The best time to change is now

Forward looking organisations constantly evaluate how the world is transforming and course-correct to stay ahead of the curve. At L&T, our relentless endeavour has been to pivot the organisation on its core strength of engineering and technology to enhance shareholder value.

Resilience and Value Creation

FY 2021-22 saw L&T-ites yet again demonstrate their resilience and spirit to first overcome the challenges posed by the pandemic and thereafter reorganise themselves to push forward. During the pandemic, the prime focus was to stand by our employees, workmen, vendors, and the community at large. Driving the need to stay safe, we ensured that most of our employees were vaccinated through regular vaccination drives. I sincerely thank all our employees, workmen, and other stakeholders for standing by the organisation during those tough times.

Despite severe headwinds, we ended FY 2021-22 on a strong note on the back of several prestigious order wins. The Order Book at around ₹3.6 lakh crore is not only the highest in the history of the Company but is also diversified and growing.

Lakshya 2026

During the year, we formulated our Lakshya 2026 strategy plan to sustain the present momentum and create value over the Plan period up to FY 2025-26. In this exercise, the Company seriously introspected and rededicated itself to its core focus areas of EPC Projects, Hi-Tech Manufacturing and Services.

The EPC Projects portfolio will focus on the Infrastructure and Energy sectors, with the ‘Infrastructure’ segment continuing to include all our construction businesses, targeting Order Inflow and Revenue growth between 11 and 13%. The ‘Energy’ segment will comprise the Hydrocarbon, Power, and Green Hydrogen EPC businesses. We will strive for timely delivery and, wherever possible, early completion in all the projects that we execute. Profitability will be driven by a combination of productivity of resources, operational excellence, as well as our on-going digitalisation drive.

Hi-Tech Manufacturing includes the Heavy Engineering & Defence Engineering businesses. Additionally, the manufacture of Electrolyzers and Battery Energy Storage Systems will form part of this portfolio. We will target Order Inflows and Revenue growth of 18%+ and improve and sustain profitability thanks to our several initiatives revolving around Design Excellence, Automation, Value Engineering, Factory 4.0, and On-time Delivery.

Value creation in the EPC Projects and Hi-Tech Manufacturing businesses will be a combination of margin improvement and lower deployment of capital.

The Services portfolio is in a sweet spot with the potential for accelerated growth. I am also happy to inform you that our teams are performing creditably in an intensely competitive scenario. Going forward, the Services portfolio will comprise two segments: IT&TS Businesses and Financial Services.

IT&TS Business Portfolio

This portfolio includes LTI-Mindtree and LTTS. The IT&TS businesses will continue to balance the risk and cyclicality associated with the traditional projects and manufacturing segment. The momentum from existing and emerging tech trends such as Cloud, Digital, AI, Industry 4.0 is expected to propel growth in the near term. This portfolio will aim at Revenue growth in the high teens during the Plan period and be vigilant to tap opportunities for inorganic growth as they emerge. Making all these plans work will undoubtedly need high calibre digital talent, and we intend to on-board the finest minds in the industry.

The IT&TS portfolio will also have the in-house incubated e-commerce and digital platforms that were launched in FY 2021-22, SuFin and Edutech as well as the Data Center Business.

Financial Services

This business, following the philosophy of ‘Shrink to Grow’, will reorganise its existing lending portfolio and migrate towards retail lending over time. We believe a growing digitalised retail portfolio, with a focus on upselling and cross-selling, will yield higher returns and lead to significant improvement in valuation.

The Realty, Smart World & Communication and Industrial Machinery & Products businesses will comprise the ‘Others’ segment.

In the Realty business, we are looking for growth in the residential and commercial spaces through multiple formats under the larger objective of developing captive landbanks to leverage existing investments. Smart World & Communication will mature from the current EPC / O&M format to that of a total Smart Solutions Provider model that will enable us to provide complete end-to-end technology solutions. We will also grow our Industrial Machinery & Products portfolio, primarily comprising Construction Equipment and Valves, as demand picks up.

Developmental Projects or the concessions portfolio will now largely constitute the Hyderabad Metro while emerging opportunities in the Green Hydrogen BOO projects space will be housed in this portfolio too. We would like to complete the divestment of L&T IDPL and Nabha Power during the current Plan period and unlock their value. In Hyderabad Metro, a combination of capital restructuring, improved operations, and monetisation through Transit Oriented Development should generate value over time.

Company-wide Perspective

Our thrust areas in the Plan period are clear: Ensure sustainable growth in the current business portfolio through profitable expansion and execution, scale up through business model innovation and meet customer demands in an agile manner in the newer businesses. This should help us clock Group Revenues of ₹2.7 lakh crore and an ROE of 18%+ by FY 2025-26.

Cash flow is the lifeline of any business and we have paid close attention to the cash flow profile at the Group level. As we see it, cash generation during the Plan period will be the outcome of improved profitability and lower employment of capital. Further, as I mentioned earlier, we are looking at unlocking capital through the sale of some of our non-core assets to boost cash balances. The Company will explore option to step up pay-out ratios over time in addition to returning cash to shareholders which will accelerate ROE improvement.

Future Ready Initiatives

We, at L&T, are committed to face the global climate change crisis and shape the future around frontier technologies to mitigate the ill effects of climate change. We do believe that alternative fuels such as Green Hydrogen will go a long way to create a cleaner environment and contribute towards the nation’s energy security. We have a unique opportunity to play a significant role to accelerate the ecosystem around Green Hydrogen, with our thrust in both the EPC and BOO spaces, coupled with the backward integration of manufacturing electrolysers and grid battery energy storage systems.

On the digital front, there is maturity in understanding data security, data ownership and the Government is also continuing its thrust for data localisation. Thus, the new Data Center and Cloud Services businesses are distinctly positioned to achieve scale in the future. Another dimension to the digital world is e-commerce and the boom of services being delivered through the internet. In these spaces, we intend to capitalise on our engineering DNA to design superior services. We have made moves in the e-commerce space through

SuFin, our B2B platform for the trade of industrial products and services, where we put power in the hands of SMEs and MSMEs and our EduTech platform, through which we empower students seeking practical and application-oriented engineering courses.

Greener and Brighter Tomorrow

With a vision of ‘Technology for Sustainable Growth’, the Strategy Plan factors in Climate Change and what we must do to push the agenda for a greener and sustainable tomorrow within the organisation as well. While the set specific targets may be new, proactive environment conservation is not new to L&T. We have committed to Water and Carbon Neutrality by 2035 and 2040 respectively. We have also set for ourselves interim targets on various parameters of ESG up to FY 2025-26.

We are taking steps to reduce waste production through improved recycling initiatives that encourage our people to develop and sustain environment friendly habits. Apart from our operations and services, we are also working with our partners, to reduce emissions and create a significant impact. Some note-worthy achievements related to our environmental performance include avoiding emission of around 40,000 tonnes of CO2 during the year, which is equivalent to planting 500,000 trees. Our cumulative energy conservation is around 150 million units, which is equivalent to powering 70,000 homes for a year.

We are keenly focused on Circular Economy using the 6R (reduce, reuse, recycle, repair, refurbish and rethink) approach to manage waste and improve material recycling and reuse. Cumulatively, we have planted around 6 million multispecies trees, and our focus on biodiversity and protection of natural resources is sharper than ever. Our portfolio of green businesses, which includes solar, water, green hydrogen, and some others, is steadily growing and presently constitutes >30% of the total revenue.

Digital and Technology Adoption

We cannot emphasise enough the importance of digital technology adoption in both EPC Projects and Manufacturing operations. In Manufacturing today, most activities are automatically controlled. The amount of data that is generated and monitored gives us a differentiated advantage vis-à-vis competition in terms of visibility of operations and remote control over various processes.

In various projects today, more than 13,000 equipment are digitally connected providing real-time visibility into operations. We also have quality and safety checks on mobile apps, which also include a database with details of our workers, their skill sets, and their home addresses. The entire site topography is being mapped through drones and light detection and ranging (LiDAR) sensors. Safety measures for workers are being communicated through augmented and virtual reality. Such level of digital adoption substantially increases productivity, improves quality and safety. This is an on-going journey, and all possibilities will be explored and implemented in the future too.

Raising the Bar

Good governance has been integral to L&T’s DNA for decades. We have always practised the highest level of governance and intend to keep raising the bar. We actively seek and adopt newer, better ways of doing things to keep setting new industry benchmarks.

People

People are intrinsic to any business both in terms of being one of the goals for which they are run as well as the means to achieve this goal. I have often mentioned that L&T is a great technology platform that nurtures and rewards hardworking, sincere, honest, and dedicated individuals. Every person we employ adds value to the organisation. The value that some individuals add is apparent while for some others it is embedded deep inside and takes the right atmosphere for it to manifest.

It is our endeavour, as an organisation, to provide the right atmosphere, an enabling environment, and the right incentives to realise one’s potential and take the organisation to the next level. Through the projects that we undertake, which are some of the biggest, largest, tallest, and heaviest, we are committed to creating opportunities at all levels for people to give expression to their creative instincts and unleash their potential.

We are also taking serious steps to increase the percentage of women in the workforce to 10% from the current 6%. Creating the ecosystem required for not letting biases, stereotypes, and discrimination creep into decision making and letting objectivity define the best person for any job has been and will remain the endeavour for creating equal opportunity for all genders.

Giving Back to the Society

We have always believed in sharing value with our various stakeholders and our CSR initiatives, aligned with the global and national development objectives, primarily focus on healthcare and education & skilling to help more Indians become capable to earn themselves a living. In FY 2021-22, the Company spent ₹ 136 crore on CSR activities. Apart from spending on CSR-oriented projects covering water and sanitation, natural resource conservation, climate change mitigation and adoption of renewable forms of energy, L&T also responded to the pandemic by assembling 38 PSA oxygen generation units and transporting those across to different parts of the country which were worst affected. Cumulatively, 1.1 million benefitted from our CSR initiatives in FY 2021-22.

L&T – A Technology Company

L&T is fully-geared for the next phase of growth to evolve, accept, and adopt newer ideas as we revamp our portfolio and equip our people with tomorrow’s skillsets. Adapting and assimilating smart technology will play a significant role going forward.

Challenges are part and parcel of our journey, and we are ever prepared to face and overcome them through continuous learning, unlearning, and relearning.

Finally, we will always remember that we are in the business of nation building. For that, we must remain passionate, optimistic, calm, patient and stay united in our shared sense of purpose.