By Ira Dugal
MUMBAI (Reuters) – Larsen & Toubro, India’s largest capital goods company, expects the contribution from private sector projects to be at about a third of its orderbook as investment activity picks up, a senior executive said.
But the contribution is seen staying below the historical peak of 40%, CFO R. Shankar Raman said in an interview late on Wednesday.
L&T, seen as a bellwether for investment in the Indian economy, had a consolidated orderbook of 4.12 trillion rupees ($49.55 billion) as of June 30
Roughly 31-32% of this orderbook came from the private sector, up from 22-23% a year-and-a-half ago, Raman said.
“Overall capacity utilisation is above 72-73%…Within this there are some industries that are well into their 80s,” Raman said, citing sectors such as steel, metals, cement, construction equipment, automobiles, electronics and textiles.
“All of these sectors have reached a stage where they need to start reordering for capacity expansion,” he added.
Investments in the Indian economy picked up in the past 12 months as the government stepped up capital expenditure and deleveraged corporate and bank balance sheets, creating room to spend.
Two factors could keep private investment activity below its peak, Raman said.
Constrained investment appetite of large family businesses in India, he said. “Barring a few families that have the balance sheet and capability to put up large capacities, majority of the businesses are hemmed in by a shelf-life of one generation.”
He also pointed to the reluctance of private investors to partner with the government in large infrastructure projects through so-called private-public partnerships. “I think people have realised that it is not an easy business model.”
L&T, which had earlier partnered such projects, will not commit capital where returns take longer than five years, Raman said. “We would rather build the infrastructure for someone than play the sponsor.”
However, the pace of implementation of government projects has improved, Raman said, but flagged a shortage of skilled labour as a key risk.
“Today, even for an unskilled or semi-skilled workman, there are multiple opportunities like delivery. He doesn’t have to work in the sun for 12 hours a day…This makes workman availability a challenge.”
Further, a “lot of investments” related to energy transition are going on in markets like the Middle East, which has been a “needle-mover” in increasing the share of private orders, Raman said.
($1 = 83.1475 Indian rupees)
(Reporting by Ira Dugal; Editing by Dhanya Ann Thoppil)
