We hosted Mr SN Subrahmanyan, MD and CEO of Larsen & Toubro as part of CEO Track at our 13th Annual Global Investor Conference. Key takeaways from his presentation:
- Strong momentum being witnessed across domestic infrastructure verticals – Rail/Metros, T&D, Water, Smart Cities, Airports, and Ports; Hydrocarbons and Defense also witnessing recovery.
- Digitalization and use of technology in construction a key focus area
- Expect a revival in manufacturing JVs/subsidiaries over the next few years – investment phase over; time to sweat the assets created.
- L&T’s projects in the Middle East remain on track and are unaffected by the fall in oil prices over the past year. Its focus in the Middle East is on social infrastructure projects like Roads, Metro Rail, T&D and Stadiums.
- L&T enjoys several levers across business/geographical segments, and has emerged as the E&C partner of choice in India. This provides it with a robust foundation to capitalize on the next leg of the investment cycle.
- The management intends to improve consolidated RoE to 18% (12% in FY17) by FY21. Capping investments in concession business/asset monetization are important components of this strategy.
- Manufacturing businesses (like shipyard, power BTG, and forgings) also offer interesting growth avenues over the longer term. Many of these businesses are difficult to replicate, bolstering L&T’s position as a dominant player.
- We maintain our Buy rating with a SOTP-based price target of INR1,380.
Key risks to our rating are:
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(a) sharp slowdown in government infrastructure capex, (b) sharp fall in oil prices, affecting orders and execution in the Middle East, and (c) significant increase in raw material prices, adversely affecting fixed-price overseas orders.