In an interview to IE, SNS said that the government’s intent and commitment to the development agenda through reforms and public expenditure cannot be denied: “in fact, these have produced some encouraging results like the uptick in the industrial production indices, reining in inflation and a softening of interest rates. There have also been some big announcements like 100 Smart Cities, Housing for All and Digital India. There have also been such welcome announcements of reforms in the road, power, water, railway and defence sectors with the easing of FDI norms.
“However, despite these announcements and initiatives, the overall economic outlook on the investment climate has remained subdued primarily because many designs have not translated into action at the ground level. Some of the other roadblocks include an absence of funding for mega projects; very slow processing of approvals and clearances; the greater Centre-state collaboration required for projects that cut across states and the numerous scams that have made people wary of decision-making,” said SNS.
Creating precious assets, landmarks...
L&T is the largest engineering and construction company in the country with total assets of over $ 21 billion and
revenues in excess of $ 15 billion. The construction division accounts for more than half the revenues of the company and has to its credit the construction of hundreds of projects in infrastructure and diverse other sectors. In its long history of 75 years, L&T Construction has been involved in building landmarks that include high-rise towers, airports, IT parks, steel plants, hospitals, rail corridors, metro rail, power projects, highways, transmission lines, water and wastewater networks, solar plants, etc.
Executive Chairman A M Naik recently said that his company plans to sell some assets including roads and other infrastructure projects and dilute its stake in non-core activities to maintain its record of consistent high growth. This has been a part of the growth strategy of L&T.
SNS explained: “the core competence of L&T Construction is construction. We very seldom go beyond our role as contractors. Our expertise lies in creating a vital infrastructure to world-class standards at the best possible cost in the quickest possible time and, once ready, hand them over for commissioning. We constructed the Bengaluru International Airport. Operating the airport is not our cup of tea, and we would rather hand over the completed airport and take up the next project.”
Such divestments happened in the Dhamra Port, Odisha, built as a 50:50 joint venture along with Tata Steel; the ready-mix concrete plants as also the cement business that were quite profitable and the current plans to hive off the Kattupalli Port. Such a focus on sticking to knitting is witnessed with L&T vacating many of the manufacturing activities too. Correspondingly, there has been the focus on entering a large number of sectors with great potential like metro rail transportation, airports, large housing projects, defence, power transmission, water and sewage, solar power, smart cities… In each of these L&T attempts to offer global standards endeavouring to set benchmarks. The target: to grow within the top ten construction companies in the world.
Learning from what didn’t click in the past
“We are looking at new models of infrastructure building taking into account what did not work in the last 4-5 years, whether it is on the EPC mode or PPP mode, said K Venkatesh (KV), Chief Executive and Managing Director, L&T Infrastructure Development Projects Ltd. KV pointed to some of the focus areas:
• Recourse to IT in the matter of project conception and planning, development, implementation, maintenance and e-monitoring.
• Improving the quality of the detailed project report by ensuring accuracy, quality and eliminating ambiguities.
• Speedy dispute settlement through amendments to the Indian Arbitration Act, alternate dispute resolution mechanisms and expeditious resolutions through courts.
KV pointed to the very small number of financial closures on new infrastructure projects seen today. He expects marginal improvements through 2016: “2017-18 and 2018-19 will be
inflexion points if things go well,” said KV. In the interim, efforts are focused on consolidation, stabilisation and skill development. In the last area, L&T has an enviable record: long before the stress on skills development attracted attention through the past decade, A Ramakrishna set up construction skills’ training institutes. These spread across India and the Middle-East provide training and skills to empower and convert rural youth into trained workmen. Such attention extends right up to the top, encouraging supervisors and senior managers to get qualified better at higher institutes of learning like the IIT-M.
Strong international foothold...Dip Kishore Sen (DKS), Whole Time Director & Senior Executive Vice President (Infrastructure) is the second representative from the infrastructure division at the L&T board level. “L&T consistently grows at around 25 per cent in all parameters. This brings huge responsibility to protect and further build the brand image of L&T.
“The L&T story is well-established in India; through the next 4-5 years we are trying to establish it in the Gulf, East Africa and CIS countries,” said DKS.
The road sector seems to be picking up after the recent downturn: “we have been attempting to tackle the downturn with projects in the railways and in the international arena. Now we have captured the change in the road sector and have bagged nine out of the ten projects offered,” said DKS.
A residential flat a day...
A speciality of L&T Construction relates to mass housing. Several decades ago the company pioneered new concepts for mass housing such as pre-fabricated sections. I remember the elaborate planning and special designs that helped construct a flat a day in mass housing projects even three decades ago. M V Satish, Senior Vice President, Buildings, Minerals & Metals, said that mass housing can be done in different ways: “we can use precast, tunnel forms, structural steel and aluminium. But there is cost escalation in pre-fab construction in India. If we fabricated precast sections outside the site, excise duty is levied.” Satish said if this is eliminated, it will pave the way for mass housing and also encourage fabrication of parts at vendors.
L&T is doing a lot of precast work at Bengaluru and Mumbai. “There is tremendous scope for such pre-casting in residential segments,” said Satish.
Water, water everywhere!
L&T Construction has channelised water networks across 40,000 km through urban and rural water supply projects, industrial water supply with treatment plants for recycling wastewater, drip irrigation projects, rehabilitation of canals, desalination, etc. In fact, the entire range from tapping water resources to the delivery of quality water is taken care of.
S Rajavel (SR), Senior Vice President & Head, Water, Smart World & Communication, pointed to the water business recently made into a separate company. Under water, there are three strategic business areas, Rajavel explained: “one, water supply and distribution: we take water from a source like a river, construct the intake well, pump and transmit water through heavy duty MS pipelines to overhead tanks of municipalities. The water is also treated to make it 100 per cent potable.
“The second business unit is in line with Swachch Bharat: waste water management involving a lot of technologies is expanding into big business. The projects we do include one is in South Doha in Qatar for waste water treatment and re-use.
“The third is industrial and water systems for large industrial projects like power plants, combined effluent treatment plants… to minimise consumption of fresh water.
“Another area relates to irrigation. Sardar Sarovar project in MP and drip irrigation works in Mahanadhi in Odisha are some of the major projects under construction.” Rajavel estimates the water business to account for over a fourth of L&T Construction revenues.
Benchmarks in Smart City construction...
The company has identified the potential for business in the government’s plan to construct 100 Smart Cities. Rajavel pointed to the world seeking smarter, secure, more intelligent solutions and optimised utilisation of resources to enhance the quality of life. Smart city planning includes city surveillance and intelligent traffic management systems, transport and logistics, optical fibre cabling, communication networks including backbone, telecom infrastructure, smart grids, smart governance and education and smart city development.
L&T leverages its strengths in providing complete solutions. Rajavel explained: “we started work on smart cities a year back. We provided security solutions to Sabarmati jail. Appreciating the advantages, the Gujarat government wanted to replicate this for the cities of Ahmedabad, Gandhinagar and Vadodara for city surveillance systems. The Mumbai police got interested. We are doing a Rs 950 crore surveillance system for Mumbai.”
Rajavel pointed to the severe lack of present urban systems with underground drainages, communications, roads and other infrastructure. “We will have to develop these basic infrastructures before applying smart city concepts. We are glad that a beginning has been made. For new cities like Amaravathi, it should be a lot easier to incorporate such systems,” he said.
Stress on mechanisation...
L&T Construction has invested handsome amounts on machines that aid high-end construction accuracy and speedy execution. S Kanappan, Executive Vice President and Head & Chief Executive, L&T Geo Structure, referred to the large bank of equipment built by the company, “we can do 60 m deep walls with a thickness of 600mm to 1.5 m. We cut trenches with 1 m thickness and 30 m deep walls for the Chennai Metro and reinforced the walls with concrete. Machines do these. Such machines will help do underground work without extensive excavation. Vibro hammers, trench cutters, piling rigs and high technology equipment for large projects that are to be constructed in quick time have been acquired.
With land prices shooting up there will be increasing resort to a reclamation of land from the seas for improving civic infrastructure, building ports, docks… There is also the imperative to link rivers on scientific basis preventing seepages and loss due to evaporation. Kannappan referred to such a work being initiated at Pattisima in Andhra Pradesh.
An underground car park 60 metres deep!
Kanappan pointed to the high cost of land and the increasing difficulty to provide space for parking cars. There is potential to go down 60-70 metres and create multi -level basements for parking cars: “technology for doing this is available. Some 1400 cars can be parked over 15 basements. An acre of land will be required for this.” Kanappan said that such a project would cost around Rs 250 crore and can be constructed in 24-30 months. Of course, enough care should be taken for ventilation and water seepage. Such a scheme will be ideal for crowded market areas like T Nagar, Chennai. Kanappan pointed to Japan going 100 metres below ground to construct such a car park.
Augmenting power availability
L&T’s power transmission and distribution activities are spread across India, Middle East, East Africa and the ASEAN countries. The business vertical has been a leading EPC player in building and transferring large capacity power systems. The wide range of services offered include integrated solutions and end-to-end services covering design, manufacture, supply, installation and commissioning of transmission lines, underground cable networks, substations, distribution networks, electrical and instrumentation works for power, process and infrastructure projects,” said T Madhav Das, Executive Vice President & Head, PT&D Business.
Some of the standout projects built by L&T include the country’s first 765 KV gas insulated substation at Pune, India’s first 1200 KV substation at Bina and 800 KV HVDC lines…Das also referred to the turnkey EPC services provided by L&T on the renewable energy area.
Construction contributes more than half to L&T
The construction business has been contributing to more than half the total revenues of L&T. During 2014-15, this segment had revenues of around Rs 42,000 crore.
B Ramakrishnan (BR), Executive Vice President, Finance & Accounts (Construction), points to this segment targetting revenues of around Rs 50,000 crore in the current year. Of this, around 15 per cent is expected to come from foreign contracts.
BR referred to infrastructure companies suffering severe funds constraints and shortfalls in collections of tolls. But L&T Construction maintains its record of effective management of finances. He pointed to the good progress made on water and sewage projects executed in Gujarat, Rajasthan and several other states.
For 75 years L&T has been the leader in the construction sector. From the time of the founders Henning Holck-Larsen and Søren Kristian Toubro through a succession of outstanding builders like C R Ramakrishnan, A Ramakrishna, K V Rangaswamy… L&T Construction endeavoured to catch up with the state-of-the-art technology. The hundreds of prestigious projects with increasing sophistication and elegance constructed in different parts of the country and abroad serve as benchmarks.
In this evolution, L&T has also reared management and construction skills that in turn helped in the emergence of dozens of other large companies entering the sector. In the south, L&T’s prestigious projects abound in Andhra Pradesh, Karnataka, Tamil Nadu… each unique in its concept, engineering and construction.
A unique feature of this construction giant is its widespread of shareholding with sizeable support from financial institutions. Dozens of brilliant business leaders have been reared by it. The company endeavours to emerge among the top ten engineering and construction companies in the world. It has the base, credentials and ability to achieve this in quick time.