India’s biggest infrastructure company is looking overseas for orders because there are few at home
- For the quarter ending June, L&T’s infrastructure orders went down by 10%.
- The new orders won during the quarter too were from Saudi Arabia and Sri Lanka.
- “We will be lucky if we can maintain 6.5% growth,” A M Naik, L&T’s former chairman said.
Indian biggest infrastructure company Larsen & Toubro is heading to greener pastures abroad as the home turf is getting tougher, and the local economy slower. The impact of the economic downturn hurting the company is visible in L&T’s share price which is down over 11% in the last one month.
For the quarter ending June, its infrastructure or construction orders went down by 10%. And, even among those that they won were overseas orders. “Order wins were mainly from the airport sector, gold beneficiation award in Saudi, water supply and distribution order in Sri Lanka, a notable desalination plant order in Gujarat and an order for a defence telecom network,” L&T said in its earnings press release.
As of now, international orders contributed to 23% of its total inflow for the quarter. This may only increase going forward. “Company will focus more on the international market to offset the muted demand from the domestic private sector investment,” ICICI Securities said.
Yet, this a near-term strategy only. In the long-run, the company which has manufacturing facilities, construction capabilities and equipment all in place will have to bank on India growth story.
Where is the growth?
A M Naik, the former chairman of the company valued at ₹1.94 lakh crore; and an industry doyen broke his silence to criticise the government. Not only did he reject government’s claims that the country will grow at 7%, he also punched holes in the credibility of the numbers. “We will be lucky if we can maintain 6.5%,” Naik said.
While he wasn’t talking specifically of L&T, it is true that the 81-year-old company’s fate is largely linked to that of government. L&T has been a part of every large infrastructure project in India right from the recent moon mission Chandrayaan-2 to large defence projects to nuclear power plants in addition to highways and others.
However, the slowdown is too severe and it is taking a toll on the company’s prospects. “Domestic private sector demand is under stress and the overall environment is challenging. Management believes the government will face several challenges to keep up the pace of infrastructure development in the current environment,” said an analyst report by ICICI Securities, after the company’s annual general meeting.
Naik had hoped that India could gain from the trade war between US and China, but those manufacturing opportunities have been lost to Vietnam and Thailand, while L&T itself lost the opportunity to gain from possible trade expansion.
“We were too busy with elections,” Naik lamented.
And, it is not like India has no infrastructure to build. It is still in want of good roads, airports, railway stations and much more. The country which is facing heavy water crisis in cities like Chennai, and subsequent threats in Hyderabad and others might boost this infrastructure, and that too an urgent basis.
“Government’s renewed focus on clean drinking water to act as a catalyst for growth in the water and effluent treatment business and ‘Make in India’ programme in defence would augur well for large players like L&T. Larsen has vast experience in execution and sail through any tough macro environment,” said a report by JM Financial.
L&T indeed could sail the rough weather, but it sure intends to make pit stops in other countries, picking up the business it lost due to the slowdown at home.