Track shipments

L&T | L&T stock price: Is L&T on track to double revenue by FY25? SN Subrahmanian responds

“We have gone for huge hedges on various commodities like iron ore, coke, copper, aluminum etc. and thus try to mitigate the price increases. It is a work in progress, but it is a fact that there will be a small effect on the margins and we may have to live with it,” says SN SubrahmanianCEO and CEO, L&T.

The infrastructure segment recorded a mega order from the Middle East; there was also a good pick-up in the execution momentum of large-value orders in the portfolio. Will infrastructure continue to be a key driver? Explain to us some of the other revenue drivers of the fourth quarter?
Order flow increased 10% for the year and almost 46% for the quarter. Yes, we had good orders during the quarter. For some reason it seems to be loaded in the last quarter, but that’s the way it is. Maybe because the year ends for all governments around March and spending may be happening around that time. This is how.

Our income has increased. In the last 24 months, we have been off work for eight to nine months, including the huge demobilization we had to do two to three times when the workforce left. Once again, we had to mobilize. This exercise continued during the waves of Covid-1, Covid-2, Omicron, but now more than 2,82,000-2,85,000 workers are on our different sites and it is very important for the activity of the project.

Yes, rising commodity prices and logistical issues continue to worry us. We thought Covid was over, everything was done and dusted off, and then this war in Europe disrupted some of those things. Due to rising prices, we have postponed some orders, and logistically, some supplies from Europe and other countries are taking longer than usual. But these are things that we have to overcome.

But revenues were up 15% on the year and we also had quite good results in the fourth quarter. The momentum has returned, the order book is at its highest at nearly Rs 3,60,000 crore. So there is a lot of work to do, a lot of things to do, a lot of things to accomplish. We are busy and expect this momentum to continue.

Customer pressures are there, our own delivery pressures are there and that’s a good thing to have because we come into the office at 7:00 a.m. and come back at 10:00 p.m. in the evening and are still thinking about work.

So you point to rising input costs for the price of crude and other raw materials. At the same time, you say that in the future you hope to reduce the margin reduction that has been in play. How will you ensure that the margins stay there or increase?
There will be some pressure on the margins. The simple reason is that 85% of contracts are covered by some form of price variation clauses, base price, refund clauses, etc., around 15% of contracts are not covered by price variation clauses. price. So when cement prices go up 70%, copper, aluminum 65-70%, solar prices almost 100%, and nickel and cadmium prices almost 100%, there is must have an effect somewhere.

Some of these price increases are greater than the PV clauses can predict and we can see the performance of some of the steel and other companies where they are showing extraordinary results compared to what we can show. So in a way it affects us. We feel aggrieved about it, but it’s a situation that has happened and we have to see how to fix it.

So, if we were to take current prices and forecasts, we anticipate some pressure on margins. As an organization, we have tried to come back to our customers on some of these clauses. There are contractual clauses that allow us to request a refund. In some cases, we postpone part of the work. Instead of buying pipes or sheets today, we buy them after two months. We also use our sites for some late billing because the WPI after two months is catching up with what it should be today.

So those are some of the things we’re trying to do. It is also a fact that we have opted for huge hedges on various commodities like iron ore, coke, copper, aluminum etc. and thus try to mitigate the price increases. It’s a work in play but it’s a fact that there will be a small effect on the margins and we may have to live with it. But the good thing is also that we are now warned and in the new contracts for which we quote, we insist on base prices or PV clauses. We do not enter into any contract without such clauses.

In a contracting business, a certain amount of sales come from the existing backlog and some come from the planned jobs. In a mix of the two, we will try to exceed it but it is a fact that there will be a small effect on the margin.

Your debt ratio is lower than the previous year and you have already publicly announced your intention to be debt free by the end of the year. How far are you from this goal?
We don’t have a lot of debt. Our debt is around Rs 1.24,000 crore and Rs 84,000 crore is from L&T financial services. The financial services business must borrow and lend money. So 1.24,000 minus 84,000, the net debt on the books is around Rs 40,000 crore. In this Rs 40,000 crore, Rs 13,000 crore debt belongs to Hyderabad Metro which will soon disappear. Another Rs 6,000 crore belongs to Nabha Power, which is also at an advanced stage of its move. Thus, the debt of Rs 20,000 crore will be cancelled. This leaves Rs 20,000 crore in debt, which is essentially L&T’s working capital requirement. Frankly, we have no debt beyond Hyderabad Metro and Nabha Power at the moment.

The bigger plan, of course, is to double revenue by FY25. Are you on the right track for this? Can the order book increase by 12% to 15%?The business would be divided into three parts: EPC, manufacturing and services. EPC will continue to grow in the 11-13% range because that’s the nature of the business, we can’t do more nor do we want to expand beyond existing geographies, to namely India, the Middle East, parts of Africa and parts of the Far East.

I don’t think we intend to go beyond that. In these geographies, growth of 11% to 13% is a fair enough target for the EPC and projects business, which is around Rs 110,000 crore. This in itself will go to around 2,00,000 crore or Rs 1,90,000-2,00,000 crore by 2026.

Manufacturing and high-tech precision manufacturing activity will continue to grow between 12% and 15%. The factories are full today. We do not intend to increase the capacities of the existing factory because we have invested well in advance. Of course, we do a lot of factory work and bring many digital and factory initiatives to deliver online and achieve world-class quality. It will continue to be the effort and it will double.

The factory’s turnover, all together, is now around Rs 9,000 crore. This will go to around Rs 18,000-20,000 crore. Services activities are LTI,

and LTTS, which today are in the order of $4.2 billion. This will double to nearly $8-9 billion.

As for the possibility of an acquisition in space as and when, nothing is planned as such. It’s purely speculative, but we’ve done a successful Mindtree and so we’re keen to do something else once stabilization kicks in. If that happens, the IT services business could be worth $10 billion. additional. Financial services will continue to grow, especially on the retail side, and it could be worth $2 million in business by 2026. If all this unfolds, revenue will be Rs 2.7 -3 lakh crore.