Why L&T’s results reflect the messy state of the Indian economy?

Business

oi-Sunil

By Sunil Fernandes

Published: Tuesday, July 23, 2013, 9:01 [IST]

Infrastructure major L&T serves key sectors in the India economy, including power, ports roads etc., which is why if its results are really bad, it tends to show that the economy is in a mess.

On Monday, it reported results that were hugely disappointing and the stock dropped more than 7.4 per cent, which it has never witnessed in the last 4 years.

L&T's results are a reflection of poor economic growth rates in the country. Revenues from its power segment dropped 44 per cent, thanks to the complete mess in the power sector, including coal linkages and gas supplies.

"The fact is the situation is very challenging on the ground," said its chief executive officer Krishnamurthi Venkataramanan. "Overall, if you see the situation, for the next two years, looks quite challenging from the Indian context."

It's a known fact that L&T, like many other Indian companies are looking at maintaining their revenue forecasts purely because of orders from abroad.

In recent months, the company's overseas orders include a $350 million road project in Oman and a contract worth nearly $300 million from Saudi Aramco SDABO.UL to build a gas processing plant.

The sad news is that major projects like POSCO and Arcellor Mittal pulled out last week, complicating matters for companies like L&T which are capable of executing large contracts for companies as these.

With economic growth at standtill, projects not getting clearances, land acquisition issues, high interest rates, pull out by global majors, L&T may have to continue to look at greener pastures abroad.

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