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Last Updated : Feb 28, 2017 03:38 PM IST | Source: CNBC-TV18

Revenue recognition on Shell contract to begin Q3FY18: L&T Hydro

L&T Hydrocarbon, a fully owned subsidiary of L&T has signed a 5-year agreement with Shell Engineering for engineering, procurement, construction and management services.

L&T Hydrocarbon, a fully owned subsidiary of L&T has signed a 5-year agreement with Shell Engineering for engineering, procurement, construction and management services.

As part of strategic plan, the company will be doing lump sum EPC project services in India and overseas, Subramanian Sarma, Chief Executive Officer and Managing Director of L&T Hydrocarbon told CNBC-TV18. The fixed lump sum contract amount is Rs 1100 crore and revenue recognition will start from the third quarter of next fiscal

“We will have an opportunity to provide lot of reimbursable technical services to customers in seven countries and it will also broaden our capability and track record,” Sarma said.

Below is the verbatim transcript of Subramanian Sarma's interview to Prashant Nair and Ekta Batra on CNBC-TV18.

Prashant: Could you talk to us a little bit about the agreement with Shell?

A: It is a very interesting development. We have signed 5-year agreement with Shell for engineering, procurement, construction and management services.

As part of our strategic plan, L&T Hydrocarbon has been traditionally doing lump sum EPC project services in India and outside. We wanted to build a new business line to provide reimbursable type of services to have a kind of diversification and our target was to get into such agreement with one of the international oil companies and we have been pursuing this and quite pleased that within a short period of time, we started this initiative eight-nine months ago and I am quite happy that we have been able to conclude this successfully with Shell.

We will have an opportunity to provide lot of reimbursable technical services to customers in seven countries and it will also broaden our capability and track record.

Ekta: You have also won an order worth around Rs 1,100 crore from Indian Oil Corporation (IOC) just yesterday. So can you give us a revenue visibility if you have to combine the technical services that you are going to provide to Shell plus the recent order win?

A: Rs 1,100 crore is a fixed lump sum contract and that revenue recognition will start from Q3 of the next financial year because we have certain thresholds before we start recognizing the cost but real revenues will start flowing in maybe Q2 of next financial year or Q3. That is 30-months period so that Rs 1,100 crore will get consumed in that 30 months period. So I expect a revenue visibility on that contract.

This one is very different because this is a framework agreement and within this framework agreement, there will be several work orders released and it could be multiple in the month, it could be two every three months, it is very difficult to put a very firm number on this, it will depend on how this relationship grows. However, this is not going to be huge in terms of financial numbers but it is extremely important strategically for us to have got an opportunity to work with one of the best and famous international oil companies.

It helps us in building our track record, it widens our profile and also it gives an opportunity to build long-term relationship with the company.

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First Published on Feb 28, 2017 03:37 pm
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