L&T looks at increasing its Middle East footprint to expand overseas

Infrastructure major Larson & Toubro is looking ahead at a major change in its geographical footprint over the next five years. While at present the Indian and the international markets contribute equally to the company's order book, that mix will change. The change will be marked by L&T's increasing presence in the Middle East.

"Today we are 50:50. Five years ago, it was 75:25, where the 75 per cent was India and the rest of the world was 25 percent. In the coming five years, this will change. India will be 40 percent, the Middle East market will contribute 40 percent and the rest of the international business will contribute 20 percent," said R. Shankar Raman, President & Whole-Time Director, Finance.

Looking at actual numbers, half of its present order book of nearly $90 billion, or $45 billion, comes from the international market. Of that, $30 billion is from the Middle East. "In the Middle East, Saudi Arabia is the biggest, then the UAE, Qatar and Kuwait," Raman said in response to a query from THE WEEK during an interaction with the media in Mumbai on Wednesday.

The senior executive marked out Central Asia and Europe as the two geographies where L&T will increase its presence in the coming years. At present, it is executing several projects in Uzbekistan. These include new Tashkent International Airport, data centres and major utility scale green energy projects. One of the green energy projects is with ACWA Power, its client in Saudi Arabia. In Uzbekistan, ACWA is building solar and batter energy storage system projects.

Raman stressed on the ease of doing business in the Middle East. "All approvals are in place and contracts are sacrosanct. There is little chance of changing the interpretation," Raman said while explaining how the certainty of processes helps companies to execute project within timelines in the Middle East. In contrast, Raman added, it takes 20-25 per cent more time to complete a project.

Despite the challenge of operating in the market after the Iran War disrupted the region, L&T has not downsized its operations. "We have about 150 sites in the region. We had issues in one site and that has also been resolved," said Raman. The company employs about 55,000 people in the region. This includes 5,000 of L&T's own officials and the rest are on contract.

Explaining how doing business in the Middle East translates to numbers, Raman remarked that margins from projects executed in the region may be lower than that of India, but they generate better returns on funds employed. "In my judgment, a healthy balance sheet is more important than a P&L," said Raman. "Last five years, we made the mistake of taking our eyes off the balance sheet. Not anymore. Cash is primary."

The company is choosy about selecting the projects it participates in. Like in India, it has a check-list for projects in the Middle East too. "We have a long check-list. The client type, technology, supply chain, banking facility, tax regulation are some of the boxes," said Raman. He added that the company is also careful about local dynamics, like social unrest, which is present in some pockets of Africa. Security and safety are important factors to look into.

That was one reason why the company exited Iraq over 20 years ago. "Since then we haven't been anywhere close to that country," Raman said.

Overall, L&T's international focus is part of its larger plan to double its orderbook by 2031.