Exclusive Interview of S N Subrahmanyan, CEO and MD, Larsen & Toubro Ltd

Anushka Khare Posted on: 2020-06-11 17:06:20 Viewer: 2,645 Comments: 0 Country: India City:

Exclusive Interview of S N Subrahmanyan, CEO and MD, Larsen & Toubro Ltd

Larsen & Toubro Limited, the US$21-billion technology, engineering, construction, manufacturing, and financial services conglomerate, is all set to get back to work full swing with the Centre announcing phased unlocking of economic and social activity. Venkatesh Ganesh and Thomas K Thomas spoke with S N Subrahmanyan, CEO and MD of Larsen & Toubro Limited to understand how he is steering the conglomerate through these uncertain times.

In March you said that FY’20 was a tough year. Do you want to restate that and make FY’21 as a tougher year?

Mr. S N Subrahmanyan: In India, we have a backlog of Rs 3.3 lakh crore worth of projects, which is one of the largest. Fiscal 2019-20 was a tough year but even then we grew orders by 9 percent, sales by 8 percent, and profits by 7 percent. Sales could have gone up by 15 percent but we lost around Rs 6,000 – 7,000 crore due to a combination of factors, which is the reason I said we had a tough year. Currently, 20 percent of projects are from the private sector. Out of the remaining 80 percent, which comprises of Central, State, and public sector enterprises, around 35 percent are multilaterally funded from ADB, World Bank, and the likes.

About Rs 45,000-50,000 crore worth of projects are likely to go on and I don’t see any negative bearing. Work in sectors such as airports, steel will go on. There could be some small delays or prioritization of work. In India, Rs 15 trillion were earmarked for capital expenditure by the government to be spent by the State, Centre and PSEs. In my opinion, that number will come down by Rs 4 trillion. So the number of projects that will come for bid will be lower. In the Middle East, we have a double whammy of sorts.

The crashing oil prices and pandemic. However, except for Oman, all In the North and East of Africa, we expect US$600 million in turnover. In India, 90 percent of our 950 domestic project sites are working. We had around 230,000 laborers before the pandemic. Now we have around 120,000 laborers in the sites and we will work on getting them back. In another 35 days, we will come back to normalcy. However, productivity has been low. Regarding the economy, it will be recovered over time. Also, I don't see any recovery in private sector spending for the next year or so.

The services business is growing faster than other L&T businesses. Do you see services accounting for a higher share in the overall revenue share going forward?

Mr. Subrahmanyan: In our mix, we have EPC, contributing to 75 percent of revenues, defense and manufacturing contribute around 10 percent and services about 15 percent. Our estimation is that services can grow to 17-18 percent in this fiscal. This is because they have adapted better to Work from Home (WFH). So, services will bounce back faster.

In the context of WFH being the new norm, how do you see workforce deployment for L&T offices going forward?

Mr. Subrahmanyan: It depends on the business segment. For example, 98 percent of Mindtree employees were able to work from home. In the projects side of the business to we were able to shift work outside of offices in terms of engineering, design, and even the procurement process has embraced technology. But in construction, we still need to have people on site. This part of the business got affected.

How difficult will it be to bring migrant workers back to your sites?

Mr. Subrahmanyan: Pre Covid-19 crisis, we had 220,000 laborers. During Covid-19 we took care of the labour force at our sites. However, family pressures forced workers to go to their native places. People got scared. Labour moved from West and South to the East. In our case, many of the labourers have been working for generations and there is a lot of goodwill as a result of which workers will come back. We have also taken the help of technology. We have an app called Virtual Service Application or VISA through which we stay connected with workers. So, for example, we have a database of carpenters in the system and we can tap into this depending on the work and location. Even in normal times, we mobilise the labour workforce 3-4 times in a year. For example, during all festivals, there is a movement of labour. Some of them do not come back so we have been constantly moving labour. Maybe this time we will have to make some extra payments to bring them back. The pandemic has also added a psychological element to the migration.

When will you start giving guidance on revenues?

We can give guidance right now but you will wonder on what basis am I giving the guidance because we are still in the middle of the pandemic. So giving guidance has no meaning right now. That’s why we have been cautious.

Are you looking at restructuring the business and the organization to adapt to the new challenges?

Mr. Subrahmanyan: So these last couple of months we have had time to think and we have had a look at our systems, our processes, and businesses. Some of the businesses are not doing well so how to deal with that, how to deploy staff in a more efficient manner. Huge decisions have been taken in many of these aspects which will stand us in good stead. Some of this we will announce as we go forward, other aspects are internal to the company. We will become leaner and meaner.

You had talked about a debt reduction plan by selling a stake in L&T Infrastructure Development Projects (IDPL) and Nabha Power, and transferring stake in Hyderabad Metro, this year. Is this on course?

Mr. Subrahmanyan: Our standalone debt is hardly Rs 9000-10,000 crore. This is far below what an organization like us can have. But we want to come out of all these projects and we are doing all we can on that front.

You said capital expenditure by the government will come down by Rs 4 trillion. Do you think this will impact high profile projects like the bullet train?

Mr. Subrahmanyan: We require these high profile projects. Countries like the US and China have had huge infra projects. India needs to develop transportation. But doing such projects needs money and we may not have the money right now. Whether the multinational agencies will come in or will the Government find another way I don't have an answer.

L&T has been flagging concerns over the lack of adequate orders from the Government in the Defence segment. Do you see this changing soon?

Mr. Subrahmanyan: We have two very hostile armed neighbouring countries. We have to protect ourselves. So the Government needs to collaborate with the private sector to ensure we have world-class systems in place. The problem is this need for the tendering process to pick the vendor. For example, L&T is the only company in the country to build submarines. In a country that needs just 5 submarines for 20 years, we cannot have 3 parties vying for it because the costs do not justify it. You don’t have 5 companies bidding for AWACS, for instance.

The point here is that they should decide L&T as the partner and go ahead with it. Pricing and costs can be discovered. Of course, encouragement is coming through Make in India otherwise we won’t have been the largest private-sector defense player in the country. But here too, Government nominating public sector companies is an inefficient process. Lastly, the Government has allowed 74 percent FDI in defense but in my view, not many foreign players want to come into India with just 74 percent control. Therefore, the Government should encourage existing private sector companies by giving us sufficient orders.

What’s your take on 'Vocal for the local' campaigns?

Mr. Subrahmanyan: I think the Government is doing as much as they can. Now it is up to the entrepreneurs to make avail of these schemes and unleash their animal spirits. The environment has been created now it is up to the entrepreneurs and companies like us to see how best we can utilize these schemes.

Do you envision merger of Mindtree with L&T Infotech?

Mr. Subrahmanyan: L&T Infotech and Mindtree have different focus areas and expertise. They have different strengths. There are no plans to merge the two as of now but it is inevitable at some point we will think about merging them. (via The Hindu Business Line)

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