Investment spends can create employment opportunities and add multiplier impact to economic activity.

SN Subrahmanyan

Managing Director & CEO, L&T

How optimistic are you about the USD 5 trillion growth target? Tell us about the overall outlook of the construction and infrastructure sectors

Strong macroeconomic indicators augur revival. Both the Indian economy as well as all its constituents comprising households, corporates and government are seeking to get back to growth momentum. The pickup in high frequency economic indicators builds hope for the coming quarters. Government is committed to Infra formation in India and we believe large parts of the National Infrastructure pipeline will be achieved. Creation of DFI, announcements around recycling of operating assets is a credible measure recently announced. With the pickup in oil prices GCC is looking a lot better and Africa with consistent multi-lateral funding support should do well. Having said that, the risk of a third wave and its consequent economic fallout does linger in our mind at this juncture, but hope this is not severe.

Tell us about the initiatives taken by the government to accelerate growth.

With an aim to speed up the economic normalization, the Indian Government accelerated the public investments in the key infrastructure sectors. The wheels of India's capex cycle had been set in motion with a strong revival in investment-led growth supported by the 'Atmanirbhar Bharat Mission' and PLI schemes. The government also rightly stepped in to announce a series of fiscal relief measures. Largely they were in the form of loan guarantees, access to food and shelter and healthcare facilities. There was also thrust to exports and assistance to small, medium enterprises and local manufacturing

The government is seized of the fact that investment spends can create the much-needed employment opportunities and add multiplier impact to economic activity. In a normal year, public spends comprising of Centre, State & PSUs add up to 7% of India's GDP. For the next 4-6 quarters till the private investments pick up, the heavy lifting in terms of capex formation will have to be carried on by the government. We see various prospects in different areas of Infrastructure like metros, hydel projects, tunnelling and bridge construction, in roads, power transmission and distribution, water spends and hydrocarbon projects including certain number of activities that are taking place in factories and commercial activities such as data centres, big auditoriums, the central vista etc.

Private sector has been shying away from making large investments. What is your take on the same? Spends continue for few more years?

Focussing on capital formation is the best way to create employment opportunities during these times when household balance sheets are possibly at their weakest. We see capex opportunities across Centre, states and PSUs. The current government is seized of the fact that investment spends can drive economic revival and we do believe that the government will broadly achieve its targets laid down in the National Infrastructure pipeline. In the recent budget the FM did mention about relaxing fiscal consolidation targets for a couple of years in order to spend more towards economic recovery. Many of the state & PSU capex programmes in the country are being financed by the multi-lateral agencies in India today.

Speaking about the near term, our prospect pipeline for the remaining 9 months of FY22 is around Rs 9 trillion. This is 45% higher compared to same time last year. We see strong prospects in all the different verticals in the Infrastructure segment like heavy civil, water, power transmission & distribution, buildings & factories and transportation infrastructure. Post revival of oil prices, hydrocarbon prospect pipeline is robust across onshore, offshore & construction jobs across domestic and international.

Given the current scenario where global ratings agencies have maintained negative outlook for India, how to you see the prospects of India as an Investment Destination.

Contrary to world opinion, the Indian economy better placed to rebound. The Government is making all efforts to bring the economy back on track. Multiple measures and reforms are being put in place to ensure growth and revive the economy to pre Covid levels.

India has attracted total FDI inflow of around USD 81 billion in FY21 which is a record and an increase of around 10% YoY. India is the fifth largest recipient of inflows in the world. The abolition of retro tax is another bold step taken by the government that will undo pending litigations and restore India's credibility as an investment friendly destination. The current government has always stressed on ease of doing business, and with the removal of retrospective taxation, the government is walking the talk in creating an environment that will surely attract more FDI's into the country.

The road ahead is looking a lot more constructive. With the waning of second wave and lockdown restrictions being progressively eased, there are definite signs of pick-up in economic activity. Government with its fiscal ammunition & RBI with its accommodative monetary policy remain committed to support growth revival.

For EPC companies like you, what are the underlying challenges. How has the pandemic affected the company and how has it dealt with the same and even recovered?

L&T continues to be bullish about India. Despite the challenges, our group order inflows and revenues have registered a growth of 13% and 38% respectively. Our PAT for the quarter is 4x the PAT in the corresponding quarter of the previous year.

We will remain positive on India's capex outlook in the future and hence Infra should do well. As EPC contractors, if we are able to manage our margins and working capital level, infra business can generate phenomenally high returns. Credit costs are exceptionally high in this business for last one year due to Covid impact. Once the situation normalises, it will get back to generating top quartile ROEs.

Our group order book at Rs 3.23 trillion is near record high levels in the history of the company. A large and diversified order book provides multiyear revenue visibility. We remain confident of achieving up to a low to mid-teens in revenue growth in FY22 despite the Covid second wave execution challenges experienced in Q1.

Which are the areas that you are bullish about for order inflows?

Growth a given as conditions normalize. In the near term, our pipeline for the remaining 9 months of FY22 is around Rs 9 trillion. This is 45% higher compared to same time last year. We see opportunities in all the different verticals in the infrastructure segment like heavy civil, water, power transmission & distribution, buildings & factories and transportation infrastructure. Post revival of oil prices, hydrocarbon prospect pipeline is robust across onshore, offshore & construction jobs across domestic and international.

Our principal markets apart from India as you know are Middle East, some extent Africa, and a lesser extent Far East. We see some positive momentum in Africa. There has been revival of both power transmission and water projects in certain parts of Africa. We have bid for some hydrocarbon jobs in certain countries, and we do hope that with the stabilization of oil prices we will see some positive movement on some of those projects in the GCC.

Domestic tendering & awarding activity was subdued in Q1 but with economic normalisation from Q2 onwards we will see a revival. For the remaining 9 months of FY22, we see total ordering prospects of around Rs 9trn comprising of domestic opportunities of Rs 6.3 trillion and Rs 2.7 trillion of international prospects.

Hits: 233