Order inflow prospects and visibility for the year ahead, especially big-ticket prospects?
Reasonable prospects in heavy civil, power transmission, water, heavy engineering. Large value tenders on hand domestic, Middle East, Africa. L1 in several. Hydrocarbon, buildings, transportation prospects expected to come back from Q2/Q3 onwards. Construction equipment momentum later in year as mining sectors open up.
Asset monetization roadmap — Nabha Power and Hyderabad Metro InvIT timeline?
Plan was developing well before pandemic. Metro is shut, ridership at zero during lockdown — need to wait for ridership to rebuild. Office space utilization may be reassessed given work-from-home; Hyderabad has heavy IT exposure. Intention to unlock capital unchanged; timing depends on environment.
Contractual obligations and provisioning cycle given delays, fixed costs, monsoon effects across multiple projects?
950 sites globally; risk management process clear. Force majeure / disruption letters issued; clients reciprocating. Government issued reimbursement directive for labour costs; some clients already reimbursing. Cost build-up will be rubberized over remaining 9-10 months. Monsoon manageable — we work through it. Most clients positive; one Maharashtra client offered to fund labour wages and food. Will get over it but takes time.
Working capital — has there been a change in payment terms/project parameters? Cost reduction measures and FY21 outlook?
Customer terms have shifted toward using contractor balance sheets; milestones elongated; orders larger. Of Rs.55,000 crore receivables, Rs.19,000 crore overdue (incl. retention). Quality not deteriorated; overdue cycle still ~50 days. Philosophy: 'collect and spend'. Don't expect WC to deviate from here. Will be clearer in a month or two on revenue trajectory.
Which sectors will be prioritized for next two years given limited budgets in NIP? Metro / high-speed rail outlook?
States have 2% extra overdraft; Rs.90,000 crore for DISCOMs. Multilateral-funded projects awaiting clearance will see light. Priorities: rural electrification, rural water, roads to hinterland, retail/storage, food grains liberalization. Metro: every 1mn-population city has metro policy; 80% funded by JICA/JBIC/World Bank/ADB — will continue. High-speed rail: my own doubts; project may take back burner.
Defense — 26 items reserved for domestic procurement. Any concrete benefit? And Andhra Pradesh capital city order book status and receivables?
Strategic partnership policy is positive — concentrates submarine, tank, aircraft carrier work in 1-2 partners. FDI to 74% — disagree principally (foreign firms won't transfer high-end tech). Need national policy of military-industrial complex like US/Soviet. AP: none of the orders continue in book; receivables kept alive for accounting purposes; will avoid quantification. Nothing to be worried about overall.
Within ex-services segments, which segments most/least impacted by COVID and which ramping up faster?
All segments have healthy backlog (Rs.3,03,000 crore total). All proceeding with work; nothing specifically impacted differentially. Two months of severe lockdown affected everything. 90% sites back; 40% labour. Workshops have work till Sep-Nov 2021. Cannot rate one segment better than another — marginal differences.
Should incremental bids price in stronger margins given competition wash-out? And ROE 18% target trajectory?
Margin play not just demand-supply. Bids constrained by customer budgets — being L1 above budget triggers rebid. Operate at profitable level within floor and cap. Stable margins despite cyclicality — won't fix what isn't broken. ROE 18% target: Financial Services almost touched 18%; Nabha and Hyderabad Metro asset-heavy and challenge — that's why we want to unlock capital. Pushed back in time but continuing.
Quantify prospect pipeline in heavy civil, power transmission, water, heavy engineering?
Don't call the chickens before they hatch — sufficient prospects, busy with pricings and risk reviews; haven't summed it up. Putting cart before wheel to add it up now.
What proportion of order book is slow moving / non-moving currently due to COVID and other factors? And what about going forward given pandemic uncertainty?
During FY20 we removed Rs.29,000 crore of non-moving orders (Andhra Pradesh, NGT-stayed, real estate cancellations). The Rs.3,03,000 crore reported order book has next to nothing non-moving. We believe all reported orders are executable subject to pandemic restrictions on movement of people and goods.
How is execution panning out in Q1 with working capital challenges, and how has activity picked up?
April-May difficult given total lockdown. Held ~160,000 labourers in camps. Pre-COVID labour was 170,000, fell to 70,000, now back to 120,000; need to reach 220,000-230,000 to attain pre-COVID activity. Adding 1,500-2,000/day. Should get back to billing in 30-45 days assuming no second wave. Working capital should not deteriorate further; clients/government easing payment terms; record collections continued through March/April/May.
Any color on international order execution given COVID situation?
Middle East: all backlog orders moving; some COVID-positive cases and quarantine; oil price + Corona double whammy expects new Middle East prospects to slow but executable contracts continue. Africa: less affected; works going on normally.
Update on E&A divestment to Schneider — timeline and utilization of funds; equity infusion needs in subsidiaries?
Schneider transaction was supposed to close 31 March; delayed because France was locked down. Hopefully closes in 2-3 months once international travel resumes. Resource raising of Rs.90bn NCDs in April was for FY21 needs — half refinancing maturing liabilities, half growth. Schneider proceeds will be used for capital reallocation including Hyderabad Metro. L&T Finance is debt play; current debt-equity 5.6-5.7 vs target 6-6.5; may revisit capital injection if operations pick up post-monsoon.
Are state and central governments urgent to kickstart new projects? And on defense/Make in India FDI?
Northern/eastern states urging speed-up; western/southern (where bulk backlog is) — clients want speed but key constraint is attracting labour back. No state has cancelled or asked to defer. On defense FDI 49% to 74%: principally don't agree — foreign companies will not transfer high-end tech; will be assembly/CKD. Strategic partnership policy is good. Defense funds always strained.
Risk on Schneider consideration based on milestones / muted performance? Middle East collections experience and hydrocarbon risk?
Schneider deal is straightforward — no milestone-linked risk. Hydrocarbon: backlog Rs.50,000 crore (50% Middle East, 50% India). All Middle East contracts rigid, going well. Future Middle East proposals may slow until oil prices recover (reports point to $50-65 by year-end). Social infrastructure (T&D, water, pipelines) emerging in Middle East; we will capitalize.
Proportion of infrastructure projects funded through MFA, central/state governments, private sector?
80% of projects from central, state and PSUs; of that 35% multilateral-funded (JICA, JBIC, World Bank, ADB); 50% directly state/central. AP (political — capital city development) was the main issue and we drew down those backlogs. Some MP, Rajasthan disruptions on regime change but resolving. No cancellations. Government recognizes job creation imperative; MNREGA-style push coming.
How big a benefit could low commodity costs be? And proportion of orders with pass-through clauses?
Almost all contracts have pass-through clauses; even lump-sum contracts have escalation calculated and provisioned. If prices don't go up, savings flow to us. Some labour cost premium possible from skilled labour shortage but limited. Effort underway to capture savings.
Maharashtra projects — issues from change in government? Execution post-COVID?
Maharashtra didn't face issues from government change. Issues were PILs on coastal road, metro (corals, fish, decibel objections, view objections). Went to Supreme Court; lost 6-7 months last year. Coastal road and trans-harbour link working through Corona; Metro got affected last 14 days due to contractor's COVID cases. All Mumbai work going on but at sub-optimal speed due to labour shortage.
Proportion of fixed cost on revenue basis for core E&C? And Maharashtra share of order book?
Staff cost ~5-6% of revenue annualized, other admin 3-4% — total ~10% of revenue is people+admin overhead. Could vary by project/sector. Estimate ~8-9% of revenue lost as carrying cost. Maharashtra share of order book ~22-23%.
Will we see consolidation of market opportunities as competitors are stressed? And how does L&T reimagine project sites with COVID-related disruptions?
Competition stressed (HAM/BOT exposure, debt). Government clients usually rebid or hard-negotiate so single-bid acceptance limited — modest market share gains possible. Not interested in M&A in EPC space. On sites: we have about 120,000 labourers, need 220,000-230,000 to attain pre-COVID activity. SOPs for safe working being implemented; productivity will be lower due to social distancing. Mechanization push being accelerated; some experienced Middle East labour returning. Life at sites will be more difficult.
Will L&T proceed with execution or first clarify cost compensation with major clients to safeguard profitability?
Dictate to all site managers: chase cash, sales will come; progress, bill, collect. People migrate to trusted brands in pandemic. Most clients want to help — government clients easing contract terms. Some PSUs/govt clients stuck up but we use precedents from sister companies/governments to push. Will take coaching but we will get it done.
Logistics on labour return — policy push needed for reverse Shramik trains? And real estate strategy in COVID?
Shramik trains return loaded with labour coming back; buses with reduced capacity (50→30); reimbursement of travel costs ongoing. 2,400-2,600 trains running, many west-east and south-east. Adding 1,500-1,600/day; targeting 3,000-4,000/day. Real estate: studio/small apartments moving well (Boulevard Bangalore, Mulund, Seawood); larger ticket sizes slow. Residential will tend to do well as people prefer real estate as safe investment over equities. Commercial uncertain — work-from-home unclear; some IT spend pickup possible. Distressed asset opportunities being evaluated.
Have you availed moratorium on Hyderabad Metro / Nabha / working capital?
Main company — no moratorium taken. Hyderabad Metro and some road concessions — applied for and availed moratorium. Nabha — no moratorium taken.
How do you view appropriate standalone debt levels in L&T Limited given Financial Services? And L&T Finance liquidity support commitments?
Standalone debt historically very low and will continue to be. Recent borrowings refinance long-term debt raised 5 years ago. Standalone debt is for L&T core working capital. Financial Services has Board-sanctioned credit lines from parent but never had to dip — listed company raising on its own with no recourse to L&T. Standalone debt of L&T Finance Group. No financial drain to support FinServ liabilities.
Wage inflation pass-through in contracts? Subcontract labour wage increases — pass-through?
Minimum wages claimable; CPI inflation generally claimable in lump-sum. Labour wages ~6-7% of total cost; even 10% increase = 0.5-0.6% of cost — negligible. India labour costs still low. All laborers via subcontracted gangs; productivity-linked recalibration to compensate cost increase. AC/plumbing/erection are back-to-back contracts — pass-through aligned.
L&T Finance equity raise — clarify whether on its own or with L&T infusion?
L&T Finance has raised on its own historically; L&T holding came from 100% to 75% to 65%. Last time was preferential offer where L&T invested. Decision contextual based on alternate application of money. Financial Services integral part of services portfolio in derisking strategy.
Project EPC business at ~18% ROE — is this a high-return business sustainable through working capital and execution challenges?
EPC is core of L&T — bread and butter. Hard-learned ROE over many years; will stay and improve. EPC done in client premises — no fixed factory CAPEX. Risky business; current returns match risk.
Will working capital stretch get priced into bids by competitors and the company so ROIs return to historical levels?
Working capital is function of contractual cash flow. Margins held stable in 1% band despite WC moves because pricing builds in WC. Competition stressed on access to credit (bank lines for guarantees) — that's L&T's competitive advantage rather than just pricing of credit.
Schneider proceeds — going to Hyderabad Metro / Nabha / EPC growth?
Capital structure correction not capital give/take. Once construction risk off, debt-equity gets resized. Schneider proceeds may go to reduce Hyderabad Metro debt if traffic doesn't pick up. EPC growth needs ~Rs.2,000 crore working capital per Rs.10,000 crore revenue addition. Growth target 10-15% YoY needs delta capital support.
Confirming no major delays in execution and no major cancellations? Private sector orders?
Confirmed — delays from 2-month lockdown but no requests for cancellation/go-slow. Some discussion on budget reallocation/timing. Private sector hardly any; some lease clients requesting reallocation. Many private sector clients pushing for original commissioning timelines.
Will average project size go down given budget constraints? And asset divestment dynamic — government also selling assets crowding out?
Mega packages (Dedicated Freight Corridor, water schemes) largely done. Without new schemes (high-speed rail, river interlinking, Bharat Mala) new megapackages limited. Existing railway, highways, river-interlinking, T&D, water, refinery expansions — reasonably big but not very big. NCLT process deferred 3-6 months due to pandemic. Central divestment must continue (BPCL, LIC) for budget — good assets will find buyers.