Larsen & Toubro Ltd. employees work on a booster compressor process module (Photographer: Prashanth Vishwanathan/Bloomberg News)

Stressed Asset Resolution Key To Turning Green Shoots Into Growth, Says L&T

India’s largest infrastructure conglomerate said green shoots will turn into sustainable growth only if stressed asset resolution under the new bankruptcy law goes ahead without complications as the government spending will slow down ahead of the next general election.

There are signs of green shoots in the economy in terms of private investments, SN Subrahmanyan, managing director and chief executive officer of Larsen & Toubro Ltd., said in an exclusive interaction with BloombergQuint on the sidelines of the Defence Expo in Chennai on April 11. “But we are far from there.”

Some of the capital has gone into buying assets being resolved at the National Company Law Tribunal under Insolvency and Bankruptcy Code, Subrahmanyan said. That’s led to capital accretion, he said.

India’s twin balance sheet problem—indebted companies and mounting bad loans— pulled private capital expenditure to multi-year lows. More than a third of around Rs 8.8 lakh crore non-performing loans are being resolved under the new bankruptcy law. Wherever lenders can't resolve them, liquidation will follow. Some of the steel assets have invited bidders, though final resolution is still awaited.

Private investments too are showing an up-tick even as GDP growth picked up after falling to a three-year low due to the disruption caused by demonetisation and the Goods and Services Tax.

In the last few years, promoters have been trying to clean up balance sheets by selling non-core assets, Subrahmanyan said. “Prudence has played a part and they now have more money to invest.”

The capital cycle is still being supported by the government and the public sector, largely through infrastructure spending. The state-run road developer National Highway Authority of India awarded record contracts in the year ended March.

The government has been single-handedly keeping the capital cycle afloat with road and rail orders, and flagship schemes to clean up the Ganga, Subrahmanyan said.

But sustained government orders is difficult. We are heading into a year where we will have three-four state and general elections going into 2019. The order flow will slow by the end of the [financial year].
SN Subrahmanyan, MD & CEO, L&T

If the NCLT process goes ahead without any complications then by the end of the year, the private sector could see some revival of capital cycle, he said. “That will compensate for the slower public sector [spending].”


L&T has turned around its hydrocarbons business. “It has seen a huge revival, have seen orders coming in from the Middle East and India, and rising oil prices augur well,” said Subramanyan.