L&T bets on order pipeline; says timely execution, completion of projects crucial

Larsen & Toubro (L&T) on Wednesday posted a 45.9 percent increase in its consolidated net profit to Rs 2,134 crore for the second quarter ended September 30, 2021. In the corresponding quarter last year, the Mumbai-headquartered company posted a net profit of Rs 1,462.8 crore. The company achieved consolidated revenues of Rs 34,773 crore for the quarter ended September 30, 2021, registering a YoY growth of 12 percent.

In an interview with CNBC-TV18, R Shankar Raman, Whole-Time Director & CFO, Larsen & Toubro, said, “It would be better if we looked at the glass as half full because at half-year level, at Rs 65,000 crore, we have caught up with the pre- COVID revenues. So, if we give credit to Q1 being better than Q1 of the pre-COVID year, then it provides some softening headroom for Q2 to be touched lower than Q2 of the pre-COVID year.”

“Overall, what is very important is the pace of execution and that is something that we are acutely conscious of. We are definitely negotiating certain headwinds even as we speak because COVID second wave that we had did have its own disruptions, which we have tried to overcome by and large and now, most of our sites and the factories are running to their full capacity. So, that did slow down a bit of progress in Q2,” he said.

“Also, the monsoon while overall was close to the long-term average, it was very uneven this time, and we had a heavy monsoon in the month of June then relatively dry July, August, and then again very heavy September. So consequently, this whole process of mobilisation, remobilization, readjusting to the skies, especially when we are executing projects open to sky has its own challenges,” he said.

“We have adequate headroom for us to push ahead. We do hope that we would be able to reach better than what we want to do.” Raman said.

On order book guidance, he said, “We have guided low-teens to mid-teens in terms of order inflow. Last year, if you recall, we had a total order inflow of Rs 1,75,000 crore and that is a large base, and to grow on anywhere between 10 and 15 percent on that is a significant attempt.”

“However, what gives us hope is that if one were to look at the tenders that have been put out between the two quarters of the current year, they are almost Rs 3,50,000 crore, and what has got ordered out is about Rs 1,30,000 crores. So, to that extent if we are able to pick the tenders going forward in the remaining two quarters which are of interest to us, then there is a good chance that we should be able to reach where we are targeting,” said Shankar Raman.

“The opportunities are there and there is a need for investment. The economy is underserviced in terms of infrastructure investment. So, given the fact that we are straddling across so many aspects of infrastructure, we are in a good place, and the pipeline is encouraging,” Raman said.

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He specified that there is a need to find a way to finance the projects because one of the biggest challenges has been financing and timely execution of the said projects.

On working capital, he said, “We would like to see the working capital at about 18 percent of revenue, which is currently at about 22 percent of revenue today. When we started one year before, we were at 26 percent, it has been a hard climb to come down to 22 percent. We have managed to push collections as a major initiative.”

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“One of the simple thumb rules that we are trying to use now is on all project sites, we are trying to spend as we collect. We have brought in a discipline that you shall spend what you collect and this has been transformative because people behave as they are measured and all the project managers have now realised that unless they collect the cash for what they've invoiced, they can't spend further and pay the vendors,” he said.