Stalled projects worth Rs 496.20 billion a worry for Larsen & Toubro

When engineering conglomerate Larsen & Toubro (L&T) said on Monday that Rs 160 billion worth of orders for 2017-18 were “non-moving”, this was not the first time the company classified some of its orders under this category.  Since 2013-14, L&T has classified orders totalling Rs 496.20 billion as “slow moving” or “non-moving”.

In May 2017, the company had said about Rs 180 billion worth of orders for financial year 2016-17 had been classified as slow moving. With an order book of Rs 2.63 trillion, these slow-moving orders may not impact L&T significantly, even as industry analysts say this is indicative of the overall execution stress in the sector. L&T, with its presence across various verticals, is seen as a proxy for the core economic activity in the country. 

R Shankar Raman, chief financial officer for L&T, said around 80 per cent of the orders that they classified as slow moving in the past few years never fructified. “We have been largely accurate in predicting these non-moving orders,” Shankar Raman told Business Standard. Data compiled by Business Standard, based on the numbers the company shared in an email response, shows Rs 396.90 billion worth of orders may never have fructified.

As a practice to ensure a prudent order book, L&T started classifying some of its orders as slow moving or non-moving, depending on visible headwinds for these orders not turning into sales for various reasons, including executing delays and other implementation-related issues from the client’s side. The company maintains while these orders have been excluded from the order book, they will be included once there are signs of movement. However, according to top company officials, the rate of such comebacks has been low.

“Execution issues and slow-moving orders are a concern and have been a concern for the last few years for the sector. Not just L&T, BHEL is also impacted by slow-moving orders, with close to 20 per cent of its order book is slow-moving or in inactive mode,” said Sanjeev Zarbade, vice-president-PCG Research at Kotak Securities

Though L&T did not share more details, it said the Rs 160 billion orders were primarily from the infrastructure segment. Highly leveraged balance sheet from the client side leading to cash unavailability, coal supply-related issues in the power sector and delays in clearances are among other reasons holding these orders back both for L&T and the sector, according to industry officials and analysts.

However, the proportion of slow-moving orders as a percentage of the company’s total order book has fallen in the past few years. In the financial year 2013-14, the company said about 10 per cent of its Rs 1.62 trillion worth order book was slow moving’.  As on March 2018, L&T’s order book was at Rs 2.63 trillion, of which Rs 160 billion is 6 per cent. 

Companies with smaller orders are battling the same issues, but because of the small size of order and a larger number of orders, the overall impact is not large for them. There has been an improvement in execution of orders, but it has not been significant enough,” Zarbade added.

L&T arm’s auditor raises ‘going concern’ doubts

Multiple years of losses have substantially eroded the net worth of engineering major Larsen & Toubro (L&T)’s shipbuilding arm and led its independent auditors to cast “significant doubt” over whether the company can continue as a “going concern”. L&T, the parent, however said its investment in L&T Shipbuilding was “strategic” and affirmed its financial support. In accounting parlance, the ‘going concern assumption’ typically means that the company will remain in business for the foreseeable future without being forced to halt operations and liquidate its assets.  


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