In May 2014, the country rang in a decisive mandate for change. It is
now up to the new political dispensation to deliver on its agenda and
accelerate the process of renewed growth. It would need to act
decisively on a number of reform measures that will drive development,
including reducing subsidies, streamlining approval processes,
professionalising the public sector and privatising natural resources
under a transparent and stable policy regime.
Looking back, fiscal 2013-14 continued to witness the constraints that
have hampered the economy in the last couple of years. GDP growth last
year was lacklustre at 4.7% and Fiscal Deficit continued to be high.
Feeble industrial production for the third
straight year, meant that FY14 ended in negative growth. New
investments, particularly in the private sector were muted as many
projects remained mired in uncertainty. While the Government managed to
contain Fiscal Deficit within budgeted numbers by cutting back on
expenditure, the burden from the triad of subsidies continued unabated.
On the positive side, the Current Account Deficit was narrowed down
through a restriction on gold imports, aided by stagnant imports of
petroleum products as well as capital goods thanks to the industrial
slowdown. Wholesale inflation also contracted, leading to a benign
commodity pricing environment. There was intermittent progress in key
reforms such as expediting and streamlining approval processes, SEB
regulations, diesel/LPG price hikes, and establishing policy certainty
in areas such as power purchase tariffs and toll-based highway
In the international arena, FY14 was marked by encouraging developments
such as a booming infrastructure sector in the Middle East, with a
number of landmark projects in transportation and power transmission &
distribution being ordered, and other multi-year opportunities in the
pipeline. The Hydrocarbon sector in the region also continues to be
vibrant, and attracts a large number of global E&C companies, giving
rise to stiff competition.
Against the backdrop of this challenging environment, your Company has
turned in a commendable performance on most key performance parameters.
Order Inflows, which are the mainstay of any company engaged
predominantly in Engineering & Construction business, clocked in at ?
94,108 Cr., representing a robust 15% growth over the previous year.
The unexecuted Order Book at the year-end stands at ? 162,952 Cr., thus
providing a healthy revenue and margin visibility over the next few
years. Despite severe execution challenges in the domestic market, your
Company managed to keep project execution largely on track, and helped
by robust growth in overseas revenues, registered a 10% growth in Gross
Revenues at ? 57,164 Cr. Profit after Tax registered ? 5,493 Cr which
translates to a growth of 25% over the previous year on a like-to-like
At the Group level, Gross Revenues displayed a growth of 14% and stood
at ? 85,889 Cr for the year under review. PAT, at ? 4,902 Cr represents
a decline of 6% over the previous year, caused by capacity
underutilisation in two new subsidiaries, viz. L&T Shipbuilding Ltd.
and L&T Special Steels & Heavy Forgings Pvt. Ltd, as well as execution
challenges faced in the Hydrocarbon business.
It gives me pleasure to announce that your Company has recommended
dividend of ? 14.25 per equity share on a face value of ? 2 per share
for the year. The corresponding dividend during the previous fiscal was
at ? 12.33 per equity share.
Your Company is moving decisively towards consolidating its
nternational operations through a replication in the Middle East of its
domestic structure and systems. While the prime focus is the Gulf
Cooperation Council countries, the international outreach also extends
to South East Asia, CIS, and select African nations. International
talent and experience is essential to achieve our goals, and we are
strengthening our multi-cultural leadership base, with the induction of
professionals possessing rich domain experience and local customer
The thrust on international markets is yielding gratifying results.
International Order Inflows represent 33% of the total inflows during
the year under review, and showcase remarkable success in winning major
new orders in the infrastructure sector.
In an age of increasing technological parity, high calibre talent, with
the requisite training and exposure creates a key differentiator
between companies and represents a competitive edge. Your company
therefore places continuing emphasis on identification and induction of
talent at various levels and across multiple functions. Systems are in
place to ensure that a multi- cultural leadership team is rapidly
integrated into the mainstream and embedded with the values, ethos and
philosophy of L&T.
We recognise that the career preferences of the youth today are biased
towards jobs in the new economy, making the task of attracting and
retaining young talent more difficult. As a counter- weight, your
company promotes and projects the opportunity of working on critical
projects that would make a tangible difference to nation, society and
Inclusive growth that takes into account the interests of all
stakeholders is at the heart of your Company’s value system. These
values have helped us empower communities and accelerate their
development. Right from inception, we have been involved in community
engagement programmes ranging from health, education to skill building.
The Company’s contribution to CSR has been widely recognized. Early in
2014, L&T received the prestigious The Economic Times ‘Corporate
Citizen of the Year – 2013’ award.
The mandatory spending of 2% of profits on CSR initiatives under the
newly introduced provisions of the Companies Act, 2013, is in line with
L&T’s policy on CSR. We are also using this window of opportunity to
extend our social and environmental outreach. A CSR committee with
Board-level representation has been constituted to drive projects
across the organization in a more robust manner. We have also expanded
the sustainability organizational structure and formulated a
Sustainability & Corporate Social Responsibility (SCSR) team.
Thrust areas on the sustainability front include augmenting efforts at
energy conservation, climate change, water conservation and material
Despite the continuing slowdown, the macro environment has shown early
signs of recovery, and with the dawn of a stable government, promises
to improve gradually during FY15. Your Company has identified specific
opportunities for growth within India and internationally, which it is
targeting effectively. Segments that hold promise in FY15 include –
1) Infrastructure –
a) Roads – This segment is expected to pick up in FY15 through ordering
of more than 2,300 km of new projects on Engineering, Procurement &
Construction (EPC) mode, and 3,000 km in PPP mode. Apart from this,
there are several upcoming opportunities in building Expressways and
Elevated Corridors. Being the distinct leader in the segment, we will
selectively participate in these EPC bids where the prospects meet our
internal viability benchmarks. We will also continue to target
upcoming road projects in the Gulf countries, where we have had
significant order wins during FY14.
b) Metro and Mono Rails – The Company has been involved in the
execution of metro rail projects in cities across the country and in
India’s first monorail in Mumbai (Phase I commissioned in FY14). This
enables the Company to exploit opportunities to secure contracts in
India, where multiple cities are initiating metro rail projects. We
have also won two major, prestigious contracts in the Middle East, for
Riyadh and Doha Metro projects during FY14, contributing significantly
to the order inflow growth during the year. We are participating in
bidding for further such prospects in the region.
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, and are
bidding for more packages. We are also exploring international markets,
especially the Gulf countries where several projects are coming up.
d) Water & Renewable Energy – The sector has seen a strong growth in
investments over the last two years, with growing focus from the
Government sector in improving access to water and preventing pollution
of its sources. In FY14, your Company has been able to achieve
significant order inflow growth in this segment, backed by strong
project execution capabilities and operational excellence. With a
healthy Order Backlog and growing order prospects, the business from
these sectors is expected to see an upswing in FY15.
e) Urban Infrastructure – Opportunities in residential buildings,
office space, hospitals, hotels, educational institutions, shopping
complexes and factories continue to provide a large canvas of business
potential. Your Company has become the EPC contractor of choice for
major developers and this is driving profitable growth. Projects in
Mass and Affordable Housing, Healthcare and Educational Institutions
hold additional promise in FY15.
f) Airports – Increasing passenger and cargo traffic over the last
decade has sustained growth in aviation industry. The Government plans
to modernise a number of Tier II City airports and build a few
Greenfield airports as well. Similarly, a number of nations in the
Asian region are modernising and expanding their airport
infrastructure. On the back of our excellent track record in this
sector, we are well-positioned for airport projects within and outside
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 FY15.
However, the setback that the international nuclear power sector
experienced with the natural disaster at Fukushima, Japan, will
continue to affect demand in this segment, and impinge on volumes in
our new forging unit.
During the last few years, the defence sector had been adversely
impacted by a slow pace of decision making resulting in deferral of
contract awards. However, recent initiatives to involve the private
sector in defence equipment manufacturing and the stated intentions of
the present stable political establishment augur well for your Company.
The shipyard at Kattupalli, which was commissioned in FY13, is capable
of building warships, submarines and specialized commercial ships. It
is equipped with a state-of-the-art ship-lift 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 ships.
Apart from this, we are looking at addressing the growing demand for
specialised ships such as LNG and Ethane carriers, and Chemical tankers
through technical collaborations. We are also looking to leverage our
position in the hydrocarbon sector by developing semi-submersible rigs
and floating LNG platforms, opportunities emerging from oil & gas
exploration and production in deep offshore fields.
3) Hydrocarbon –
On the domestic front, Exploration & Production (E&P) spends in
upstream hydrocarbon segment are expected to sustain during FY15. The
decision to move towards market driven pricing in both Diesel and
Natural Gas is expected to spur upstream capex. Opportunities in LNG
regasification terminals and integrated refinery and petrochemical
projects should open up in the year ahead. Implementation of
re-development projects should provide a fillip to the onshore gas
processing segment. Investments are also expected in cross-country
In the upstream sector, the Company’s capabilities extend to the
repair, rebuild and construction of new Jack-up 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.
Several large and prestigious international orders have bolstered our
presence in select geographies. 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
The Company has transferred its Hydrocarbon Business to a wholly owned
subsidiary in FY14, to enable greater autonomy and formulation of HR
policies in line with industry practices so as to attract the best
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 shrunk the order pipeline, putting pressure on
the Company’s capacity utilization.
Some welcome steps such as raising distribution tariffs, imposing
anti-dumping duties on imported equipment, and fast tracking of Fuel
Supply Agreements and other clearances have been taken. However, in
view of the large backlog of projects which are stuck due to various
constraints, revival in the sector is still some time away.
Under the circumstances, we are doing our best to be competitive
through cost reduction, design optimisation and smart sourcing.
We are also placing emphasis on expanding our spectrum of services to
select Gulf countries and the Southeast Asia for gas based power
plants, and have recently achieved breakthrough orders in Bangladesh.
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 outlook in this area continues to be challenging, due to a myriad
factors including sector slowdown, mining bans imposed by the
judiciary, prevailing complexities of policies governing mining, land
acquisition as well as the dearth of new investments. Efforts are
underway to resolve these issues 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 steel, mines, power, ports and
long distance conveyors for bulk ores are likely to grow in line with
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 has also acquired three companies which will bridge
technology gaps in one case, enhance product range in the second and
augment market reach through the third.
8) Machinery & Industrial Products -
The Construction Machinery business was able to register flattish
growth despite shrinkage in construction equipment market and entry of
new competitors. Your Company acquired the stake of the JV partner
Komatsu in Construction Machinery business.
The Company also acquired the stake of JV partner Flowserve in the
Valves business. The reported revenues in Valves and Cutting Tools
businesses were lower for the Standalone entity, as the businesses were
transferred to subsidiaries during FY14. However, the Valves business
as a whole continued to grow due to Oil & Gas and Power sector
investments in India and overseas. Fresh infusion of investment in
these sectors in the US, the Middle East and other countries is
expanding the potential for our international operations.
9) Realty –
L&T has recently started realty business by using its own land parcels
and in joint ventures with other developers and this has already
started yielding good results. Market has received our entry in this
business with enthusiasm.
With the help of L&T’s brand, its construction capability and marketing
reach, this business is poised to deliver profitable growth in the
10) Information Technology & Integrated Engineering Services Business -
In USD terms, L&T Infotech, a wholly owned subsidiary, grew at 18%
Y-o-Y on a consolidated, like-to-like basis. Profit after Tax grew by
4%, due to the impact of prior period adjustment. 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 certain major initiatives intended to enhance the
visibility, profile and sharpen its distinction through the
differentiated solutions it offers in multiple domains.
Technology Services, a Strategic Business Unit of L&T, is being formed
into a subsidiary. This will result in consolidation of all engineering
services business of L&T and L&T Infotech. This subsidiary will provide
autonomous functioning in line with ndustry practices.
11) Financial Services -
This business, which was listed in 2011, continues to grow profitably
with a loan book in excess of Rs 40,000 Cr at the end of FY14. 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.
12) 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 has opened up alternate
funding lines to enable commissioning of the upcoming projects and
reduce dependencies on your Company’s balance sheet, and advanced on
monetising the value of matured assets
Before I conclude, I would like to extend my thanks to Team L&T,
Government, 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
A. M. Naik
Group Executive Chairman
Mumbai, May 30, 2014