Larsen & Toubro, the multinational conglomerate, has planned to get investors for the individual infrastructure projects it undertakes, as an alternative to a partner for its wholly owned subsidiary, L&T Infrastructure Development Projects Ltd (L&T IDPL).
This is part of a “churning” exercise the management wants to undertake. “We want to become asset-light. As we go along, the whole objective is to churn the portfolio of IDPL,” said K Venkataramanan, managing director and chief executive officer of L&T.
IDPL is one of the nine divisions of the parent construction major and houses highway projects, along with the Hyderabad metro rail project. “In the next year or two, we will see a churning of portfolio. We will not really put in too much new and virgin investment (into IDPL),” Venkataramanan said. By inviting investment into projects, L&T will infuse funds into the company, to be used as equity for new projects.
Though he did not specifically answer any question on plans to get investors into its Rs 16,375-crore Hyderabad metro rail project, he said stake sale in a project could happen even when it was 70 per cent done, rather than necessarily wait till its completion.
L&T recently won two projects from National Highways Authority of India, with a total construction cost of Rs 4,800 crore. It has 19 road projects, of which 10 are operational and the rest are under implementation.
IDPL also has equal partnership with Tata Steel in the Dhamra port project in Orissa, commissioned in May last year. Another port project under implementation is Kachchigarh, which it won in
August 2010 from the Gujarat Maritime Board.
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The company earlier had plans to list IDPL. That has not been formally shelved but does not seem to be happening in the near term.
Though Venkataramanan said the company would continue to bid for new projects meeting a certain equity return threshold, industry experts said the outlook for new projects across sectors was not very bright. A report on the construction sector by Edelweiss says railway public-private partnership projects might not see much progress. “But the Dedicated Freight Corridor is likely to sail through. The Goa airport award is likely to be the only silver lining in the airport sector, while project award in the ports sector is likely to be sluggish,” the report said.
The roads sector could be an exception, as there could be project awards of 6,500-7,000 km on a build-operate-transfer basis in 2012-13. “Project award has started at a slow pace. We do not believe this is a cause of concern. We expect it to pick up in subsequent quarters,” Edelweiss said.
Offloading equity in some of its verticals is part of the company's larger plan. “We are Rs 65,000 crore of turnover now and would be over Rs 100,000 crore by 2015-16. And, then, some of these nine verticals will be ripe for listing,” said Venkataramanan, without giving specific plans. “This would require a sustainable volume internally and externally a market that can lap it up. Even if you’re ready now, the market today is not ready for IPOs,” said Venkataramanan.