Larsen and Toubro expects manufacturing revival going ahead, here is how Motilal Oswal is reading the situation

We hosted SN Subrahmanyan, MD and CEO of Larsen & Toubro as part of CEO Track at our 13th Annual Global Investor Conference. Key takeaways from his presentation: Strong momentum being witnessed across domestic infrastructure verticals – Rail/Metros, T&D, Water, Smart Cities, Airports, and Ports; Hydrocarbons and Defense also witnessing recovery.

Digitalisation and use of technology in construction a key focus area. Expect a revival in manufacturing JVs/subsidiaries over the next few years – investment phase over; time to sweat the assets created. L&T’s projects in the Middle East remain on track and are unaffected by the fall in oil prices over the past year. Its focus in the Middle East is on social infrastructure projects like Roads, Metro Rail, T&D and Stadiums.

While private sector capex remains muted, government spending on infrastructure and defense remains strong. Momentum in orders /execution is being witnessed across key infrastructure segments. The government’s thrust towards the Dedicated Freight Corridors is evident. L&T has won most of the orders awarded under the Western Dedicated Freight Corridor. The Indian Railways has planned a capex of `1.3 lakh crore in FY18, +10% y-o-y; >2x of FY15.

Metro rail projects are currently under execution in 12 Indian cities and another 20 cities are looking to build metros with a total spend of ~$40b over the next few years. Quite a few cities are opting for underground metro rail projects, where L&T is focusing; elevated metro rail projects have become commoditised.

AMRUT and Namami Gange are key central government schemes that are driving water spending in the country. Water is one of the fastest growing segments in L&T’s portfolio, with a 25% CAGR over the last few years.

L&T does annual sales of $2.6 bn, 50% domestic, in this segment, which continues to do very well, given the government’s push to improve power connectivity, reduce AT&C losses, and electrify all villages over the next few years.

Larsen & Toubro Limited