High on hydrocarbon

Nov 07 2009, 21:47 IST
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SummaryWhen AM Naik, chairman and managing director of the Rs 34,000-crore engineering and construction giant Larsen & Toubro effected a reorganisation of businesses within his company last year, he had two primary motives.

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.

It is, however, not to undermine the 14% growth in E&C, considering that standalone sales of the company, for all the divisions, for the quarter grew only 2.3% year on year to Rs 7,866.2 crore. This was on account of below expectation performance by most of its other divisions. “The subdued growth in the sales during the quarter was mainly due to delay in clearances from the clients in case of few project orders in infrastructure sector and also due

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