Indian Economy - an Oasis of Stability
amidst Global Uncertainty
Dear Shareholders
There is an air of sustained optimism in India even as
the world grapples with economic uncertainties. The
vision of the Government and the indomitable spirit
of Indians seem to be propelling the country forward.
This has been made possible through a nuanced
combination of structural reforms, prudent regulatory
actions and smart policy manoeuvring. During the
year under review, your Company has performed well
and continues to excel in the areas of infrastructure,
hi-tech manufacturing and tech-driven services. It also
contributes actively to India’s transition to a cleaner, greener economy. At this juncture, we reiterate our
commitment to pursue our business goals and add value
to all our stakeholders while continuing to advance the
larger interests of our country.
Business Scenario
The global economy has been in a volatile state
throughout the year under review. Global growth has
been slowing down due to the conflict in Europe which
has disrupted global supply chains. Most central banks,
in parallel increased their policy rates to curb inflation,
which in turn, could impact future investments.
In India however, the scenario has been more positive.
The Government has adhered to its infrastructure-driven
growth path and continued with capex spending. The
Government’s efforts have been complemented by the
Reserve Bank of India (RBI) through judicious interventions
to ensure systemic liquidity, bolstering the confidence of
households and private companies.
Several domestic macroeconomic indicators provide reasons
for cautious optimism. An improved Tax-to-GDP ratio
and a healthy Government Balance Sheet will hopefully
ensure that the spending proposals envisaged in the Union
Budget proceed unhindered. While export earnings from
merchandise goods stagnated, the service sector export
earnings grew at a fast pace, ensuring that the Current
Account Deficit (CAD) scenario remained comfortable.
On its part, the Government is doing the heavy lifting
in terms of spending on infrastructure. Meanwhile, the
private sector’s capacity utilisation returned to pre-COVID
levels, and select sectors have started witnessing an uptick
in investment. Going forward, this revival in private
investments is likely to become more broad-based. Further,
bank balance sheets are well capitalised today to propel
investment growth.
Buoyed by the success of the Production Linked Incentive
(PLI) scheme, the Government is likely to extend it to more
sectors and intensify efforts at structural reforms in critical
areas such as labour, logistics, manufacture, renewables,
healthcare and education. This should enable India to
retain its ‘fastest-growing emerging nation’ status in the
medium term. Shifts in global value chains, sustained
digitalisation initiatives at home, backed by India’s zeal in
meeting its de-carbonisation objectives could well make
India the world’s third largest economy by 2030.
Amidst all this, your Company is well positioned to ride
the waves and reap the benefits. Its proven expertise
in building world-class infrastructure and high-tech
manufacturing, coupled with its emphasis on leveraging
technology to deliver the best possible output, place
your Company in a sweet spot to take advantage of the
opportunities as they unfold.
Driving Growth
The Government is clearly pursuing an infrastructure-driven growth strategy. It is expected that private capex
will provide tailwinds to the growth momentum. The
National Infrastructure Pipeline (NIP), put together by the
Government, provides a clear visibility of the country’s
infrastructure requirements and the funds needed. The
National Monetisation Plan (NMP) has been envisaged
to unlock value in the operational infrastructure
projects by engaging the private sector. It is expected
that the National Bank for Financing Infrastructure
and Development (NaBFID), set up primarily as the
principal Development Financial Institution (DFI) will
support the development of long-term infrastructure
financing in India. Thus, a clear vision is in place for
India’s infrastructure. The public procurement initiatives
as well as the renewed efforts to revive the public-private partnership (PPP) model have an overarching
infrastructure focus. Clearly, the Government is serious
about reviving private investments in infrastructure. Once
both public and private investments begin working in
tandem, it will boost India’s Investment-to-GDP ratio,
driving the country to an even higher growth trajectory.
As India’s dominant infra player, you will be happy to
know that your Company has lucrative prospects to look
forward to across the spectrum, as infra investments
trigger employment generation and entrepreneurship
opportunities, boost income, and drive demand for goods
and services.
There are encouraging signals on the Defence front
as well. India’s journey towards being self-reliance or
‘Atmanirbharta’ is transiting from stated intention to
visible action. The Government is keen to reduce import
dependency and go a step further to secure for India an
entry into the global supply-chain. Your Company is proud
to have been associated for almost three decades with this
sector of crucial national significance, and is optimistic of
the opportunities going forward.
At this juncture, I wish to state that our defence business
does not manufacture explosives or ammunition of
any kind, including cluster munitions or anti-personnel
landmines or nuclear weapons or components for such
munitions. The business also does not customise any
delivery systems for such munitions. We have stated this
earlier, but it bears reiteration.
Synchronous Capex Recovery
These are rare occasions in the country’s history where we
are evidencing a synchronous capex recovery in India and
the GCC. For your Company’s projects business, the Middle
East region is the primary overseas market. It is expected to
have higher investment outlays, and appears to be shifting
focus from oil to clean energy and other industrialisation
initiatives. Over time, the pick-up in Africa and South East
Asia will reduce concentration risk in our international
project businesses.
We expect IT spends across the world, revolving around
digital transformation, to continue at a healthy clip in the
medium term despite concerns around global slowdown.
IT spends in selected areas offer your Company twin
benefits. They improve productivity as well as enable the
Company to gain higher market share.
Group Performance Review
Against the backdrop of continued global uncertainty, your
Company turned in a creditable performance and registered
appreciable recovery across key performance parameters.
Our Order Inflow for the year stood at ₹ 2,30,528 crore,
which was achieved on the back of major domestic order
wins in Hydrocarbon and Infrastructure. Although the
international ordering environment was a shade below
expectations, the strong revival of the domestic market has
been a cause for cheer.
The L&T Group recorded revenues of ₹ 1,83,341 crore
during FY 2022-23, registering a growth of 17%. The
growth was aided by improved project execution backed
by a strong Order Book, further complemented by a strong
pick-up in the IT & TS businesses amidst fears of global
spends slowing down.
As at March 31, 2023, the Order Book at ₹ 3,99,526 crore is
large, growing and diversified. The Infrastructure segment
has a 71% share of the consolidated Order Book. The Order
Book registered a growth of 12%, on the back of orders
secured in the Projects businesses.
A healthy Operational Profit After Tax at ₹ 10,374 crore,
represents a growth of 21% over the previous year. A
combination of improved profitability and reduced capital-intensity has resulted in improved return ratios. The Group
has repaid borrowings during the year and improved its
Debt: Equity ratio.
Your Company continues to focus on shareholder value
creation by divesting non-core assets, capturing cost
efficiencies, and leveraging technology for productivity
gains. Over time, the Company will also invest in various
energy transition initiatives as well as incubate and scale
up new-age businesses and platforms. Our strategically
diversified business portfolio, geographical dispersion,
robust balance sheet and strong Order Book are definite
markers to long-term value creation. Further, the Company’s
proven execution strengths and committed workforce
are helping it to seamlessly transition to a more digitally-evolved work environment.
As an approach to business, your Company is committed
to continue its focus on cash generation, pursue prudent
capital allocation, maintain a healthy leverage and
cash balances, and distribute it to shareholders on a regular
basis.
It gives me great pleasure to inform you that the Board of
Directors has recommended a final dividend of ₹ 24 per
share for FY 2022-23.
International Business
The Company’s policy of aiming for wider geographic
dispersal continues to yield positive results, and de-risks
exposure to a particular region. While the Middle
East region remains an area of focus for the Projects
businesses, your Company has expanded its outreach
to new markets in Africa as well as South East Asia.
Currently, the Middle East region constitutes 87% of the
international Order Book of ₹ 1,11,779 crore.
Training and Talent Management
L&T is its people. The success of the organisation is the
sum of the individual accomplishments of every member
of Team L&T. Our people policies, therefore, are simply to
create the conditions, provide the incentives and eliminate
the obstacles to consistent peak performance.
While much has been done, we aim to do better. Despite
the constraints inherent to the businesses in which we
operate, we are consciously stepping up our efforts to
improve our gender diversity ratio. We also leverage
technologies to deliver ‘any time learning’ and to
improve the breadth of engagement with our employees,
particularly the younger generation for whom being
digital is natural.
Sustainable Development
We believe that we and all our stakeholders, are here
for the long haul. Every business decision we take is
viewed through the lens of the future, to ensure that
temporary considerations do not undermine long-term
value generation.
Our Integrated Annual Report brings together our
financial and sustainability performance across multiple
parameters. We have been driving many sustainability
initiatives long before they were mandated by law. Since
2008, we have maintained an annual reporting cycle
for our sustainability performance. These Reports are
accessible on the Company’s website.
Good governance is the central pillar around which
the organisation has been built. Your Company’s core
values pivot around the principles of independence,
transparency, accountability, responsibility, compliance,
ethics and trust. Improving Board gender diversity is
also being actively pursued. We will do everything we
can to ensure that the value systems, which have been
the hallmark of Larsen & Toubro for over eight decades,
remain inviolate.
Community Service
L&T-ites do not live in silos, insulated from the world
around them. We identify ourselves in spirit with the
members of the community to which we belong. We
also believe that CSR initiatives are not simply a box to
be ticked. We ensure that our efforts across the country
are aligned to common themes, and stay sharply focused
and outcome-oriented. Over the years, communities see
tangible and durable benefits from our presence. They
have gained greater access to potable water and better
sanitation. Community members benefit from facilities
for health, education and skill building. Change cannot
happen overnight, but with every step, we get closer to
our social goals.
Conclusion
I would like to thank our employees, our customers,
supply chain partners, fellow Board Members and the
Government for their contribution, directly and indirectly,
to our growth through all these years.
My special thanks to all our shareholders for the trust you
have reposed in us. You remain an invaluable pillar of
strength, and we look forward to your continued support
in our journey towards setting higher levels of excellence.
I wish to conclude, on a personal note. As most of you
must be aware, I have already announced that I will
be stepping down as Non-Executive Chairman of L&T,
effective September 30, 2023, and Mr. S. N. Subrahmanyan
will take over as the Chairman and Managing Director. My
association with your Company, however, will continue as
Chairman Emeritus and as Chairman of LTIM and LTTS.
In a symbolic gesture, I will be handing over the L&T
flag to Mr. Subrahmanyan, and bestowing on him the
attendant honour, responsibilities and challenges which
come with the position. This is succession planning in the
full sense of the term, and the change of guard at L&T
could well rank among the smoothest in Indian industry.
Looking back, I consider myself privileged to have had the
opportunity to serve, lead and transform the Company
that is building the India of the next century. As I have said
on multiple occasions before, my life and legacy are L&T,
and I am happy and content that I will be leaving it in very
capable hands to continue its exemplary record of service
to the nation and society.
Jai Hind!