L&T expects revenue to rise as the outlook for mining sector improves with the new govt's thrust on industrial growth
Mumbai:Larsen and Toubro Ltd (L&T), India’s largest engineering firm, is relocating its mining unit to Kolkata from Chennai to be closer to the major mining belt of east India. It expects revenue to rise as the outlook for this core sector improves with the new government’s thrust on industrial growth.
“This division has been relocated to Kolkata from Chennai in bits and pieces… the design office and bulk materials handling are still in Chennai, but eventually everything will be in Kolkata," said S.N. Roy, whole-time director and senior executive vice president (corporate affairs and power) at L&T.
L&T is banking on the new government’s policies to help grow the metals and mining sector after a lull over the past few years and is gearing up to be part of this growth, he said.
“L&T expects that bottlenecks in mining will be removed in the coming months and sees a revival of the sector with huge investments from both domestic and international investors."
The mining division of L&T, called Metallurgical and Material Handling (MMH), has engineering procurement and construction solutions for operations such as iron ore crushing, coal washing and bulk materials handling. It contributes around 3% to the company revenue.
Roy said he expects the share doubling in three-five years.
L&T had a consolidated net profit of ₹ 4,902 crore in fiscal 2013-14 on a revenue of ₹ 85,128.40 crore.
Roy did not say if new investments were planned for this division, but said revenue growth will be driven by the domestic revival of mining and new business from overseas mining projects.
Analysts said L&T’s steps to ramp up its mining is timely, but it would be a year or two before profits start showing. “If the government gives boost to a lot of infrastructure-related activity, then L&T’s mining business can see a growth of 15-20% over three to four years," said Dhirendra Tiwari, head of research at Antique Stock Broking.
In fiscal 2013-14, L&T’s mining division’s revenue was ₹ 1,600 crore, of which ₹ 1,000 crore came from construction machinery and ₹ 600 from material handling projects in mines.
India’s mining sector contracted by 0.6% in FY14, as compared with a contraction of 2.3% in FY13, as legal and regulatory action in Karnataka, Goa and Odisha against environmental degradation and illegal mining saw bans and restricted mining.
Despite the brighter outlook for the mining sector and the overseas prospects that offer a good opportunity to diversify, L&T is treading cautiously.
Roy said he is watching how growth unfolds and is not immediately looking to own mines, but choosing to remain an equipment and service provider to mine owners instead.
“As of now, L&T does not have plans to participate in the auction, as our core strength is for building plants and not in commodity business," Roy said when asked if L&T will bid for the upcoming ‘C category’ iron ore mines in Karnataka under a Supreme Court order.
“We want to be asset light, not asset heavy," he said.
Neither is the company interested in taking up outsourced mining projects under the mine-developer-operator (MDO) route from Coal India Ltd. “However, L&T has tied up with many prospective MDOs to provide technology solutions," Rao added.
That said, L&T has shown some interest in owning mines in the past: it has two applications for mining leases for two bauxite blocks in Odisha, called Sijimali and Kutrumali, that are pending with the state government.
“The government of Odisha had sought some clarifications on our mining lease applications which have already been furnished," Roy said. “Our applications are understood to be in advanced stage of processing and we hope to be granted mining lease shortly."
The main beneficiary of these two blocks, when they turn into mines, will be Anil Agarwal-promoted metal and oil company Sesa Sterlite Ltd that has an agreement with L&T for buying the bauxite.
However, owning mines at some point was not categorically ruled out by Roy.
“When projects come up, we can get into auctions if the end user is there. Business policy is very dynamic, we are there to make money. So if there is opportunity, we will get into it," he said.
L&T is also looking at an iron ore deposit in Odisha for which it had carried out a ‘rapid exploration study’, similar to prospecting (preliminary exploration of mineral).
The company’s approach to overseas operations is also cautious.
Roy said mining operations are now being undertaken in the Middle East and Africa, and the company is looking to ramp up operations by taking on projects from international companies.
“In six months to one year we are going to expand. In the Middle East we have done a few jobs with companies there and in Africa we are going to start… we have posted some people there," he said.
But Roy ruled out entering Afghanistan, where Indian companies led by Steel Authority of India Ltd in a consortium have won rights to explore and mine iron ore reserves.
Roy cited security as paramount to the company.
Likewise, L&T won’t enter southern African countries because they were seen as unsafe, he added.