MC Interview | Private sector no more jittery, but being measured about capex: L&T CFO

R Shankar Raman, CFO, L&T, added that while military escalation in West Asia has led to supply chain disruptions, he does not expect a long-term slowdown in order inflows from these countries

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26 Aug, 2025 12:21

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The private sector is no longer jittery about capital expenditure, but having learned from the past, they are being measured in their plans, Larsen & Toubro’s Chief Financial Officer R Shankar Raman told Moneycontrol.

The engineering major, often considered a proxy of India’s infrastructure story, has derived substantial orders from government backed projects as private sector orders dried up. But the CFO says that things are changing on the ground, albeit in some segments.

While larger players such as Reliance Industries are investing as “resources are not a constraint,” large business houses with interest in minerals and metals are investing driven by the strong demand outlook, he said. Most companies are also waiting for policy stability before committing capital for greenfield expansion.

He added that India's landscape for private sector investment will always be very situational and opportunistic and after the pandemic has become wary of investing in projects with long gestation periods and in markets where customer demand has not returned to pre-COVID levels.

Raman added that in the last two years, private capex has come into the cement, paints, electronics, construction material, steel, and automobile industries.

Raman spoke about L&T’s performance in the rest of FY24, order inflows in the election year and L&T’s Middle East strategy.

Edited excerpts:

Q. The Interim Budget has provided for an 11 percent increase in the capital expenditure outlay, what are your thoughts on the increased percentage?

Expected lines. The government has shown a lot of confidence that they'll return to complete the job. There seems to be some hint around the continuity of themes. And as a sort of event which demonstrates that she (Finance Minister Nirmala Sitharaman) has also upped that investment in infra by about 11 percent.

Youth, women, and farmers were covered as part of the Interim Budget along with employment generation, lifting people out of poverty, and getting the country ahead on its own steam.

To an extent, I think the Interim Budget was a nice curated one hour of delivery. I think she did it well. Didn't overdo anything, at the same time delivered all the messages.

Q. Do you think the government has indicated that once it returns to power it will come out with a higher capital expenditure outlay, given that private capex has not returned to pre-COVID levels yet?

I think independent of private capital expenditure, the agenda for promoting tourism, getting infrastructure into the hinter-lands, getting port connectivity, and making sure that India provides enough transportation infrastructure, are all sectors where government-led capital expenditure will have to show the way for private industry.

For example, if you take Ayodhya, now that the city has an airport and better infrastructure, the city will have a much larger footprint than ever in the last 20 years.

Now all the associated infrastructure in terms of hotels and restaurants will pick up and that will all happen out of small businesses and investments by the private sector.

But the larger pathway to create that has to be government-led because it involves land acquisition, it involves environment clearance, you know all of those. And then the government as a missionary has better levers to do that.

Going forward, I think that government-led capital expenditure will continue to create that pathway, and then wait for the private sector businesses to come and fill up.

From a perspective for the next three to five years, I think, the amount of build-out that will happen out of the government-led programme will lead the way for capital expenditure in India.

I also expect them to improve on this allocation that they have done in the Interim Budget. Maybe once the July budget comes out, it will have a little more fleshed-out direction.

Q. What are the biggest growth areas L&T is seeing at the moment and can you quantify by how much L&T will outperform its order-inflow and revenue guidance for 2023-24?

We are already in the process of finalising order inflows for the current quarter, I don't think there is a substantial project we will be bidding for in the remaining 8-9 weeks of the current financial year that will impact our performance for 2023-24.

So much of it is all, you know, what is in the pipeline, iron is already in the fire, and depends on how many of those awards get concluded. The whole of 2023-24 L&T has spoken about a little bit of a front-ended approach for this year, expecting the last quarter to get slower.

The slowdown on the domestic front is visible even in the third quarter, however, to our good fortune, I think the Middle East continues to invest. So on an overall basis, we still have our nose significantly ahead of the target we set for ourselves during the year.

Last time, I mentioned that when we guided 10-12 percent order inflow growth at the beginning of the year, and I had mentioned that there's a good possibility we will outperform that.

Now that one more quarter has gone by and in a month thereafter into the current quarter, it looks to me that L&T will report an order inflow in the 20 percent plus range.

Q. The Finance Minister Nirmala Sitharaman also announced the creation of three new railway corridors, and the Railway Minister highlighted that around 440 projects have been identified to create these corridors. How many of these projects is L&T in the mix for and what can be seen as a realistic timeline for the creation of these corridors?

It's a bit too early to get into the specifics of these corridors. I think what was set out was some kind of a theme/vision, and the detailing has to be done.

There are a considerable amount of clearances that are required on the ground to get this going. The actual construction and creation of the corridors will not take as much time as it does to get the corridor cleared up and the right-of-way established.

So when you talk about 440 projects, there is an enormous amount of government work that has to precede getting sectioned out as RFPs (requests for proposals).

So my sense is it will take them…, if they're very, very serious about it. This is a programme that will take them in the current mandate of five years.

Q. Based on conversations around the industry it seems that even in terms of inquiries and taking early steps for capital expenditure, the private sector is still being a little jittery. I wanted to understand if that is a correct assessment. And what do you think is causing that?

I don't think the private sector is jittery. I think they are very measured in their approach this time. If you consider the power sector as an example from a few years ago. Everybody put in their capacity. And now much of that has come to the dispute resolution, IBC solutions.

I think the private sector in India can be categorised into two or three buckets. They're very large ones like Reliance, where resources are not a constraint. I think it is a question of the business positioning environment and demand-supply gaps that will lead them to add capacity or not add capacity.

At the moment, these large players are waiting before investing, as due to the slowdown in China's domestic market in the last year, the Chinese manufacturing capacity is finding its way to other shores. So any capacity addition in the private sector would be a function of balancing all of these things.

Then there's a whole set of medium/small-scale industries. And there, I think the availability of resources is a big issue for them. And secondly, many of them are family-controlled.

So they have to be very clear that if they put up a capacity, invest more, etc., the subsequent generations would be engaged to take this forward.

I think the options available for subsequent generations of businessmen who currently are running small/medium-sized enterprises are many.

So we can't presume that the current generation will build a legacy for the next generation. So, India's landscape for the private sector, according to me, will always be very situational and opportunistic.

Lastly, I think that while the government has announced PLI schemes to attract private capex, in our own experience over these 85 years of concessions are good on paper, but to have them realised is a task in itself.

Now it takes all of everybody's powers to be able to deal with the government on even terms and small businesses are a little disadvantaged because they don't have the reach to be able to get all of this done on the basis of which they would have put their capital.

So any economic viability based on support subsidy, etc., is not going to make the private sector immediately invest. It can be the icing on the cake, but it can't be providing the fundamental return.

So, my sense is private sector continues to invest. It is not as though the private sector is not investing. The private sector has invested in cement, they've invested in paints, they've invested in construction materials, handsets, and electronics manufacturing. The steel and automobile industry is made up of private capex, and all of them are expanding their capacity.

While there has not been any greenfield expansion, a lot of brownfield expansion is in the works. And climate change has also made them now invest in clean fuel alternatives.

Q. You mentioned that due to the slowdown in China's domestic market, Chinese companies are eyeing exports. This might be an opportunity for L&T to source its raw material in a more lucrative way. Has your sourcing strategy changed? Are you importing more from China?

We are an EPC contractor working on a client's cost lines. Now if the clients' cost lines demand that a cheaper import is what needs to be accommodated, that is the way it will be done. So, the discretion that is available for us to either import or consume domestically would also be driven by the budgetary constraints that the client has on projects. If the client has a fairly comfortable budget for the project and he provides a fluctuation on prices going up and down because they are never static, then we don't mind.

It's a question of sourcing it from a place that is convenient and available at a point in time. But I think if there is a domestic alternative available, our preference would be to use the domestic product.

Q. Your order inflows from West Asian countries have risen significantly in the last year, given current geopolitical situations, are you concerned about your exposure to these countries, especially Saudi Arabia?

I think Saudi Arabia is an opportunity. And I think as a growing business, we need to see how to deal with that opportunity rather than shy away from it.

Every market has its challenges. And we've been operating in Saudi Arabia for the last 20-25 years. The last six or seven years have been distinctly different ever since the change in leadership happened in Saudi. Hence, the vision of Saudi has been far more clearly articulated today. And we see our opportunity or scope to participate in that vision is even higher than what we are currently doing today.

So we are appropriately organising ourselves to deal with this opportunity sensibly, rather than get worried about this opportunity.

India and the Middle East are the only two markets we are operating in our projects business. I don't see us going to wide corners of the world.

We will do everything to strengthen our presence there and deal with whatever local issues need to be dealt with.

Q. What are L&T's hiring plans for 2024-25? Are you looking to increase hiring from West Asian countries?

Between December 2022 and 2023, we almost added about 10-11 percent of the workforce in the main engineering. Going forward, I think the number will not be substantially higher, it will be driven by what happens on attrition because a lot of talent competition exists. But largely it will be around the 10 percent level.

The Saudi government is very keen that we should also use these opportunities to promote the skill level of local people. So, we have set up fabrication shops, etc., in Saudi Arabia on the ground. We've been encouraging Saudi graduate engineers to come and train with us..

We have almost $16 billion worth of projects to be executed for them and that is going to keep us very busy for the next two-and-a-half years.

So, we will need resources to execute these orders and we are hiring for the same and L&T is looking to onboard both senior leadership and on-floor talent in the country.

Disclaimer: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.