Larsen and Toubro is aiming to build an order book Rs 2000 crore over next two years, welcomes talks of hiking FDI limit in defense to 49 percent.
Larsen and Toubro , which has been making defence equipment since last three decades, is aiming to build an order book Rs 2000 crore over next two years, MV Kotwal, President, Heavy Engineering, L&T told CNBC-TV18 today.
The company recently bid for coast guard’s orders worth Rs 4000 crore for fast patrol vessels (FPV) and offshore supply vessels. “In addition to that we have been building multi-barrel rocket launchers (MBRL) and some other systems for the army. We are of course very deeply interested in some of the gun programs,” Kotwal said.
Also read: L&T bags orders worth Rs 2,000cr
Kotwal welcomed the government’s move to consider hiking foreign direct investment in defence from 26 percent to 49 percent. He, however, cautioned that along with higher foreign investment the country must get defence knowledge as well.
“We should not then be again dependent on the Original Equipment Manufacturers (OEM) to give the basic technology or knowhow. So we should ensure that this 49 percent is done in JVs which get real and critical technologies,” Kotwal said.
Below is the verbatim transcript of the interview
Q: What exactly are the plans at this point in time? Have you already got orders? What is the current order book and what do you expect you might grow to in a year's time?
A: Larsen and Toubro's (L&T) presence in defence has been for nearly three decades and we have been developing various prototype systems along with Defence Research and Development Organisation (DRDO). It is only in recent times that we have seen a significant shift in the thinking of the government. The recent Defence Procurement Procedure (DPP) augers well for that because it talks about indigenization of defense equipment, which we see as a positive move.
If that happens in a real way in implementation we can see a lot of new things happening within the next few years. It will take sometime. It is not as if it is going to happen immediately. On hand currently is a set of bids we have already made for the coast guard which is for fast patrol vessels (FPV) and some offshore supply vessels. Basically these are smaller vessels which give us a chance of participating in the bigger way in the coast guard requirements. As you know we are already building some 54 interceptor boats for coast guard which are very fast and which have been designed fully by L&T. Going forward we believe that in all areas, not only navy but also in the army and air force there will be opportunities for us and we in L&T are well positioned because we have already made investments to cater to these requirements in all areas.
Q: Can you just put some numbers to what you are saying? You rattled off a lot of orders on the coast guard front and other entities. What would the order book currently look like and what may it be in a year's time or two?
A: As far as the coast guard interceptor boats are concerned we are making 54 of them and each is around Rs 30-35 crore, so that is the kind of order value for the coast guard. We now have bids out for close to Rs 4,000 crore which is what I talked about in terms of the patrol vessels and the offshore supply vessels. In addition to that we have been building multi-barrel rocket launchers (MBRL) and some other systems for the army. We are of course very deeply interested in some of the gun programs. We have fielded some systems which are currently under trial and we believe that once that happens we will be really talking about larger order book. Therefore in the next two years I think that we will be looking at order book which will be much higher than what it is today and it will be close to about Rs 2,000 crore or so per year. That is the kind of thing which should happen, but that will take two years from now. Many of these bids which have come in now or the guns which are under trials, they will take that kind of time for actual order placement.
Q: You said that Rs 4,000 crore for the Indian Coast Guard. In terms of a timeline when will these orders be finalised?
A: These particular ones which we have bid for, the orders should be placed within the next three to six months. Here of course as I said these are bids we have made and there is competition for them. It is not that they are orders already, but we have bid for them and we hope that we will be successful with some of them.
Q: There were some reports earlier that you are in the fray for the Indian Government awarding orders for the landing platform docks (LPD) as well to the tune of around Rs 1,500-2,000 crore. Can you give us any update on that?
A: There are four LPDs required by the navy and it has been decided that two of them will be manufactured by Hindustan Shipyard which is government’s own defense PSU, but apart from that two others would be then available for competitive bidding by private companies. We will be naturally interested in that. We have already identified our partner. We expect the Request For Proposal (RFP) for this would be coming out in the next few months, maybe two or three months and after that we will go through the whole bidding process.
Q: You referred to that April statement where the government spoke about indigenization of defense equipment. How do you square it with yesterday's announcement of more Foreign Direct Investment (FDI) in defense? Can the two happen together? Will that mean that the 49 percent or whatever that is welcomed will actually mean that you will have more joint venture (JV) partners and therefore that improves your prospects or will you see that as competition for you?
A: I think these things have to be seen separately. First is the case of indigenous manufactures. We have been taking this position over several years now that there is a large underutilised potential within India to manufacture a large portion of this import contents which we currently import for defense. More importantly we have been stressing the fact that it is not enough to participate in these programs by just making some small components or spares. What is important for the country is to have the capability to build complete systems or platforms and that capability is currently available certainly with L&T and with a few other companies. So this is what we have been stressing and we therefore welcome the idea that we should participate in a bigger way for indigenisation.
This has nothing to do with FDI. Coming to FDI per se we have consistently maintained position that for getting real technologies within the country it maybe definitely helpful to go into an FDI limit of up to 49 percent. However, we have only stated two points which are rather important. We should ensure as a country that by giving this 49 percent FDI capability we should really get defense knowhow within the country. We should not then be again dependent on the Original Equipment Manufacturers (OEM) to give the basic technology or knowhow. So we should ensure that this 49 percent is done in JVs (joint ventures) which get us real and critical technologies. Second part is that when we have such JVs they should become part of the global supply chain of the OEMs, so that these JVs get a chance to participate in the global supply. These are two points which one should take care of. Otherwise it will certainly be helpful.
Larsen stock price
On July 28, 2014, Larsen and Toubro closed at Rs 1644.75, down Rs 11.6, or 0.7 percent. The 52-week high of the share was Rs 1774.70 and the 52-week low was Rs 678.10.
The company's trailing 12-month (TTM) EPS was at Rs 62.86 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 26.17. The latest book value of the company is Rs 362.65 per share. At current value, the price-to-book value of the company is 4.54.
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