Larsen Targets Overseas Revenue Growth

Larsen and Toubro, India's biggest engineering conglomerate, is targeting overseas revenue growth as part of a strategy to beat a slowdown in Asia's third-largest economy, the firm's chief financial officer said on Monday.

Ships-to-software firm Larsen last month slashed its order growth guidance for the financial year to March, as it warned of project deferrals and sluggish investor appetite in India thanks to high interest rates and a gloomy economic outlook.

It's essentially an India de-risking strategy, R. Shankar Raman told the Reuters India Investment Summit in Mumbai, saying the company was targeting 15-20 percent of revenue to come from overseas markets, compared with 10-12 percent last year. We will try to expand in the international market...Today our international business is largely in the Middle East, but hopefully in passing years the Far East will start giving more orders, he added.

India has pledged to spend $1 trillion on upgrading its creaking power plants, railways and ports in the five years to 2017 to deal with a key bottleneck to continued growth. Private cash has been pencilled in for half of that. But investments have slowed in recent quarters, as stubbornly high inflation, 13 interest rate hikes since early 2010 and rising commodity prices bite. Companies also point fingers at a policy paralysis in New Delhi.

Larsen, with a market capitalization of $15 billion, has aggressively targeted overseas projects in recent months and has announced since August $1.1 billion in new foreign contracts, mainly for hydrocarbon firms in the Gulf region. The firm secured a $250 million contract to build a pipeline for Thailand's top oil and gas explorer PPT Exploration and Production Plc in August.

The Far East, some areas of Africa and South America have some interest for our products. We have just opened up a few offices, Shankar Raman said.

PROJECT DEFERRALS

India is likely to grow at around 7.6 percent in the 12 months to March 2012 compared with 8.5 percent a year earlier, according to a Reuters poll. Industrial output has slowed, consumer confidence is waning and investments are being put on hold.

The (domestic) opportunity spectrum around this time last year was coming around to $100 billion, said Shankar Raman. We find that half of that $100 billion has got deferred.

Larsen, which gets more than 80 percent of its revenue from the domestic market, cut its order growth guidance for the current fiscal year by a third to 5 percent last month, blaming slowing investments and rising competition.

We've not seen any cancellations in our order book. There are deferments. People are sitting and waiting and watching, said Shankar Raman, adding that he expected deferred projects to come back on-line during the 12 months to March 2013.

Larsen shares erased early gains of 0.7 percent and fell 1.7 percent on Monday after the comments. At 12:40 p.m. (0710 GMT) the shares were down 0.5 percent at 1,237.95 rupees in a subdued Mumbai market down 1.4 percent.

The 73-year-old firm, which bears the name of its two Danish founders, is looking at an initial public offering (IPO) in its Infrastructure Development Projects Ltd (IDPL) unit, after a successful listing of its finance arm in August.

IDPL is another entity where we need to find a permanent solution for capital growth plans, said Shankar Raman. In the ultimate analysis, I would visualise this company to be another listed entity in the group, seeking capital from the market for its own growth plans, he said, adding any potential listing was likely to happen within three years.

Larsen will not reduce its prices in a quest to secure market share, Shankar Raman said, and would instead focus on reducing costs and increasing productivity across the firm as it works through an order book worth around $28 billion.

The company is not desperate because we think we have the balance sheet to withstand tough times, he said. I am not worried about the next eight to 10 quarters. I don't have large debt to service so ultimately what is the pressure on me? I have the window of time.

The firm still expects to see order book growth of 12-15 percent over the next five years, Shankar Raman added.

Larsen has said it expects revenue to grow 25 percent in the year to March 2012, from 439 billion rupees ($8.5 billion) a year previously.

Shares in the firm have fallen almost 40 percent this year, double that of the drop in the benchmark index, wiping more than $8 billion off the firm's market value.