L&T to focus on overseas biz; expect orders from W Asia

Larsen and Toubro has been divesting its non-core businesses and the company has today announced divestment of its plastics machinery business to Toshiba Machine. The engineering and construction major has also bagged two orders, a Rs 749 crore deal from ONGC and a Rs 1302 crore order from Petroleum Development Oman.

In an interview with CNBC-TV18, K Venkatramanan, MD & CEO of L&T said the company is hopeful of a reasonably strong order inflow cycle for India and the non-core divestment process to continue in the near term. At present, L&T is focusing on improving margins and operational excellence.
Moreover, the company is looking to focus more on its international business now, added Venkatramanan. Here is the edited transcript of the interview on CNBC-TV18. Q: You have officially put out that you are selling off your plastic machinery business to Toshiba Machines. How much money do you make?
A: We have been selling off our non-critical businesses, some divestments will keep taking place and the plastic machinery comes in that category. It's not a very large ticket divestment but, an important divestment so that our focus and of our people and of management is on the bigger ticket items. Q: Coming back to the bigger macro picture which is facing Larsen and Tuobro, L&T is always looked upon as a barometer of India’s investments cycle and the investment cycle of India now people say is in a slowdown mode and it’s not in such a great shape. How are you seeing the order inflows for L&T not just in the coming year where you have given a guidance but perhaps over the next two to three years?
A: We are still hopeful for two reasons, India has USD 1 trillion investment in infrastructure, power, oil and gas, water and other sectors for the 12th plan and out of which almost 28% is to come from the private sector. To fulfill the plan about USD 200 plus billion has to come from abroad as investment.
While the immediate next two years look a little uncertain, I think overall for the type of plans that India would ultimately undertake in infrastructure we are still hopeful that it won't be something that would be so dismal. From L&T's perspective, we do know areas where we have to watch very closely, push our international trust even more and at the same time manage cash, manage operational excellence, improve margins in the next couple of years. But, I am quite hopeful that the USD 1 trillion type of investment pattern would take place in the 12th plan. Q: You have secured an order from the petroleum development unit of Oman, the PDO, what is the stake your order book to, it's a Rs 1300 crore order I understand.
A: This is the second order from PDO Oman. We are already executing one which we got last year and this year with the total order forecast that we have, we do believe that you would see an encouraging trend of order booking in Q2. We do expect fair amount of orders to come internationally also from Oman, Qatar, UAE and Saudi Arabia.
You may not have seen it as yet, but releasing today another order which we just got from ONGC is also a USD 135-140 million order for platforms. We do believe that you would see an encouraging trend of order booking in Q2 also from both from hydrocarbon and from other sectors.
_PAGEBREAK_ Q: You think your target will be achievable in FY13?
A: Yes, we will achieve it. When we presented this to investors earlier also, we saw it from a very clear profile of orders which we are bidding over the year, whether it is freight corridors or railways, a lot of private sector buildings and factories, some metros, oil and gas or others.
We have not put too much into the power sector this year but, we do believe between infrastructure, railways, hydrocarbon and hopefully something on the fertilizer sector we are at a much better position. If the user investment policy comes soon we do believe, we are at a much better position with our multi cultural leadership and investments we have made internationally in people and in capabilities to get fair amount of orders. Q: You held on to your margins, in fact even maybe bettered them by a few basis points in the quarter just gone by. What kind of margin guidance can you give because competition is only hotting up?
A: Whatever we gave in the beginning of the year we are going to maintain that. I think we are not changing our guidance. I think we are trying to pick and choose our orders in areas where we feel comfortable and we would be able to maintain the guidance. Q: You have been selling a lot of your non-core business, can you give us an idea about how much you expect to make in the current year with your non-core business, how much may your debt come down by because of this?
A: I think I won't be able to give a figure like this today but you will see it as you go along this year. A few more divestments of our non core businesses are taking place. Our message is very clear, we want to relatively look at simplifying our company and have a focus on areas which are scalable and also work on working capital and asset likeness to the highest extent.