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L&T eyes power, core sectors - Views on News from Equitymaster
 
 
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  • Aug 27, 1999

    L&T eyes power, core sectors

    Engineering and cement major Larsen & Toubro (L&T), plans to set up two subsidiaries for power and infrastructure projects. The company's chief executive and managing director, Mr Naik revealed this in the Annual General Meeting (AGM). However, as yet, it is not clear how L&T's existing power and infrastructure projects would be realigned with the new subsidiaries.

    L&T is the largest engineering, procurement and construction (EPC) company (58% of total revenues) in India. The company also has major business interests in cement (24% of total revenues, capacity 12 mtpa), and software.

    The company has identified Infrastructure Leasing and Finance Services Ltd. (IL&FS) as a partner for its infrastructure subsidiary. This will solve the company's financial needs to a very large extent, as infrastructure projects are very capital intensive.

    In the power equipment segment, L&T, competes with local companies like BHEL and ABB. While margins in international power projects average 3-4%, local projects are more lucrative with margins running at about 7-8%. But given the quality of its competition, L&T has had to, and will continue to fight tooth and nail for power projects.

    In a strategic move, L&T plans to provide financial assistance to prospective clients by picking up equity stake in its projects (mainly power). It will eventually divest its stake (partly or fully) at a later date. This will enable the company to acquire fresh contracts and face competition more evenly.

    Market View:

    Analysts have flagged the company as a 'BUY' in view of L&T's restructuring process, which shall increase focus on various business segments. Rising cement prices is another factor that is in the company's favour.

     

     

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