India's L&T looking overseas to beat local slowdown

Mon Nov 21, 2011 7:26am GMT

Quotes

   

(For other news from the Reuters India Investment Summit, click here)

* Overseas business to contribute 15-20 pct revenue from 10-12 pct-CFO

* Half of local projects this FY deferred-CFO

* Deferred projects likely to come back in FY13

(Adds quotes, details)

By Henry Foy and Prashant Mehra

MUMBAI, Nov 21 (Reuters) - Larsen and Toubro (LART.NS), India's biggest engineering conglomerate, is targeting overseas revenue growth as part of a strategy to beat a slowdown in Asia's third-largest economy, the firm's chief financial officer said on Monday.

Ships-to-software firm Larsen last month slashed its order growth guidance for the financial year to March, as it warned of project deferrals and sluggish investor appetite in India thanks to high interest rates and a gloomy economic outlook.

"It's essentially an India de-risking strategy," R. Shankar Raman told the Reuters India Investment Summit in Mumbai, saying the company was targeting 15-20 percent of revenue to come from overseas markets, compared with 10-12 percent last year.

"We will try to expand in the international market... Today our international business is largely in the Middle East, but hopefully in passing years the Far East will start giving more orders."

Larsen, with a market capitalization of $15 billion, has aggressively targeted overseas projects in recent months, and has announced $1.1 billion worth of new foreign contracts, mainly for hydrocarbon firms in the Gulf region, since August.

"The Far East, some areas of Africa and South America have some interest for our products. We have just opened up a few offices," Shankar Raman said.

India has pledged to spend $1 trillion on upgrading its creaking power plants, railways and ports in the five years to 2017. Private cash has been pencilled in for half of that.

But investments have slowed in recent quarters, as stubbornly high inflation, 13 interest rate hikes since early 2010 and rising commodity prices bite. Companies also point fingers at a policy paralysis in New Delhi. [ID:nL3E7MD04U]

PROJECT DEFERRALS

"The opportunity spectrum around this time last year was coming around to $100 billion," said Shankar Raman. "We find that half of those $100 billion has got deferred."

Larsen shares erased early gains of 0.7 percent and fell 1.7 percent on Monday after the comments, before paring the loss to 0.6 percent by late morning in a subdued Mumbai market down 1.4 percent.

Larsen, which gets more than 80 percent of its revenue from the domestic market, cut its order growth guidance for the current fiscal year by a third to 5 percent last month, blaming slowing investments and rising competition. [ID:nL3E7LL0J4]

"We’ve not seen any cancellations in our order book. There are deferments. People are sitting and waiting and watching," said Shankar Raman.

"Inflation has been sticky so consequently they had to rework their numbers, but they are still working. They have not pulled back," he said, adding that he expected deferred projects to come back on line during the 12 months to March 2013.

Larsen will not reduce its prices in a quest to secure market share, Shankar Raman said, and would instead focus on reducing costs and increasing productivity across the firm as it works through an order book worth around $28 billion.

"We are not trying to get desperate because we think we have the balance-sheet to withstand tough times," he said.

"I am not worried about the next eight to 10 quarters, I don’t have large debt to service so ultimately what is the pressure on me? I have the window of time."

The firm still expects to see order book growth of 12-15 percent over the next five years, Shankar Raman added.

Larsen has said it expects revenue to grow 25 percent in the year to March 2012, from 439 billion rupees ($8.5 billion) a year previously.

Shares in the firm have fallen almost 40 percent this year, double that of the drop in the benchmark index .BSESN, wiping more than $8 billion off the firm's market value.

($1 = 51.7 Indian Rupees)

(For summit blog: blogs.reuters.com/summits/)

(For more on the Reuters India investment Summit, see [ID:nL4E7ML0WV])

(Summit desk: +91 22 6636-9138)

(Editing by Ranjit Gangadharan)

((henry.foy@thomsonreuters.com; +91-22-6636-9208; Reuters Messaging: henry.foy.thomsonreuters.com@reuters.net)) Keywords: INDIA SUMMIT/LARSEN

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