L&T looks abroad with India a goner

Low business confidence, loss of big-ticket orders and shrinking order book have prompted power and infrastructure behemoth Larsen and Toubro (L&T) to scout for newer territories outside India to maintain regular order inflows.

According to sources, the company is eyeing growing sectors in the Middle East and the Far East to bring in numbers which can partially offset the impact of loss of orders from India.

“We are looking at invigorating our focus on countries such as South Korea, Japan, Malaysia, Indonesia and also the Middle East region,” said a top company official from L&T, seeking anonymity.

He said the company is predominantly looking at the hydrocarbon sector, the power sector and infrastructure as these are the verticals which hold enough promise going forward.

“L&T has already opened offices in Saudi Arabia, Brazil and in a few South-East Asian countries to cater to the growing infrastructure demand from the hydrocarbon sector in these regions,” he said and added that it also currently working on a hydrocarbon project in Brazil with Malaysia’s oil major Petronas.

According to analysts, in the previous fiscal, orders from overseas projects constituted around 15% of the total order book of the company but are expected to increase to 19% in the current fiscal.

“However, this will not lead to a complete offsetting of the loss of orders from India and the trend is expected to continue into the next fiscal,” said an analyst from a leading domestic brokerage.
Analysts Bharat Parekh and Deepak Agrawala from Bank of America Merrill Lynch in a recent note said bear markets could delay capex plans and will lead to a further fall in business confidence in India.

“This could slow down order inflows (for L&T). We expect a 10% fall in current fiscal order inflows and a 5% growth in next fiscal’s inflows,” they wrote in a note.

Downgrading the company to neutral from buy, Parekh and Agrawala said overall order inflows of L&T could tumble to -5% for the current fiscal due to drying up of activity in the metal and power space in the domestic market.

Besides this, due to an evolving culture of aggressive bidding by smaller players, L&T has taken a hit on order inflows as also a fall in margins.

“Last fiscal the company had clocked a margin of 12% which is expected to contract by another 75 to 125 basis points for the current fiscal,” said another analyst with a domestic brokerage, who did not wish to be named.