Hail eased construction norms, but benefits to lag: L&T

Sonia: How do these norms benefit some of the companies like yours that are engaged in engineering, procurement and construction (EPC) work? If you could tell us what the overall impact would be and then impacts for company like yours?

A: On a broad play I would put it like this - these measures were required for a long time and it is good that the cabinet has approved the same and it is set into motion right now. You see in our country today, the two clear agenda set by the government – (1) housing for all by 2022 programme and (2) smart city initiative which has been fairly well enunciated in the budget. If these two programmes are to be taken forward to their logical conclusion then huge amount of investments would be required in the so-called real estate or developmental sector to take these forward. These measures that the government has brought in – (a) the foreign direct investment (FDI) or the flow of money can come into projects both for developed plots as well as for lower value areas of construction, which is a good beginning – that means construction can happen not only in big cities but there will also be a fillip towards construction in the tier 2, tier 3 cities (b) the government has also relaxed the norms for setting up low cost housing or housing for the less developed kind of a situations and there has been no norms put there but some 30 percent of investment channel into that (c) by getting in FDI of minimum value size of 5 million, now we are allowing both into regular operations as well as in joint venture companies. So you will see a fillip of many such ventures taking place to get in money.

Most money when they come in, look for a period of exit or for return on investment within a particular period of time and that has also provided now, three years from the start of the construction or at any time during a period of 10 years which makes it easier for money to come in and money to go out also money transfer; the investment can be moved on from one non resident activity to another non resident activity which is also a define. Therefore, with all this I feel that overall this gives a good highway for money to flow in into the real estate sector which is cashed out at the moment. This gives a fillip to construction and more ways than many, faster construction to take place and better ideas could come in as we go by.

Latha: In your own case have you already seen FDI flow in and therefore by the next quarter would we see an improvement in margins because funding is easier and will we see an increase in your order book?

A: It’s a tough question to answer. The policy has just been relaxed. We know the status of what it is right now, for these things to get implemented, will take some time. Many projects as you are aware especially on the commercial side have taken a backseat right now because most people have gone into residential which is easier to do from the cash flow point of view etc and most projects have gone in certain amount of equities, certain amount of debt and a predominant amount of advances from the customers and there is certain amount of investment that is available now on unsold area that is available now. Therefore, this is going to take some time for all to settle down and then to see the flip side of the policy initiatives that have been taken. So in my view this will take six months to one year before we see the result but we will see positivity as we go by.

Sonia: What the order book is looking like. In the core infrastructure segment for your own company there was a good revenue growth that we saw on the quarter gone by. Tell us what the second half of the year will look like?

A: From the construction point of view there is a bit of a struggle right now to be putting things in proper perspective. There have been many policy initiatives which has been announced but the actual implementation at the ground level for it to happen in our view will go on to Q4 that is January to March of next year and beyond and therefore Q3 we will, as we go by see that what we have committed will go through but for the real fillip side to come in, it will be the January to March and beyond of next year when we see more action flowing through.

Latha: Is there any specific sector which is throwing up more orders?

A: At the moment I look at the railway sector where we see huge prospects both in the dedicated freight corridor west and dedicated freight corridor east as we have some major developments going on. We also see some positive activity on the power transmission and distribution side where we see both distribution projects as well as transmission projects. Some amount of fillip on the water side but the infrastructure and the real estate side is still not showing that kind of positivity that one would like to see.