Expect order momentum to continue in Q3 as well: L&T

L&T Construction has won new orders valued at over Rs 1,063 crore across various business segments in October. It has bagged orders across a series of businesses for different verticals like engineering, procurement and construction division.

SN Subrahmanyan whole-time director & senior executive vice president, L&T Construction told CNBC-TV18, it is hopeful that the order momentum on the construction front will continue for Q3 as well.

Below is an edited transcript of SN Subrahmanyan's interview on CNBC-TV18 with Lata Venkatesh. Q: You have just announced that you have got an order worth over a Rs 1000 crore. Can you give us more details about the source of this order? What kind of margins does it include?
A: These are series of orders across the spectrum of business that is under L&T Construction. We have a fairly reasonable sized order for an IT company based out of Pune and that is a campus facility, which we specialise in. On the water and effluent treatment business we have orders from Krishna Bhagya Jala Nigam Limited, Government of Karnataka for a lift irrigation scheme at Hanampur.
We have also got an order from the public health engineering department of government of West Bengal for water supply system in Bankura. There seems to be a good development on the water side both through the Jawaharlal Nehru National Urban Renewal Mission (JnUURM) scheme as well as the states looking at water distribution, treatments across various towns and other areas. So, there seems to be good area of business.
On the power transmission distribution front, we have an order of Rs 109 crore for a 765/400 KV switchyard package in Uttar Pradesh. On infrastructure side, we have a relatively small order from Rail Vikas Nigam Limited, who is our traditional client. We also have a railway job of Rs 158 crore and there are some increases in contract value. It is a total of Rs 1,063 crore as of date. Q: The street has been encouraged by L&T's strategy to get more orders from building and factories segment. Your order inflow has definitely surprised the street. Do you see this momentum continuing? Do you think the guidance that the company has provided will exceed looking at the current infra momentum?
A: I will restrict my comment to the construction side. As we see today, we are in advance stages. In some of the places we are L1 and in some we are well placed. Some of it is more or less concluded, but we are awaiting LoIs. The trend as we see today is fairly decent.On the construction side, given the trend, we should be able to achieve it even for Q3. Q: Are margins in the water business and in IT buildings comparable to the power business construction?
A: I deal with the construction part, so I can answer you on the IT business. The margins that we get now are similar to what we have been getting previously. Q: You also have some power transmission construction business. How will be the margins across the three verticals that you spoke about?
A: There would be differences between verticals, building and factories. Traditionally, when we do a turnkey job because of the value addition both in terms of design, procurement systems, everything there could be a slightly better margin.
In the water and effluent business there is more of a traditional kind of job and there is a lot of civil work, distribution and buying of pipes. Therefore, margins would be slightly lesser than a typical comprehensive turnkey building kind of job.
Power transmission and distribution is 80 percent procurement and only 20 percent is site work. Procurement, depending on the market, if some of the major manufacturers do not have sufficient orders they would try to benchmark and sell equipments at relatively better prices. But, if they have better orders they would try to pull it at a higher margin.