Larsen & Toubro Ltd’s Chief Financial Officer R Shankar Raman said Saudi Arabia is “a very important stakeholder” in the infrastructure company’s order book and that the company is ‘insulated’ from the ongoing Israel-Hamas conflict.
In an interview with Business Today TV’s Managing Editor Siddharth Zarabi, Raman spoke about the firm’s September quarter results, its foray into chip design and on the business outlook in the Gulf region, particularly Saudi Arabia.
The infrastructure company’s order inflows jumped 72%, benefitting from an upbeat capital expenditure (capex) environment that took its consolidated order book up to Rs 4.5 lakh crore.
“I think the Middle East investment momentum has helped us, the order sizes are 3-4 times the size of Indian orders. India has also grown but grown at its own pace, and it’s as old as somewhere at its own size. Domestic orders have grown by about 15% for the half year, which is not bad, but pales in comparison to the Middle East orders. But the fact that India is also investing in areas that are our strengths, and also the fact that India has chosen the path of investment-led growth has helped the company to take advantage,” said Raman.
When asked about the dynamics in Middle East amid the Israel-Hamas war, Raman said L&T is ‘insulated’ from it and emphasised on the importance of Saudi Arabia for the company.
Saudi Arabia is a very important stakeholder in our order book. Almost 35% of our order book is international. And when talking about order book, it’s about $55 billion (Rs 4.5 lakh crore) 35% of that is international orders and 30% of that order book is Middle East. So, almost 85% of the international orders that we execute today are in the Saudi Kingdom. Now, this has its own advantages and its own challenges. Saudi Arabia, given its own vision, 2030 is positioning itself to be a broad based market, a market where international tourists will come in for multiple reasons.
“Saudi Arabia has enormous wealth, be it for the seed funding of their initial plants be the rail network or be it the larger hydrocarbon investments that they’re doing or very large solar investments that they’re doing. World’s largest solar plant is in Saudi Arabia, and we are happy to be part of it. So, the investment is very broad-based and, I think, Saudi is trying to achieve an amount of neutrality in this conflict zone.
“That’s why you find in the most recent escalation in Israel, Saudi presence has been extremely low key, and very, very tactical, there is no direct participation in what is happening there. And fortunately for us, none of our supply chain is positioned in any of the strike-prone regions. So to that extent, I think we are insulated from the war,” he said.
The Mumbai-based company said it will invest Rs 830 crore to set up its first unit for semiconductor chip design and product ownership. Raman said that L&T will not get into chip manufacturing.
“We think that given the engineering background that we have, designing a chip is a little more up our alley, if I can say that, even though it’s a new area, we do have our listed subsidiary L&T Technology Services working on some solutions for customers, but these are solutions based on design provided by the customer. So, we thought of getting ahead on the value chain and start creating tomorrow’s chips, in terms of what functionalities they could pack to deliver. Now, by doing that, we are able to take advantage of one our global network of clientele. And secondly, to take advantage of the large talent pool that India has when it comes to these design engineers.
“With L&T being a brand name associated with engineering, we do think that given the right structure, and the right business model, we should be able to attract talent. So, the vision at the moment would be to be operating at the higher end of the value chain, and contract out the manufacturing, testing, packaging, etc. to players who can manage scale, we do not at the moment think that the competitive advantage that we can bring to the table would be sufficient to justify the investments in the manufacturing place,” he said.
L&T’s consolidated net profit after tax rose 45% to Rs 3,223 crore in the September quarter and its revenue from operations rose more than 19% to Rs 51,024 crore.