Why: L&T has slashed its forecast for growth in orders for the year to March by five percentage points, citing an unpromising investment climate and policy uncertainty ahead of general elections due by May. This is despite reporting a 22% increase in fiscal third-quarter net profit, helped by a strong domestic and international order inflow.
Background: L&T is India’s biggest engineering and construction company and a corporate proxy for the broader economy. However, the economic slowdown has started taking a toll on L&T. For instance, interest cost rose sharply from ₹ 240 crore to ₹ 290 crore quarter-on-quarter, working capital expanded further and reached 21% of revenue despite a strong increase in new orders, implying it is now becoming increasingly difficult for customer advances to come through even as cash collection lengthens.
Experience: Venkataramanan, a graduate in chemical engineering from Indian Institute of Technology, Delhi, has been working in L&T for over four decades. After a series of successful assignments, he was promoted to the board of directors in May 1999, and appointed chief executive and managing director on 1 April, 2012. Venkataramanan is credited with helping in the transformation of L&T from a fabrication-driven engineering, procurement and construction contractor to a technology-led firm. He also laid the foundations for project engineering and execution, and conceptualized and designed the waterfront load-out facility at Hazira in Gujarat for large offshore platforms.
Challenges: Venkataramanan has a huge challenge to prolong the firm’s profit streak without compromising margins. The Indian market is seeing a lull in the background of the general elections round the corner. International markets are facing competition from Korean and Chinese companies, resulting in lower margins. Venkataramanan also has a huge challenge in finding the right buyers with the right valuation for its assets such as roads and ports.
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