Larsen & Toubro to Double Overseas Orders on Gulf Construction

By Karthikeyan Sundaram - Jul 5, 2011

Larsen & Toubro Ltd. (LT), India’s biggest builder of power networks and refineries, expects to double overseas orders in three years as a new structure helps it challenge South Korean builders for projects in the Middle East.

Contracts from overseas will rise to 25 percent of total orders in the period as the company divides operations into nine units to improve management focus, Chief Financial Officer Y.M. Deosthalee said in a July 4 interview at the company’s Mumbai head office. Foreign deals now account for less than 10 percent of orders, he said.

“Our international strategy has not panned out the way it should have,” he said. That is one reason for the new management setup as “this business has to grow,” he said.

The company will focus its overseas push on the Gulf, as rising oil prices and economic development spur investment in refineries and infrastructure. Countries in the region plan to spend almost $1 trillion on construction over five years, Deloitte Corporate Finance Ltd. said in November.

“Larsen has the wherewithal to win orders overseas,” said Rupesh Kumar, a Mumbai-based analyst with KR Choksey Shares & Securities Pvt. “But, the going won’t be easy for them as they are facing some formidable competitors.”

Larsen plans to promote work it has done in India, including building four airports, to win overseas deals, Deosthalee said. India’s lower wages may also help Larsen challenge South Korean builders, including Hyundai Engineering & Construction Co., the nation’s biggest, which got 38 percent of sales in the Middle East last year.
‘Tough Job’

“It’s a very tough job to compete against them, but we have some advantages,” Deosthalee said. “Our entire design and engineering team is sitting in India,” which pares costs, he said.

Larsen last month announced 13.7 billion rupee ($310 million) of transmission and power distribution orders from the Middle East, including installing a 225 kilometer-long power line for a Saudi Arabian railway and building five substations for Abu Dhabi Ports Co.

The builder expects its total orderbook to rise as much as 20 percent by March 31 from 1.3 trillion rupees at the end of the last fiscal year, it said earlier this year. The company in January unveiled the new management set-up centered on nine units, focused on areas including construction, shipbuilding, electrical parts, information technology and financial services.

The company gained 0.1 percent to 1,791.6 rupees in Mumbai trading yesterday. It has dropped 9.5 percent this year, compared with an 8.6 percent decline for the Bombay Stock Exchange’s Sensitive Index.

Aside from the Middle East, Larsen is also looking to win business in other South Asian countries and in Africa, Deosthalee said. It has opened an office in South Africa to win contracts there to build electricity transmission lines, he said.

The company also makes heavy-engineering equipment, including parts for fertilizer plants and refineries, which are sold worldwide.

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Neil Denslow in Hong Kong at ndenslow@bloomberg.net
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