My advice to all of our shareholders is to be calm, cool and collected and be positive about being with Larson & Toubro, says SN Subrahmanyan, CEO & MD, L&T.

A lot of opinions are floating around that the current year will be a washout. Some are also saying that the lockdown or unlock 0.1 has been smooth and things are coming back to normalcy. What is your big picture assessment?
This is something which was completely unknown, not even movies about which has happened. We have seen Godzilla, the Martian invasions, nuclear catastrophes in movies but we have not seen anything like a pandemic going and shutting down the earth for the first time! Us, homo sapiens, were dominating the earth. One has to understand it in order to take it forward. But after three-four months of this going around the world now and two months in our country, we have sort of gotten used to it. We understand this is something we have got to take it forward and live with and maybe be even mentally prepared that such things will occur again in the future. I hope it does not, but one has to be mentally prepared for it.

Have things come back to normal for L&T? L&T operates at about 1,000 sites. How many of those sites have been opened and are you facing shortage of labour? I understand that you got about 200,000 labourers. How many have come back and how many stayed back?
At pre-Covid levels, maybe there are 230 odd thousand labourers on our rolls. At the peak, we need around 250,000 but we had about 230,000 people on our rolls. After lockdown, some of the labourers left the site and we had about 160,000 labourers with us who were kept in our labour camps on our sites in various locations and some of our factory locations too.

We housed them, we took care of them, we paid them their wages; breakfast, lunch and dinner was done; proper SOPs were put into all these labour camps to help them maintain cleanliness and sanitation and so on.

I am happy to report that there were very few positive cases and any other incidents. When some amount of unlocking started, the labour strength came down at about 79,000 and movement of labour towards the eastern part of the country took place, Many of them wanted to go back to their families there, relatives or the houses and villages and towns to certain extent. I think there was also a psychological requirement to go back because to be locked for two months is not easy. At the moment we have brought our labour strength back to about 1,20,000. We need to go back to 2,20,000 to get back to where we were. I guess it is a work in progress.

The international business accounts for nearly 20% of your total business. Covid-19 has impacted all major geographies. Are we in for a big contraction for L&T in coming quarters on the international front and especially parts of the middle east or the regions which are connected to crude and which has been a big area of focus for L&T?
Global for us is three places. It is predominantly in the Middle East, Africa to a certain extent now and to a lesser extent the far east. Let us not talk too much about the far east because local labourers are too many there and turnover is not much.

So, it is mostly the Middle East and to a certain extent Africa. From the Middle East point of view, there was a double whammy there. First, here was this oil price crisis which at one point of time crashed to $10 and you heard stories about tankers filled with crude floating around and all that.

Apart from that, the Coronavirus crisis hit the Middle East as well. We work in Kuwait, Saudi Arabia, Qatar and Oman and these countries have excellent systems and the health ministries got into the act. They enforced a lot of discipline in terms of the rules and various yardsticks to be followed. Most of the works have started or are in an advanced stage of moving forward from original pre-COVID levels.

In Africa, we are mainly in the north and the eastern countries. Africa is nearly four or five times India’s size and there are huge countries. In many of these countries, there has been some effect of coronavirus but not to that extent that one needs to be worried about. But the governments there have been requesting people to be calm and collected and stay in their houses. So, there were some disruptions but not too many cases. So, we have been able to take it forward from that point of view.

Are you in a slightly difficult spot because international business will see its own share of volatility? The private sector right now does not have the ability or the appetite to take a lot of risk. State orders have dipped also. As a couple of factors have come together, is it a perfect storm for you?
You have served the entire world with your question but I will try to go part by part on it. First let us take domestic business. In domestic, 80% of our orders are from the central government, the state governments and the public sector. State and public sector is the maximum, the central government is relatively less and 20% is from the private sector. This has been the trend in the last few years and nothing much has changed in it.

Now in this 80% of orders from central government, state government and public sector, nearly 35% odd is multilateral funded jobs from World Bank or ADB funded or JICA and things like that. Therefore what you are talking about is the 50% jobs which are directly funded by the central, state and public sector units. Now here,we have a backlog of nearly Rs 3,30,000 crore which is a fairly big backlog and most of the jobs are in the 10-25% range and some of it is in the middle and later stages. Therefore what we need to do is to keep pushing these jobs and make progress, write bills and collect the money. That is what we are trying to do.

In the Middle East, some of the major jobs that we are doing have come to a conclusion. For example, the petrochemical plant in Yangbo, the oilfield services near Abu Dhabi, the stadium in Qatar, Doha Metro. Riyadh Metro may still have another year to go. Some of the jobs in Oman are going on. There are a large number of power transmission, distribution and water jobs going on.

Coming to India, there are certain businesses like heavy civil, metros and hydro projects and port projects etc which seem to have very good prospects. Power transmission seems to have good prospects. Similarly, water seems to have very good prospects. We do water treatment, waste treatment and lift irrigation and schemes like that. These seem to have very good prospects.

That does not mean the rest of the business does not have any prospect. As we return to normalcy, things will come back to pre Covid levels. Ours is a growing economy. But at the moment, we see some slowdown in these kinds of situations.

Given some of the concerns, the L&T stock has been in front of the firing squad because activity has stopped, you have not given any guidance going forward. How can a shareholder understand what is the way forward for L&T at a time when a reboot has happened a) to the world and b) to your business?
L&T is a trusted brand. It is a 82-year old company and it is a nation builder. It is a pensioner’s stock, a safe stock. When you are in crisis, when you have natural calamities, when you have dangers all around you, what do you do? You put your money in a very safe bank. I guess shareholders and other stakeholders have to look at L&T from that point of view.

With a Rs 3,30000 crore backlog, the prospects are very much there. The company has fairly reasonable cash reserves and recently we have also taken some money from a safety point of view and the business is fairly diversified. One should look at it as a way of keeping your money safe and look at it from a long term point of view and not to have knee-jerk reactions.

From my point of view, when you have cash and when you know how to think through such situations and deal with it in a calm, cool and collected manner. One tends to trust a good brand like Larsen & Toubro. My advice to all of our shareholders is to be calm, cool and collected and be positive about being with Larson & Toubro.

When will growth come back for L&T? FY21 will be a washout year, you have not given a guidance. Will a mean reversion happen in FY22 because the base effect would also kick in?
Let us analyse it in two, three different manners; we lost a bit of sales this year, we could have done well by another Rs 6,000-7,000 crore. We had a bit of a phenomenon in India when some of the state governments changed like what happened in Andhra Pradesh and Madhya Pradesh. We lost a bit of momentum. For example, in Andhra Pradesh, there was a relook at where the capital ought to be. The original capital was in Amravati and the previous regime was going all out of develop Amravati.We had picked up some orders there and when the government changed, there was a change of opinion on the location of the capital and work slowed down and we had to halt work. We are waiting for interest to be revived.

In Madhya Pradesh, when there was a change in regime there was a change in priorities.The previous regime thought to develop certain areas. The new regime wants to develop some other areas and the budgetary allocations were not to the extent that we thought would be and we had to go slow on it.

In Mumbai, some of the big projects that we had — coast road and metro — went through a lot of public interest litigations and unnecessary struggle. This was meant to ease the traffic in Mumbai, but people had other views and went to courts and this slowed down the projects’ implementation by six or seven months and now we are catching up again.

In Delhi, for the first time we had the National Green Tribunal stopping all construction activities in the national capital area due to pollution issues. So, these four five incidents which had not been anticipated and which probably have never occurred before led to slow down of projects in these four big areas. It led to an order backlog and created nearly Rs 6,000-7,000 crore of shortfall in sales and maybe Rs 600 crore of shortfall in profit before tax.

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