Why L&T Expects Next Year To Be Tricky
Larsen & Toubro Ltd. lowered its full-year forecast for new orders as its existing projects are running behind schedule and private investments are yet to pick up. While India’s largest infrastructure company hopes for a better inflow in the next financial year, the expectations come with a risk: the 2019 general election.
“The financial year 2018-19 is going to be tricky. A lot of decisions which involve multi-political consensus could get delayed,” R Shankar Raman, chief financial officer at the company told BloombergQuint in an interview. “Typically, no-decision mode starts two-three months prior to the election.”
Most of the business for the next financial year should be in by January 2019 and “we can’t leave it to the slog overs”, Raman said. “It’s important that the year starts strong and the first half turns out more robust than what it has been historically.”
L&T, considered a bellwether for the Indian economy, was betting on flow of domestic orders to improve “thick and fast”, but that didn’t turn out as expected. Private investments and bank credit to corporates are yet to pick up. Its order inflows declined 8 percent to Rs 28,732 crore in the quarter ended September over the year-ago period. About a 40 percent of these came from overseas. The company cut the guidance for fresh orders to a “nominal” growth compared to 12-14 percent earlier.
Also Read: L&T May Miss FY18 Order Inflow Guidance
“Some of our orders have slipped into next year as the first six months of the current year have been far from fast-paced,” he said. The good part is none of the projects have been taken off the shelf.
For Raman, the outlook is promising as capital market is yielding and people are willing to invest, Yet, capital-intensive infrastructure projects stay three to five years behind schedule.
There is a greater urgency in thought from the current government to push the pace of projects but the system operates at its own speed, he said. There is more effort on planning than execution, which needs to change.
Since investments are driven by the government, it needs to be comfortable with a handful of people bidding rather than opening the field to too many players for price discovery. “Not everyone has a track record of delivery.”