L&T seeks to reassure investors over Middle East pressures, says work, payments remain smooth

S Sarma, DMD of Larsen & Toubro

• L&T says 95 of 100 Middle East sites remain operational
• Shipping issues hit supplies, but local logistics stay stable
• L&T activates contingency group, assures safety and payments

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India's largest engineering firm Larsen & Toubro (L&T), which has built up a significant order book in Middle Eastern countries such as Saudi Arabia, UAE, Bahrain, Oman, and Qatar, has sought to assuage investor concerns due to the ongoing hostilities between Iran, and Israel and the US and its spillover into Gulf countries. The company's senior management said that nearly all sites renain in operation, with a small number of sites shut down either voluntarily by the firm, or by the clients.

L&T's deputy managing director and president, Subramanian Sarma, responsible for the energy vertical, said at a select media briefing that the company had prepared for geopolitical eventualities such as the ongoing crisis, and much of its work remains on schedule, with 95 of the company's 100 sites in the region being up and running as per schedule. The firm has been in the Middle East market for over three decades.

"As we are building this (Middle East business) up over a period of time, there was always a discussion about how we're going to sort of deal with if and when such geopolitical situation arises...we have had a a very uh calibrated again response to that situation if it arises. We have done many things in terms of how we structured, in terms of our portfolio diversification within the Middle East, choice of customers, customer relationships, and engagements and and the kind of leadership we have assigned to the Middle East," said Sarma.

For the five sites belonging to the group where work has stopped, Sarma said that in some cases, the company took the call to suspend work at the site owing to safety concerns, while the client also suspended operations in other instances. Sarma said that a contingency management group within the company has also been activated, comprising Sarma himself, as well as senior management personnel across verticals such as finance, communications, and others.

A number of management figures have been based in the Middle East, Sarma said, who have been taking stock of the situation and touching base with employees and their families. The company has thousands of employees, including blue-collar workers, in the region.

As for supplies, Sarma acknowledged that shipping difficulties in the region, such as the closure of the Strait of Hormuz, is inpacting shipping in the region, even as local logistics networks remain operational.

"There has been disruption in supplies, particularly last two weeks. Some of the supplies come from China, Europe, or locally. Locally, it is not a problem. I think that's moving freely, whether it is in Saudi or within GCC countries. The road transportation is going going well. A little bit slower, but it's happening. What is coming from other continents, particularly China and Europe, as you know, the shipping lines and logistics are a bit of a challenge and new material is not getting lifted. But, it has improved between what it was a week ago," Sarma observed.

The conglomerate received around 37 percent of all orders from the Middle East, with revenue contribution towards the group's topline being in a similar range. While the company has taken up incremental jobs in the buildings and factories vertical, much of its Middle Eastern orders are in the energy sector, both conventional energy and otherwise, and has multiple large contracts with fossil fuel firms and parastatals such as Saudi Aramco.

Sarma stated that while the jobs are a mix or fixed-price and price-variation contracts, the company has been able to pass on costs to customers regardless of the nature of contracts during various force majuere events, such as during the COVID-19 pandemic. He added that collections have largely been on track, and have been better than expected, with regular payments through operational banking channels.

Some brokerages had expressed doubts on the L&T stock, saying that the war, mainly in the form of missile attacks and drone strikes, can significantly cut the company's ability to complete margin-sensitive projects on time, affecting its balance sheet. Attacks by both blocs on each other's energy sector has also caused a decline in sentiment for the L&T stock, down 22 percent over the past month.