 Internationalisation
 
 In times of challenge, a mix of long range strategy and agile tactical
 responses are critical to success. Your Company has countered the
 slowdown in the domestic market by expanding its footprint and
 intensifying operations in geographies with promising business
 lalityl/This outreach is predominantly in the Gulf countries, South
 East Asia Regions and now working to extend to Australia, a few CIS
 countries and select African nations. Quite a few senior business
 development executives of different nationalities and having rich
 domain experience with customer insight have been inducted at the local
 level in these countries.
 
 The thrust on penetration into international markets is yielding
 results. International Order Inflows represent 17% of the total inflows
 during the year under review.
 
 Talent Management
 
 In the last two decades, we have seen the young generation being
 attracted to new economy sectors, resulting in lack of top talent
 coming into the core sector, particularly in Project and Construction
 industry. This has become a global phenomenon and is not restricted to
 India. Hence development of human resources, along with talent
 acquisition continues to receive focussed attention in your Company.
 
 People remain the cornerstone of the organisation.  We ensure that
 employees gain ample opportunities for personal and professional
 growth. Our Leadership Development Academy in Lonavala - Maharashtra,
 Project Management Institutes at Vadodara - Gujarat and at Chennai -
 Tamil Nadu, and systematic career progression of staff are a few of the
 multiple initiatives that will facilitate succession planning.
 
 We recognize that the process of internationalization involves adopting
 and embracing a multi-cultural work ethos - while retaining our core
 national identity. We have intensified recruitment of lateral hires at
 the management level, particularly in the Gulf countries and for new
 growth geographies.
 
 Sustainable Development
 
 Your Company has aligned itself with the Millennium  Development Goals
 formulated by the United Nations, and Isas progressed well on the
 Social, Environmental and Economic agenda pursued over the last few
 years.  Considerable headway has been made in the areas of energy
 conservation, health care environment protection and social uplift of
 the deprived sections of society. The Company harnesses untapped energy
 of Indias youth through broad-based skill development centres and
 promotes social development through on-going mother & child healthcare
 programmes. Your Company has been recognised in various national and
 international forums for its sustainability efforts.
 
 Outlook
 
 Even as the macro environment remains challenging, your Company is
 effectively targeting specific opportunities within India and
 internationally.; Segments that hold promise in FY14 include -
 
 1) Infrastructure -
 
 a) Roads - This segment witnessed severe contraction in ordering by
 NHAI in FY13 but is expected to pick up in FY14 through ordering of
 more than 3,500 km of new projects on Engineering,
 
 Procurement & Construction (EPC) mode. We being the distinct leader in
 the segment, will selectively participate in these EPC bids where the
 prospects meet our internal viability benchmarks.  Some upcoming road
 projects in the Gulf countries are also being targeted irv FY14.
 
 b) Metro and Mono Rails - The Company has been involved in the
 execution of metro rail projects in cities across the country and
 Indias first monorail in Mumbai (trial runs conducted in FY13). This
 enables the Company to exploit opportunities to secure contracts in
 India, where multiple cities are initiating metro rail projects. We are
 also participating in mass rapid transport prospects in the Gulf
 countries.
 
 c) Railways Business - The thrust on strengthening the rail network
 across the country holds good prospects for our railways business. We
 have already secured an initial order in consortium with a Japanese
 company for a major section of the Dedicated Freight Corridor. We are
 also exploring international markets, especially the Gulf countries
 where several projects are coming up.
 
 d) Water Renewable energy - Backed by strong project execution
 capabilities and operational excellence, the Company has achieved good
 growth in Water and Renewable Energy sector in FY13. With current Order
 Backlog and good order prospects, the business from these sectors is
 expected to see an upswing in FY14.
 
 e) Urban Infrastructure - Opportunities in residential buildings,
 office space, hospitals, hotels, educational institutions, shopping
 complexes and factories continue to provide a large canvass of business
 potential. Your Company has become the EPC contractor of choice for
 major developers and this is driving profitable growth.
 
 f) Airports - Increasing passenger and cargo traffic has sustained
 growth in aviation industry. On the back of excellent track record in
 this sector, we are well-positioned for airport projects within and
 outside India.
 
 2) Heavy Engineering & Shipbuilding -
 
 We have the capability to meet the requirements for high technology
 critical equipment and systems. In the process plant equipment segment,
 the international market looks promising in the medium term. The
 domestic nuclear segment is expected to see ordering activity in FY14.
 The defence sector has been adversely impacted by the slow pace of
 decision making as well as deferral of contract awards. However, recent
 initiatives to involve private sector in defence equipment
 manufacturing augurs well for your Company.
 
 The shipyard at Kattupalli has been completed and is capable of
 building warships, submarines and specialized commercial vessels. It is
 equipped with a state-of-the- art shiplift that enables it to undertake
 simultaneous new build, repair & refits. While the global commercial
 shipbuilding trend remains subdued, we envisage that the Indian defence
 sector is likely to open up and provide opportunities for building
 defence vessels.
 
 3) Hydrocarbon -
 
 On the domestic front, Exploration & Production (E&P) spends in
 upstream hydrocarbon segment is expected to sustain during FY14. The
 announcement of the recent policy to treat fertiliser production on
 priority basis will result in setting up new fertilizer plants. This
 will provide increased opportunities. Onshore gas processing segment is
 also expected to witness implementation of redevelopment projects.
 Large investments are also expected in cross-country pipeline projects.
 
 In the upstream sector, the Company is equipped to repair, rebuild and
 construct new Jack-ups, drilling rigs and FPSO topsides. The business
 is well placed to leverage its multi-locational Modular Fabrication
 Facilities to respond to global trends towards modularization of
 onshore Gas Processing plants.
 
 We have improved our international presence through several prestigious
 orders. We are increasingly pursuing opportunities overseas through
 alliances with the leading global EPC companies. This has necessitated
 putting in place a multi-national organization, with a cross-cultural
 team possessing local knowledge and domain expertise.  The Company
 proposes to form a subsidiary for its Hydrocarbon Business. This will
 enable greater autonomy and formulation of HR policies in line with
 industry practices so as to attract the best talent.
 
 4) Thermal Power -
 
 Policy paralysis, negative market sentiments and procedural bottlenecks
 have adversely affected the domestic Power sector in the last couple of
 years. Pressing concerns with respect to land, fuel, financing and
 statutory approvals have dried up the order pipeline, putting pressure
 on the Companys capacity utilization.
 
 This is further aggravatedby large scale imports since the countrys
 policies do not provide a level playing field, particularly against
 imports from managed economies.
 
 Under the circumstances, we are doing our best to be competitive
 through cost reduction, design optimisation and smart sourcing.
 
 Emphasis will also be on expanding our spectrum of services to select
 Gulf countries and the Southeast Asia for Gas based power plants.
 
 5) Power Transmission & Distribution 
 
 Government policies lay stress on investments in strengthening the
 power grid and the power distribution system through central and
 multilateral funding agencies.  We have demonstrated a steady growth in
 order book position in domestic and international markets.
 
 The emphasis on strengthening of transmission grids in Gulf countries
 will continue to provide significant business opportunities for power
 transmission and distribution business in the coming years.
 
 6) Metallurgical and Material Handling -
 
 The short-term outlook in this area continues to be challenging, due to
 prevailing complexities of policies governing mining, land acquisition
 and absence of new power projects. These are sought to be resolved
 through various government proposals, legislations and policies. As the
 economy grows, demand for metals particularly steel, aluminium and
 copper will necessitate expansion of capacity. We are well positioned
 to benefit from the confidence we enjoy because of our track record and
 timely completion of projects.
 
 Material Handling prospects in areas of power, mining, ports and long
 distance conveyors for bulk ores are likely to grow in line with
 economic growth.
 
 7) Electrical & Automation -
 
 The Electrical & Automation business continues to maintain its
 leadership position in LV Switchgear. It has also made a mark in the MV
 segment through an acquisition of an international company a few years
 ago. Product development in both LV and MV Switchgear continues to
 forge ahead. The project business has enhanced its focus on
 international markets. The coming year should see an upward momentum.
 The Company haralsoacquired two small companies which will bridge
 technology gaps in one case and enhance product rangejn another.
 
 8) Machinery & Industrial Products -
 
 The Construction Machinery business maintained its leadership position
 in premium excavators segment despite shrinkage in construction
 equipment market and entry of new competitors. In Industrial Products,
 the valves business maintained the positivetreadin FY13, registering a
 growth in sales of 9% over the previous year.  Major investments in the
 oil & gas segment planned in the USA, Middle East and other countries
 provide good opportunities for international operations.
 
 9) Information Technology & Integrated Engineering Services Business;
 
 L&T Infotech, a wholly owned subsidiary, grew at 22% Y-o-Y on a
 consolidated basis. Profit after Tax grew by 49%.
 
 L&T Infotech has embarked on building a strong sales and marketing team
 globally with emphasis on the Americas, Europe, Gulf countries and the
 Far East. The Company has also undertaken some major initiatives
 intended to make the L&T Infotech name more visible and distinctive
 because of differentiated solutions it offers in multiple domains.
 Technology Services, a Strategic Business Unit of L&T, is being formed
 into a subsidiary, which will result into consolidation of all
 engineering services business of L&T and L&T Infotech. This subsidiary
 will provide autonomous functioning in line with industry practices.
 
 10) Financial Services -
 
 This business, which was listed in 2011, continues to grow profitably
 with a loan book in excess of Rs. 33,000 Cr at the end of FY13. Net
 Interest Margins at 5.5% reflect the healthy interest spreads that the
 business earns.  The business has successfully concluded acquisitions
 in mutual funds business and housing finance. The insurance business is
 also joining hands with the Future Group and the Generali Group to
 leverage the complementary strengths of both players and to enable
 achievement of scale and early profitability.
 
 11) Developmental Projects -
 
 Development projects undertaken by the Company in roads, ports, metro
 rail and power continue to progress satisfactorily, with some of these
 projects currently operational. The Company plans to open up alternate
 funding lines to enable commissioning of the upcoming projects and
 reduce dependencies on your Companys balance sheet.
 
 Before I conclude, I would like to extend my thanks to Team L&T,
 customers, vendors and other stakeholders, without whom our continued
 growth momentum would not have been possible. I would also like to
 thank my fellow Board Members for their unstinted support and
 encouragement.
 
 Thank You
 
 A. M. Naik
 
 Group Executive Chairman
 
 Mumbai, May 22, 2013
Source : Dion Global Solutions Limited
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