Management case: L&T sails through the slowdown

India’s largest engineering and construction firm Larsen and Toubro Ltd (L&T) posted a 6.87% increase in profit and a 10.6% growth in net sales in the September quarter. The company posted these figures even as most of its peers faltered as projects stalled and options shrank in a sluggish Indian economy. L&T was quick to realize the problem at home and decided to look beyond the country for the growth it envisaged. Looking outside The L&T management prepared to face the slowdown with a simple strategy—geographical diversification. Although the conglomerate was already engaged in various activities such as shipbuilding, defence, roads and information technology, it now decided to grow outside the country.

L&T spotted markets such as the Middle East, where infrastructure development was at its peak providing ample opportunities for the company. Soon, it became one of the most trusted engineering brands in West Asia. Maintaining performance While L&T was facing pressure in the domestic market because of lack of new avenues, revenue from foreign operations helped it maintain its performance and profitability. The company won major orders in the highway, airport, power and energy sectors, among others. The hedging of its order books against the slowdown in India also helped L&T stick to its revenue growth guidance in the last few years.

The company typically announces a revenue growth forecast at the start of every fiscal and tries to deliver according to the promise. The management has in the past said that this strategy of expanding overseas has helped it remain profitable. Looking forward Although international diversification meant compromising on margins, L&T tried to reduce the impact by focusing on improved execution aided by a talented workforce. As the Indian economy slowly turns the corner, the management is hopeful that domestic orders will increase and there may be a divergence in the trend of more international orders versus those from within the country.

The management has also identified newer markets in Africa and South East Asian countries such as Indonesia and Vietnam for expansion. L&T has said that it adopts a very cautious approach while entering a new market.
Source: LiveMInt