Larsen and Toubro Limited is eyeing acquisitions in the Indian Ocean rim in a strategy to emerge as a major player in the global market. The company is scouting for firms in the areas of construction, engineering and cement. The company is also reviving its Rs 26 bn alumina project. This has been reported by a leading national daily.
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.
L&T's aggressive plans will come as a rude surprise to a number of investors who were of the opinion that the company is finally through with its massive capital expenditure (capex) plans and will generate surplus cash in the future. The plans also lend credence to the fears of many that the company may once again embark on a capex spree. The decision to revive the alumina project, which had been shelved earlier due to concerns regarding shareholder value, is a case in point.
The move is aimed at converting the Indian giant into a global player. The implementation of the strategy would require large amounts of resources, human and financial. Thus there is a likelihood of either a dilution in equity or an increase in debt. This is unlikely to go down well with the shareholders and analysts alike.
With the domestic economy gaining momentum, the timing for diversifying into new businesses and markets may not be opportune. Infact, the company should be gearing up to capitalise on the much-anticipated construction and cement boom in the domestic economy.
The company's ambitious foray, however, is not without justification. Larger capacities and presence in several markets will provide the company with a natural hedge to business cycles.
Larsen & Toubro (L&T) has announced third quarter results of financial year 2016-2017 (3QFY17). The company has reported 1.7% YoY growth in sales while profits have grown 38.9% YoY. Here is our analysis of the results.
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