"It is vital to remain psychologically strong and stay united in our shared sense of purpose."
Dear Shareholders
I am addressing you all at a time when the nation has
been impacted by the second wave of the Corona virus,
leading to widespread distress and tragic loss of life.
The unexpected scale and intensity of this year’s surge
threatened to overwhelm India’s healthcare systems and
undermine the prevailing macro-economic narrative.
Undoubtedly, this is the most severe test ever faced by
all of us – households, corporates, civil society and the
Government.
At this critical juncture, as important as observing health
and safety measures is to remain psychologically strong,
guard against cynical despair and stay united in our
shared sense of purpose. As they say, the darkest hour is
before dawn, and we are already beginning to glimpse
early signs that give rise to cautious optimism. The
declining trend in cases across the states as well as the
prospects of the vaccine rollout gaining pace should help
us look forward to happier times.
Your Company reiterates its strong commitment to serve
the people of this country, and expresses solidarity with
the nation and its leadership.
Response to the Pandemic
L&T’s first priority has revolved around taking every
possible care of its employees, contract workers and
society at large. For our employees, we have initiated a
broad spectrum of measures that encompass financial,
medical and insurance assistance as well as educational
support.
These measures were communicated across the organisation and have contributed to bolstering the morale of our workforce. All these are over and above the regular benefits and insurance payments already in place for employees. In addition, quarantine centres, fully equipped with oxygen generators and other vital equipment, have been set up to meet the emergency needs of our employees and their families as well our contract workmen. Employees can also avail of in-house vaccination drives and secure help through medical services and professional online counselling.
We consider our contract workers as part of our extended workforce and have continued to pay their wages and provide food, shelter and medical assistance. This was done while maintaining the prescribed COVID-19 preventive and containment protocols at all our factories and project sites.
As a conscientious corporate citizen, we have contributed
in monetary and material terms to meet the challenges
posed by this humanitarian crisis. In addition to a
donation to the PM Cares Fund at the onset of the crisis,
the L&T Group has also supplied test, medical and PPE kits
to locations around the country. When the second wave
threw up the unexpected challenge of an acute shortage
of oxygen, we responded by activating our global
procurement arms, and commenced delivery of oxygen
generators to various hospitals in India. We also supplied
oxygen concentrators, ventilators and ambulances.
As India’s leading Group involved in EPC projects,
high-tech manufacturing and services, we drew on our
reservoir of expertise to provide assistance in a number
of ways. Our construction business has converted many
hospitals to Covid Care Centres. We have installed
smart technologies in over 20 major cities to help state
governments and local authorities in their endeavour
to contain the spread of the virus. These public spirited initiatives by your Company have been widely
acknowledged by multiple state governments.
Economic Scenario
The year FY21 was an economic roller coaster. It can
be best described as a ‘tale of two halves’ where we
witnessed a precipitous slowdown in economic activity
in the first half, followed by an impressive sequential
rebound in the second half. The combination of fiscal
and monetary measures by the Government and RBI
announced in the early part of the year accounted for
10% of India’s nominal GDP. Not only did it cushion
the economic fallout, it also bolstered consumer and
business confidence when activities resumed post the first
lockdown.
Secondly, the enhancement as well as the front-loading of
borrowing programmes by the Centre and States ensured
that money continued to flow through various economic
constituents even when tax collections were low. Against
all odds, our country has demonstrated commendable
economic resilience despite stringent lockdowns, reverse
migration of labour and supply chain disruptions.
Post the phased lifting of the lockdowns last year, the
Indian economy recorded growth across most sectors,
evidenced by way of significant increases in high
frequency indicators such as energy demand, E-way bills,
GST collections, cement and steel consumption, etc.
These not only touched pre-pandemic levels but, in some
cases, surpassed them. Despite the progressive pickup in
various economic parameters, India’s GDP has contracted
by 7.3% in FY2020-21 mainly due to the lockdown in the
first half of the year.
The global economy, already buffeted by various factors
like trade tensions, political instability, Brexit and low
crude prices, etc., was further stressed as the virus
raged across large swathes of the world. In addition to
introducing healthcare measures, most countries have
opted for benevolent fiscal and monetary policies to
support growth. Under-utilisation of manufacturing
capacities across the world due to lower demand
and decelerated global trade has become a recurring
phenomenon. Increasingly, countries are resorting to a
protectionist stance in an attempt to safeguard their own
economies. Meanwhile, volatile oil prices due to demand supply imbalances have affected the fiscal arithmetic of
GCC countries and consequently, their ability to spend
on Capex.
It appears that augmenting India’s stock of vaccines, and
accelerating its rollout across the country is the safest
and surest route to full economic recovery.
Capex Spends
India’s capex cycle over the last five years has revolved
around public investments, while private investments
remained largely lacklustre. Given the scale of India’s
infrastructure deficit, we remain optimistic about the
Government’s intent to complete around 7400 projects
as envisaged in the National Infrastructure Pipeline,
aggregating to ₹ 111 trillion by FY25. The project pipeline
is expected to be collectively funded by the Central Government, State Governments and PSUs to the extent
of 79% with the remaining 21% being envisaged to
come from the private sector.
We believe a phased recovery in economic activity over
the next couple of years will result in tax buoyancy, and
consequently enable the Government to forge ahead
with various infrastructure projects. While the Union
Budget 2021 highlighted large outlays on infrastructure,
the Government also postponed the fiscal consolidation
exercise to FY25, essentially creating more room for
future Capex spends. Currently, many projects in India
are also being funded by various bi-lateral/multi-lateral
agencies which can potentially plug funding gaps, if
any, in the National Infrastructure Pipeline. Private sector
balance sheets have been looking healthier, thanks to
the combination of incentives around PLIs, low tax rates
and liquidity, as well as visibility of pick up in industrial
demand and select segments of real estate. We are bullish
about an uptick in private investments in the medium
term. India’s investment/GDP ratio which has been
languishing, should see significant improvement in the
coming years. Once private investments revive, we could
hopefully see shades of a repeat of the 2003-08 capex
cycle in India when both public and private investments
gained momentum in tandem.
Since infrastructure investments serve the twin benefits of
improving productivity and generating employment, we
believe that the underlying macro drivers for investments
in India remain intact. Your Company is poised to
capitalise on these opportunities as they emerge.
Group Performance Overview
In a year marked by anxiety and uncertainty, your
Company turned in a creditable performance and
registered appreciable recovery across key performance
parameters. Our order inflow for the year at ₹ 175,497
crore was achieved on the back of strong domestic wins
in the Infrastructure and Hydrocarbon segments. Despite
the COVID-19 led disruption, order inflow was boosted
by the thrust given by the Indian Government to the
Infrastructure sector to help put the economy back on
track. We secured multiple large and prestigious orders
during the year, viz., the Mumbai-Ahmedabad High Speed
Rail (popularly called the ‘Bullet Train’), a bridge across
the Brahmaputra in Assam as well as EPCC packages for
the Barmer Refinery in Rajasthan.
The L&T Group recorded revenues of ₹ 135,979 crore
during FY2020-21, registering a decline of 6.5%. The
decline was mainly due to the slowdown of project
execution and manufacturing activity, affected due to
lockdown-related disruptions in first half of the year. This
was partially compensated for by a more normalised level
of operations during the second half of FY2020-21.
As on March 31, 2021, the order book at ₹ 327,354 crore
provides multi-year revenue visibility. The infrastructure
segment has a 75% share of the consolidated order book.
The order book registered a growth of 7.7%, on the back
of some mega orders secured during the year.
Shareholder value was delivered through healthy profit
after tax which stood at ₹ 11,583 crore, representing a
growth of 21.3% over the previous year. During the year,
the Company concluded the divestment of its Electrical
& Automation (E&A) business including the sale of
the integrated marine automation solutions company,
Servowatch Systems Limited.
The Company continues to focus on shareholder value
creation by divesting non-core assets, capturing cost
efficiencies and leveraging technology for productivity
gains. The Company’s strategically diversified business
portfolio, geographical dispersion, robust balance
sheet and strong order book are reliable signposts to a
brighter future. Further, its proven execution strengths
and committed workforce are helping it to successfully
transition into a more digitally evolved work environment.
This should enable the business to thrive and grow, once
the immediate challenges posed by the pandemic are
overcome.
It gives me great pleasure to inform you that the Board of
Directors has recommended a final dividend of ₹ 18 per
share for FY2020-21. This is in addition to the ₹ 18 per
share of special dividend declared earlier during the year
International Business
The Company has gradually expanded its international
footprint through geographic dispersion as a conscious
de-risking strategy. While the Middle East region has
obviously remained an area of focus, the Company has
turned its attention to many countries in Africa as well
as South East Asia. Currently, the Middle East region
constitutes 61% of the international order book of
₹ 68,773 crore.
Training, Talent Management and Next Line Planning
At the L&T Group, we have crafted a culture of
continuous training and empowerment, with an emphasis
on transparency, efficiency and empathy. Our people
occupy prime position in the organisation’s hierarchy
of stakeholders, and therefore continuous attention is
given to retention and development of talent at all levels.
Talent management has been broadly classified into three
domains: Business Leadership, Technical Leadership and
Project Leadership. For Business Leadership, a robust ‘7
Step Leadership Development Model’ has been in place
for more than a decade. The Company’s top management
ensures that employees are accorded opportunities
for professional development and are able to grow
along with the business they work for. Our initiatives in
digitalisation have enabled us to provide the relevant
learning experience to our employees, even as they
worked remotely during the lockdown.
Sustainable Development
Our Group is over eight decades old, and we have been
at the forefront of many sustainability initiatives, long
before they were mandated by law. In other words,
we internalised the spirit behind ESG and were among
the early companies who turned precepts into practice.
An annual reporting cycle has been maintained for all
our Sustainability Reports since 2008. These reports are
accessible on the Company’s website. The reports, which
serve as ESG progress scorecards, are aligned to the
Global Reporting Initiative (GRI) standards and Sustainable
Development Goals (SDGs), and have been independently
verified by a third-party assurance agency.
Our approach covers a wide spectrum of materially
relevant parameters. This involves placing under the lens
factors such as energy conservation, use of renewable
energy, reduction of GHG emissions, water efficiency and
materials management. We also calibrate our growing
green portfolio, clock improvements in sustainability
implemented by our vendors as well as measure
enhancements in employee engagement, safety and
well-being.
As the community sees it, sustainable development must
necessarily translate into the tangible things that make
life safer, less burdensome and more promising for their
children. On our part, we are helping to provide the communities around us with better access to potable
water, an improved level of sanitation, and facilities
for health, education and skill building. We are also
committed to expanding and enhancing the scope of
our activities far into the future – for happy communities
contribute to the society’s general sense of well-being.
Turning to governance, at L&T, our core values pivot
around the principles and ideals based on independence,
transparency, accountability, responsibility, compliance,
ethics and trust. In recognition of our efforts, we received
the ‘Grant Thornton Bharat SABERA’ award for Best
Integrated Reporting.
As stated in our Integrated Report, I also wish to
underscore that we have clarified our position vis-à-vis
controversial weapon segments in Defence Engineering:
we are not involved in any such weaponry.
Outlook
The outlook for FY2021-22 is one of cautious optimism,
with the country’s GDP regaining positive territory thanks
to the base effect in the first half, followed by robust
growth in the second. While the current resurgence of
COVID-19 may dent prospects in the initial part of the
year, vigorous vaccination efforts and improved adherence
to safety protocols should spark a revival in the latter half.
We therefore believe the recovery is ‘delayed’ and not
‘derailed’.
One unintended but welcome consequence of the
pandemic has been the rapid adoption of digital
technologies. This was a lifeline which ensured that
economies do not get paralysed due to lockdowns and
other constraints. Another positive fall-out has been an
increased awareness of sustainability and a more stringent
emphasis on Environment Protection, Social Responsibility
and Governance frameworks. With countries signing
up for time-bound zero carbon emission targets, newer
business opportunities should emerge for your Company
in green hydrogen, renewables, water and waste
management and allied fields.
Elsewhere, the recovery of the global economy has
been uneven, with the performance of several countries
still below pre-COVID-19 levels. With oil firmly back
above USD 60 per barrel, we should see an upswing
in GCC Capex spends as well as improved prospects in
Africa and South East Asia.
Against the backdrop of the pandemic and its aftermath,
your Company will continue to uphold the primary
dictum of maintaining the health and safety of its people.
Simultaneously, it will aggressively pursue opportunities
for growth, both in domestic and international markets.
The focus would be on mega project wins, efficient
execution of its large order book and productive
utilisation of its monetary resources. All of this is targeted
at ensuring a sustainable business model and thereby
enhancing shareholder returns.
As we pass through a crisis of unprecedented magnitude,
I would like to thank Team L&T as well as our customers,
vendors, the Government and other stakeholders for the
confidence and trust they have reposed in us. I also thank
my fellow Board members for their invaluable support
in guiding the Company and enabling another year of
growth.
Thank You
A. M. Naik