L&T Infotech eyes cos worth $150-200m for synergy

India's best chief financial officers were honoured at CNBC-TV18’s CFO Awards at the Turf Club in Mumbai. In an interview with CNBC-TV18, YM Deosthalee, Whole-Time Director and CFO of engineering giant Larsen & Toubro — the recipient of the Best CFO of the Year award — spoke about the latest happenings in his company and the road ahead.

Here is a verbatim transcript of the exclusive interview with YM Deosthalee on CNBC-TV18. Also watch the accompanying video.

Q: Being the CFO of the Year makes you a representative of the industry – of the entire category and not just of L&T. So from that perch how are you looking at the entire capex cycle? Do you think the cycle has resumed?
A: To some extent yes. We have seen lot of activity in the automobile sector. We have seen activity in some parts of infrastructure like power for example. Many projects today are at various stages of implementation – some are reaching financial closure and some are under implementation. There is lot of activity there. In some areas there is still excess capacity and therefore people are various cautious in terms of adding capacity. So it’s a mixed bag. In the hydrocarbon sector there is activity in India as well as in the Gulf region but overall I don’t think the capex cycle has returned back fully.

We will have to wait and watch for few more months. It is also reflected in the very poor credit offtake in the recent past from the banking sector. It is different that people have raised money from capital markets. But at the same time many sectors are not drawing money from the banking sector and therefore I don’t think we have seen very robust capex movement in the market today from the industrial front.

Q: When you declared your first half results, you had expressed problems of some projects not being able to achieve financial closure and therefore that getting reflected in the revenues.  How do you think the second half will pan out? You will have to do at least 45% revenues to get to your yearly target. Do you think that much is possible?
A: Let me first explain what we had said. We had said that there are two reasons for the subdued growth in sales. On the industrial front, that is the industrial equipment side, last six-months of last year was a disaster and the momentum is picking up very slowly. Therefore as compared to the previous year the first six-months of last year were extremely good for industrial equipment like construction equipment or equipment, which we manufacture for industrial valves, petrochemical industry or for hydrocarbon industry. It was an excellent period April to September and October to December was complete contrast. So, based on that, our first six-months of the year were subdued because the recovery has been slow.

Secondly, some of the projects, which we received last year, there was a delay in financial closure. As a result of which conversion of those orders into revenue is taking little longer. But having said that, one point we need to understand is that L&T carries an order book of Rs 90,000 crore and this order book has to be converted into revenues.

We are not carrying dead orders in this order book. It is different matter that some of these orders are executed over a period of three to three-and-half-years but they will get converted into revenues. Therefore in any case the second half should be better than the first half in any case and we have indicated that for the year as a whole, we will have a growth of 15% or so in our revenues.

That is based on our budgeting exercise and that is also based on our current outlook as far as the execution is concerned. The revenues should pick up. In any case the next year revenues should be much better. In terms of order book also we have revised our guidance and outlook. We are saying that for year as a whole our order inflow growth will be in excess of 30%. That is the kind of indication, which we have given and we stick to that.

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