High on hydrocarbon

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: When AM Naik, chairman and managing director of the Rs 34,000-crore engineering and construction giant Larsen & Toubro (L&T) effected a reorganisation of businesses within his company last year, he had two primary motives. The first was to sharpen the focus of certain businesses with a future potential, by optimally pooling the best of internal resources into those businesses, to compete on a global scale. The other was to nurture talent within the group and attract professionals from outside, at a time when engineering companies are losing talent to either large Indian IT companies or MNC engineering companies, which are swooping down on emerging markets for growth.

The Engineering & Construction (Projects) Division of the company saw the creation of three operating companies under its umbrella -- for hydrocarbon upstream, hydrocarbon mid and downstream, and power. The E&C segment is the most critical division for the company, contributing as high as 82% of the total sales for L&T in FY 2008-09, dwarfing other segments like electricals & electronics (8%), machinery & industrial products (7%) and others like IT and financial services (3%).

However, although the economic slowdown is easing out, for the second quarter of the current financial year, this division grew just a shade above 14% in revenues, which was below the widely expected 20% growth. But what is significant is that during the quarter, the company saw a 47% year-on-year growth in order outflow, at Rs 18,365 crore, primarily driven by the power and hydrocarbon upstream sectors, underscoring the crucial role these sectors will play in L&T’s performance in the next few years. In fact, this has prompted the L&T management to maintain its guidance of a 30-35% increase in orders and a 15% growth in FY2010 revenues, with stable margins. The company expects a 25-30% growth in orders from the power segment, a 25% growth in the hydrocarbon business and a 20% growth in the process segment.