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Larsen & Toubro Ltd.

BSE: 500510 Sector: Engineering
NSE: LT ISIN Code: INE018A01030
BSE 00:00 | 24 Apr Larsen & Toubro Ltd
NSE 05:30 | 01 Jan Larsen & Toubro Ltd
OPEN 842.00
VOLUME 304900
52-Week high 1606.70
52-Week low 661.05
P/E 18.04
Mkt Cap.(Rs cr) 119,416
Buy Price 850.60
Buy Qty 21.00
Sell Price 850.60
Sell Qty 38.00
OPEN 842.00
CLOSE 840.65
VOLUME 304900
52-Week high 1606.70
52-Week low 661.05
P/E 18.04
Mkt Cap.(Rs cr) 119,416
Buy Price 850.60
Buy Qty 21.00
Sell Price 850.60
Sell Qty 38.00

Larsen & Toubro Ltd. (LT) - Chairman Speech

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Company chairman speech



Dear Shareholders

At the outset our hearty congratulations to the new Government on winning a decisivemandate in the General Elections. With the uncertainties thrown up by the polls now behindus the country can re-focus on its primary goal of building a new future for all itscitizens. We look forward with optimism to the new political leadership which we believepossesses the vision maturity and resolve to usher in a resurgent era of inclusive growthand prosperity.

Economic Scenario

India's GDP in FY2019 is estimated to have grown by around 7 per cent. While this is alaudable achievement in the global context it falls marginally short of expectations dueto an interplay of macro-economic and political factors. These include the uncertaintieswhich invariably accompany our General Elections volatility in crude prices andunpredictable currency fluctuations. The economy also had to grapple with a funding crunchfor NFBCs precipitated by the IL&FS debt default deceleration in the agriculture andmining sectors and widening of fiscal and current account deficits. On a positive notethe country has largely got back on track after the initial disruptive effects of twinreform measures viz. Demonetisation and GST. The longer-term benefits of both thesemeasures are gradually being realised through an uptick in tax collections on an expandingbase of tax payers. We also see the light at the end of the tunnel in the case ofoverleveraged corporate balance sheets and high bank loan delinquencies. Imaginative stepssuch as the resolution of stressed businesses under the Insolvency & Bankruptcy Codebank recapitalisation and more stringent application of NPA credit provisions norms shouldhelp the sector back on its feet. It is also heartening to note that India now ranks 77thin the World Bank's Ease of Doing Business index continuing its ascent for the secondconsecutive year.

Benign headline retail (CPI) inflation (a nominal anchor of monetary policy) over aprolonged period has prompted a softer monetary policy resulting in lower interest rates.Eventually this should rev up private sector investment which has remained dormant forthe past few years.


Though corporate earnings have registered reasonable growth during FY19 FIIs have beenwithdrawing significant tranches of money from secondary markets for the better part ofthe year. Domestic money managers also rebalanced their portfolios by favouring defensivesectors and reducing allocations to cyclical sectors like Infrastructure. The last fewmonths of FY19 have however witnessed a rebooting of confidence in the future of theeconomy with markets too recording a significant inflow of FII money.

While the private sector has been somewhat tentative in increasing spends in FY19 (inareas of PPP industrial capex and certain segments of urban infrastructure) the publicsector has been far more forthcoming with vigorous investments in key sectors. Theseinclude water metro rail networks railways roads and road adjacencies (special bridgesexpressways and city flyovers) power transmission & distribution and hydrocarbon. Thestrong underlying macro drivers of investments in these sectors are expected to sustaininto FY20 and beyond. Encouragingly the private sector also seems to have overcome itsbashfulness and begun to show signs of revival in road concessions airports healthcaremetals mining and cement capacity augmentation. Gross fixed capital formation rateimproved to 32.3% in FY19 from 31.4% in FY18 signalling a smart rise in public investmentspending.

On the international front optimism and growth are being held hostage to geo-politicaluncertainties such as Brexit the flaring of protectionist tendencies and the combustibleissue of trade tariffs. Current consensus forecasts point to a slowdown in the worldeconomy in 2019 precipitated by higher oil prices in 2018 and tempering of US growtheven as the US Fed is under pressure to adopt an accommodative monetary stance. Againstthis backdrop your Company's investments in targeted geographies are expected to yieldsalutary returns. Our clear thrust is towards renewable energies hydrocarbon expansionand non-oil revenues in the Middle East as well as significant investments ininfrastructure in non-Middle East geographies where your Company has consolidated itspresence.

Group level Performance Overview

Your Company has once again turned in a stellar performance on all key parameters.Order Inflows which are the lifeblood of any business with Engineering Procurement andConstruction (EPC) as its core came in at R 176834 crore in FY19 registering astrong growth of 16% over FY18. The unexecuted Order Book as on 31st March 2019 stood at R293427 crore which gives us strong revenue and margin visibility for the next fewyears. Revenues in FY19 have clocked in at R 141007 crore registering a resurgentgrowth of 18% over FY18. PAT touched an all-time high of R 8905 crore in FY19representing a substantial growth of 21% over FY18.

The touchstone of your Company has been its focus on shareholder value creation andyour Company has delivered on this front in FY19 as well.

It gives me great pleasure to inform you that the Board of Directors has recommended aDividend of R 18.00 per share. The corresponding dividend in the previous year was R16.00 per share.

international business

Geographical de-risking has always been part of your Company's game plan forinternational markets. Across the last decade the strong organisation which we have builtin the oil-rich Middle East region has paid handsome dividends while insulating us fromthe periodic ups and downs of the domestic economy. The recent volatility in crude pricesdue to political and economic crosscurrents has however led to reduced investments inOPEC regions. Having proactively readied itself for such an eventuality your Companyforayed into select African countries Bangladesh and Sri Lanka. This sustained drive overthe last few years has started yielding results with non-Middle East businesscontributing to around 45% of the International Order Book.

Meanwhile L&T Infotech (LTI) and L&T Technology Services (LTTS) acceleratedtheir growth thrust in the US and European markets.

Talent Management and Succession Planning

Your Company believes that people are the basic building blocks of a businessorganisation and places unrelenting emphasis on nurturing retaining and developingtalent at all levels of management. The wide canvas of businesses within the Group offersunparalleled opportunities for professional growth. Structured professional and leadershipdevelopment programmes monetary and non-monetary rewards as well as a conducive workenvironment and mentoring at various levels form the backbone of HR initiatives of yourCompany.

I personally allocate quality time to mentoring the next generation of leaders for theGroup apart from involvement in strategy business portfolio rationalisation and CSR.

Sustainable Development

Your Company views sustainability as the essential discipline of balancing economicgrowth with social inclusiveness and environmental conservation. Our Sustainability Policymirrors our values and ethos while our Sustainability Programme is aligned to universallyrecognized development goals and focused on measurable outcomes. We offer green technologysolutions for our clients work continuously on energy intensity reduction and shrinkingour carbon footprint. A ‘reduce reuse recycle and redeem' principle has helped usreduce consumption of natural resources. Most of our campuses are water positive and manyharness green energy. On the community front the social infrastructure which we help tobuild is introducing positive change in the lives of thousands who live in proximity toour campuses. The mantle of social responsibility extends beyond the organization to ayouthful army of your Company's employee volunteers known as ‘L&Teers'. It isindeed heartening that many L&Teers entirely of their own volition have made socialchange their personal mission.

In 2018-19 your Company moved to a higher level of disclosure in the public domain andpublished its first Integrated Report (<IR>) which conforms to the InternationalIntegrated Reporting Council (IIRC) framework and is in accordance with the GlobalReporting Initiative (GRI) Standards.

Total spends on CSR initiatives in 2018-19 by your Company amounted to R 122crore under eligible items as defined in the Companies Act. This translates to 2% of theaverage annual net profits of the Company over the last three years. The focus areas underCSR continue to be health education skill building water and sanitation.


Apart from the hustle of the election campaigns distracting attention from economicpolicy-making this year we had to contend with global deceleration and financialconstraints cramping many economies. All this is likely to present challenges to India'sgrowth story in FY20. We expect the investment climate to improve in the second half ofFY20 as the new Government settles down. Financial markets and capital inflows maywitness volatility in the first half of FY20 but gain relative stability in the latterhalf given India's inherent potential as an investment destination in the emergingmarkets space.

The traction that the country's infrastructure development has seen in the last fewyears will to our minds continue in the future. Retail (CPI) inflation projected by theRBI to remain below 4% up to end-2019 should facilitate a soft monetary policy in FY20.Additionally the decisive market interventions of the central bank the recentrecapitalisation of public sector banks and the ongoing resolution of chronic stressedasset cases through IBC give us reason for a broadly positive outlook.

Segments which hold promise in the current year include:

1) Infrastructure

a) Urban infrastructure

Your Company has for several years been at the forefront of designing and constructinglarge and complex civil infrastructure. Our capabilities and track record place us in poleposition to make the most of numerous emerging opportunities. These include: airportscommercial buildings hospitals educational institutions convention centres shoppingmalls IT buildings affordable housing and high-end residential real estate.

b) Smart Cities

Your Company leads the way in building smart city infrastructure and is well-positionedfor the projects likely to be ordered out. We are looking at expanding opportunities inintelligent traffic management and surveillance systems smart electric grids &lighting fibre optic cabling and transport & logistics systems. The domain expertiseavailable with L&T Infotech and L&T Technology Services positions your Company asa formidable player in Master Systems Integration for smart city projects.

c) Roads While the focus of the National Highways Authority of India continues tobe on both EPC and the Hybrid Annuity Model expressways as well as special bridges andcity flyovers are likely to buttress the overall roads investment programme in thecountry.

d) Railways

With the execution of the first two legs of the Dedicated Freight Corridor wellunderway the focus has shifted to the Mumbai-Ahmedabad high speed rail project rapidelectrification of railway lines and track upgradation / augmentation. All these arelikely to provide good business prospects in FY20.

e) Metro Rail

In the last few years urban planning authorities have zeroed in on metro rail networksas the most viable solution for decongesting urban traffic in our cities. While over tencities have operational metro rail networks covering close to 600 km of inner citynetworks another 600 km are currently under construction and around 1400 km are in theplanning stage. Investment in this area is expected to continue for many years as more andmore cities move from drawing board to execution phase over the years. Total spends onMetro Rail networks in the country over the next few years are expected to be in theregion of R 400000 crore.

2) Water infrastructure

The sector has seen a surge in investments over the last few years and the momentum isexpected to continue. Infrastructure for management of water resources within the countrywaste-water treatment facilities as well as large lift irrigation systems are likely tosee continued investment. Inland waterways infrastructure could receive focused governmentattention from FY20 onwards.

3) Power Transmission & Distribution

Prospects in India and other focused geographies continue to be strong withinvestments by Central as well as State utilities offering good business opportunities.The Saubhagya initiative launched by the Government in 2017 to transmit electricity toindividual households along with smart metering has given good business traction to yourCompany. This programme is expected to extend into FY20 as well.

While building further on its presence in the Middle East markets your Company hasalso successfully entered parts of East Africa Algeria Egypt and countries in East Asia.These geographies are likely to provide continual growth opportunities.

4) Hydrocarbon

This business has grown rapidly in FY19 in terms of Order Inflows and Revenues. It seessizeable investment prospects in domestic and international markets in both offshore andonshore segments. Prevailing oil prices hovering around USD 70 per barrel (Brent Crude)should spur further investment in oil producing countries and ensure a pipeline ofcontinued investments in the production and processing of hydrocarbons.

5) Heavy Engineering

Your Company's competitive position is built around its strong technologicalcapabilities in designing and production of sophisticated equipment for the oil & gasfertiliser and power sectors. On the back of significant all-round growth in FY19 thebusiness is expected to leverage strong domestic and global business opportunities inFY20.

6) Defence Engineering

This business segment was formed keeping in mind the abundant business opportunitiesthat are likely to come up in the domestic market on a continuing basis. Your Company'sexpertise spanning three decades in both land-based and naval systems gives thisbusiness a competitive edge in responding to the strong defence capex outlay that islikely to sustain at a national level in the coming years.

7) Thermal Power Generation

This sector continues to face a host of challenges. Manufacturers of core powergeneration equipment must contend with over-capacity intensive competition and inadequatecoal supply. Aggravating this is a customer base weakened by financially-stressed IPPspublic utilities in the (PT&D) red and rural customers clamouring for moresubsidised power. Despite these prevailing conditions your Company sees the potential tobid for around 8 GW of upcoming projects in the power EPC space as well as tenders forretro-fitting existing power plants with state-of-the-art emission control equipment.During the last year we successfully executed gas-fired power plant projects inBangladesh and are targeting similar opportunities in neighbouring countries.

8) Realty

The real estate sector is slowly picking up as demonstrated in an increase in sales agradual reduction of unsold inventory levels and improvement in absorption rates. YourCompany's real estate development projects in Mumbai as well as Bengaluru are progressingwell and are expected to provide steady revenues and profits over the next few years. Thelaunch of new projects in Mumbai and Chennai should provide growth momentum to thisbusiness.

9) Information Technology and Technology Services (iT&TS)

This business segment comprising two separate listed entities (L&T Infotech andL&T Technology Services) has recorded strong revenue growth and increasedprofitability over the last few years. The business is expected to continue registeringstrong growth in FY20 while maintaining margins.

10) Financial Services

The NBFC space in India since mid-2019 has been dominated by the unfortunatedevelopments concerning IL&FS. It has led to a liquidity squeeze and made lenderswary of rolling over short liability positions. Your Company's financial services businesssuccessfully weathered the upheaval thanks to its robust financial structure control onALM mismatches short term strategy and sound operating practices. The situation has sinceimproved and the business turned in a superlative financial performance in FY19 on all keyparameters even during a volatile year. The business has delivered top quartile Return onEquity (ROE) in FY19 and expects to continue this strong ROE performance in FY20.

11) Development Projects

Your Company has a clutch of concessions in roads transmission lines coal fired powerplants hydel power plants and a large metro rail (in Hyderabad). In FY19 we successfullydivested five road assets to an Infrastructure Investment Trust (InvIT) and a containerport (in Kattupalli Tamil Nadu) as part of our wide-ranging efforts to enhance Group ROE.Certain stretches of the Hyderabad Metro Rail have been completed in FY19 and it isexpected that the network will be commissioned fully in FY20. The focus here is onmonetisation of the value created in these businesses.


Your Company is an early adopter of digital technologies among India's E&Ccompanies and is adept at IoT Lidar photogrammetry BIM AI and Machine Learning.Launched three years ago the digital initiative yielded significant asset productivitygains and process efficiencies to operations ranging from pre-bid engineering andcost-estimation project execution and monitoring and supply chain interactions. On thestrength of wide-ranging digital transformations achieved successfully within the L&Tgroup we have now launched a new strategic initiative ‘L&T-NxT' to extend thisin-house experience and expertise to global markets and create value for our clients inselect industry verticals. Leveraging the domain expertise of L&T across diverseindustry segments L&T-NxT targets building a business through the use of new agetechnologies such as IIoT digitalisation and analytics Artificial IntelligenceAugmented / Virtual Reality Geo-spatial applications and Cyber Security to partner ourclients in their transformation journey. We believe there is a huge opportunity ahead withan increasing number of companies moving towards

Industry 4.0 and adopting ‘Smart' products systems & processes to unlockincremental value. While it is too early to talk about financials L&T-Nxt is wellpositioned to capture a significant market share and become one of the key drivers forL&T's growth in the long term.

Acquisition of Mindtree Limited

Your Company is in the process of acquiring a controlling stake in Mindtree Limited acompany operating in the IT services space. We believe the acquisition would be completedin the best interests of all stakeholders. For L&T it is a good opportunity to growthe IT&TS business portfolio and create value for the shareholders.

Strategic Plan

Your Company's 5-year strategic plan ‘LAKSHYA' is the roadmap for growth and valueaddition. LAKSHYA extends from FY17 to FY21 and encompasses every major performanceparameter to achieve the over-arching goal of boosting ROE. Your Company is well on itsway to achieving its targets and has recorded progress on all fronts of the Lakshya planover the last three years (FY17 to FY19). We remain confident of achieving the goal inFY21 (the terminal year of the plan) and in the meantime have been developing the nextstrategic plan (to be launched from FY22) to ensure steady profitable growth into thefuture.


I would like to thank the leadership team of L&T headed by Mr. S.N. Subrahmanyanand all the employees for their stellar contribution to the Company's performance. I alsothank our customers vendors and other stakeholders for their confidence and trust in theCompany. I acknowledge and thank my fellow Board Members for their invaluable support intaking the Company to greater heights.

Thank You

A.M. Naik Group Chairman