Huge outlay on the upcoming metro project in Hyderabad
Larsen & Toubro (L&T) has said that it is well-poised to double its construction business in the next four years.
The construction business currently stands at around Rs.24,000 crore. This represents 52 per cent of the total revenue of the company.
In an interaction with this correspondent here on Wednesday, S. N. Subrahmanyan, Member of the Board and Senior Executive Vice-President (Construction), said, “it is well within us to do that (double the revenue)”. He said that the L&T construction wing “has the strength, ability and people to do that”.
Mr. Subrahmanyan has taken over the leadership of L&T construction business from K. V. Rangaswami, who has now become an Advisor to the Chairman of L&T.
Achieving a turnover of Rs.50,000 crore in four years could be a ‘daunting task', Mr. Subrahmanyan said. Nevertheless, he said that “it is a part of the deep-rooted vision envisioned by Mr. Rangaswami”.
To a question, he said all the four verticals within its construction space — buildings/factories, infrastructure, electrical and minerals/metals/water — offered huge potential. He envisaged the growth to come from all these four verticals.
He pointed to a number of factors such as the high-end development in the residential housing space, the emphasis on cleaner working environ, the need for speed and scale in factory building and the ‘must needed' focus on manufacturing. All these held huge promise for L&T, a serious player in the buildings/factories space.
Mr. Subrahmanyan felt that an expanding economy could not afford to ignore infrastructure. In this context, he outlined L&T's presence in this sphere. L&T was investing heavily in the upcoming metro project in Hyderabad. The company would be betting on winning a few bids of many a road project coming up across the country.
Mr. Subrahmanyan said L&T “is currently doing six projects” on the hydro-power front. He saw good potential for L&T in hydro-power projects coming up in Bhutan, North-East and Uttarakhand. “These are inherently tough projects in remote areas,” he said. “If we get our formula right, we can gain hugely,” he added.
In the area of electrical, L&T, he said, was present across the Middle East. The company was now looking at Southern part of Africa. In the largely fragmented minerals/metals space, L&T had built a unique ‘EDB' (engineering, design and building) business model.
Mr. Subrahmanyan said L&T would look at the Middle East with twin objectives — to gain a footprint in other markets and also to leverage the huge Indian presence in those regions. Around 15-20 per cent of construction revenue of L&T came from overseas business, Mr. Rangaswami said.
To a question, Mr. Rangasawmi said that among the EPC (engineering, procurement and construction) companies across the globe, L&T enjoyed better profitability rate at around 11 per cent. World-over, EPCs had a profitability rate of just 5 per cent, he said. L&T kept its focus on large projects (above Rs.200 crore). About 60 per cent of its construction revenue came from government jobs.
On the challenges facing the company in doubling the construction revenue, Mr. Subrahmanyan conceded that the “single most impediment is HR (human resources)”. The construction wing of L&T inducted close to 2,000 people every year. “How to make them at least five years experienced when they take up the job? It is a huge challenge in training them,” Mr. Rangaswami said. In this context, both felt L&T needed to do a lot to retain the labourers trained through its centralised skilled training institute.