Engineering giant with strong presence in infra & defence - Business Guardian
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Engineering giant with strong presence in infra & defence



Infrastructure, Capital Goods and the Defence sectors are large nation-building sectors and contribute in a significant way for capital formation in a country’s long term progress.

Thanks to sturdy awarding of contracts within the infrastructure sector in the first quarter, the start to FY23 has been inspiring. Tendering in the infrastructure sector was healthy, primarily led by mega value projects floated by NHAI and the Rural Water and Sanitation department.

In July last, tendering was led by roads (Rs 447 billion), water supply (Rs 172 billion), community services (Rs 81 billion), and railways (Rs 90 billion). Also, the month saw strong awarding of Rs 403 billion, up 52% annually. To recap, in 1QFY23, tenders over Rs 2.6 trillion were issued, which is 87% jump annually.

Incrementally, as regards Defence which is also another nation-building sector, it has seen the defence acquisition procedure (DAP) 2020 laying a clear focus on cultivating domestic defence ecosystem by emphasizing on indigenization by increasing FDI limit to 74% from 49% earlier and encouraging foreign original equipment manufacturers (OEM) to set up manufacturing/maintenance entities through subsidiaries in India.

Additionally, global manufactures in India would require the foreign OEMs to either manufacture entirely or partly the equipment or spares/assemblies/sub-assemblies/maintenance, repair and overhaul (MRO) facility for the equipment, through subsidiaries in India, & increase of indigenous content by 10% which would have 50% local content as against 40% local content earlier.

The MoD intends to scale up domestic defence turnover to Rs 1.75 trillion (Rs 350 billion of exports) by 2025 from the current levels of Rs 800 billion. Incrementally, 68% of the capital acquisition budget has been earmarked for domestic procurement to promote self-reliance and reduce import dependency.

India’s defence exports have grown at a CAGR of 31% during FY15-22 and has reached Rs 130 billion. Exports have been driven mainly by the private sector with 70% share and government has set an aggressive target to reach Rs 350 billion by FY25 implying CAGR of 39% over FY22-25.

As far as capital goods sector is concerned, overall ordering activity was healthy from several sectors. The pace of ordering in water, data centres, B&F, international power T&D, FGD, metro rail and O&G continued. Whereas globally, ordering activity has seen strong traction from the Mid-East, SAARC, MENA, North America and Africa.

The infrastructure sector has become the biggest focus area for the Centre. India plans to spend $1.4 trillion on infrastructure during 2019-23 to have a sustainable development of the country.

In such a scenario, which are the companies that are likely to derive maximum benefit and grow significantly by having a diverse exposure to infrastructure, capital goods and defence sectors domestically?

One such company which is a dominant leader in the capital goods, infra and defence sector is Larsen & Toubro Ltd (L&T), which is primarily engaged in providing engineering, procurement and construction (EPC) solutions in key sectors such as infrastructure, hydrocarbon, power, process industries and defence, information technology and financial services in domestic and international markets.

L&T is a leading EPC player in the Indian market and its infrastructure segment comprises engineering and construction of buildings and factories, transportation infra, heavy civil infra, power transmission and distribution, water & effluent treatment, smart world and commercial projects and metallurgical & material handling systems and is the core business of the company.

L&T’s hydrocarbon business comprises of complete EPC solutions for the global oil & gas industry from design through detailed engineering, fabrication, procurement, project management, construction, installation and commissioning and accounts for 12% of revenues.

The power business comprises turnkey solutions for coal-based and gas-based thermal power plants including power generation equipment with associated systems and/ or balance-of-plant packages.

The company’s defence segment comprises of design, development, serial production and through life-support of equipment, systems and platforms for defence and aerospace sectors; and design, construction and repair/refit of defence vessels.

The heavy engineering segment comprises manufacture and supply of custom designed, engineered critical equipment and systems for core sector industries like fertiliser, refinery, petrochemical, chemical, oil & gas and thermal & nuclear power.

L&T also has a service business which comprises of its IT business which is divided between its 3 subsidiaries, namely L&T Infotech Ltd, Mindtree & L&T Technology Services Ltd. The company’s financial services business primarily comprises of rural finance, housing finance, wholesale finance, and is controlled by company’s subsidiary L&T Finance Holdings Ltd.

L&T’s order inflow correlates to India’s economic growth. Over the last few years, the Indian economy has faced challenging times and this was further accentuated by the Covid-19 pandemic, which delayed recovery for L&T. However, the National Infrastructure Pipeline (NIP) indicates spends of Rs 111 lakh crore over the next five years and L&T with its diverse presence and capabilities would be the biggest beneficiary of the same.

L&T’s order inflow is strongly correlated to growth in economy and capex cycle recovery. Whenever Indian GDP has grown over or above 10%, LT’s order inflow has expanded at an accelerated pace.

IMF has predicted strong recovery for Indian economy and the country is expected to regain the fastest growing economy tag in 2022. Accelerated growth, government’s thrust on reviving infra spend and capex cycle recovery will work as boon for LT’s order inflow growth.

L&T’s diverse presence and unique capabilities across segments of transportation infra, power, urban & rural infra, water & irrigation will aid the company to get maximum benefit of NIP. NIP spending would bring huge opportunity for L&T to capture large market share across different segments.

L&T has remained the market leader in Indian Infra space for many years due to its ability to bag large Infrastructure orders, operational efficiency, technical expertise and vast on ground experience.

L&T is optimistic on growth prospects in India owing to higher than estimated tax collections, the government’s continued thrust on infra spending and is hopeful of private capex revival by H2FY23.

Tendering activity in Q1FY23 was Rs 2.6 trillion vis-a-vis Rs 1.35 trillion in Q1FY22. In the Middle East region, it expects strong traction on the back of higher crude prices. Infrastructure and hydrocarbon opportunities are likely to open up in the Middle East, African sub-continent on the back of enhanced bi-lateral/ multi-lateral funding support.

Further company’s constant focus to divest its non-core assets should boost its RoE. L&T’s ‘Lakshya 2026’ plan is focusing on scaling up new business opportunities (green hydrogen, electrolyzers & battery manufacturing, SuFin, EduTech) which are now in the incubation phase and are expected to bring significant benefits in future.

L&T has also won orders valued at Rs 81 billion in defence engineering in FY22, representing substantial growth over the previous year with the receipt of a few large domestic orders. The order book totalled Rs 125 billion as at 31 March 2022, with a 4% export share.

Overall, L&T received order inflows worth Rs 1.9 trillion (+10% YoY) in FY22, largely driven by mega international orders in the power transmission and distribution and hydrocarbon businesses. L&T has an order backlog of Rs 3.6 trillion, translating into 3.3x FY22 core sales, an increase of 9.2% YoY following the receipt of some high-value contracts.

The infrastructure segment continues to dominate with 73% share of the consolidated order book. Around 21% comprises orders received from various state governments, including local authorities. Private sector contribution rose to 20% as against 17% as of March 21.

All this has got reflected in FY22 numbers with revenues at Rs 1,56,521 crore and a PAT of Rs 10,419 crore as compared to a net profit of Rs 12,921 crore last year with a net EPS of Rs 62 in FY22 from Rs 83 last year.

From a valuation perspective, the L&T stock currently trades at Rs 1,940 levels at a PE multiple of 29xFY23E & 25xFY24E which looking at its profitability levels and a monopolistic hold on its key products with strong operating cash flows are likely to get reflected in premium valuations of 25-35x going ahead.

L&T has conservatively guided that the group revenue and order inflows to grow 12-15% in FY23, and its core business margin to come at 9.5%. It has laid out a strategic plan for FY21-26 (Lakshya 2026), where the initiatives, investments and focus would help 11-13% CAGRs in domestic revenue and order inflows. Hence, looking at growth prospects ahead, we expect L&T to perform strongly over the next 2-3 years which essentially puts it in a sweet spot going ahead.

(The author is the Head-Research at Profitmart Securities and a seasoned financial planner and equity researcher)

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Kejriwal unveils ‘Guarantee’ for LS Polls: AAP’s pledge for change



On “Kejriwal ki Guarantee”, he said 24X7 power supply, good education and health facilities, and arranging two crore jobs for youths every year are part of it.

Delhi Chief Minister and AAP national convener Arvind Kejriwal declared “Kejriwal ki Guarantee” on Sunday, outlining 10 urgent initiatives to be pursued swiftly, including the liberation of Indian territory from Chinese control, should the INDIA bloc come to power at the Centre. This opposition alliance, comprising parties like AAP, Congress, Trinamool Congress, and Dravida Munnetra Kazhagam, was established to challenge the BJP-led National Democratic Alliance in the Lok Sabha elections.

A day after his release from jail on interim bail, Kejriwal on Saturday said the INDIA bloc will form the next government and his AAP will be part of it. Addressing a press conference on Sunday, the AAP leader said people will have to choose between “Modi ki Guarantee” and “Kejriwal ki guarantee”. The latter is a “brand”, Kejriwal said.

On the announcement of his guarantees, Kejriwal said, “I have not discussed with my INDIA bloc partners about this. I will press upon my INDIA bloc partners to fulfill these guarantees.”

Kejriwal said while the AAP has fulfilled its “guarantees” of free power, good schools, and Mohalla Clinics in Delhi, “(Prime Minister Narendra) Modi has not fulfilled his guarantees”.

On “Kejriwal ki Guarantee”, he said 24X7 power supply, good education and health facilities, and arranging two crore jobs for youths every year are part of it.

“We worked on management to ensure 24×7 power supply in Punjab and Delhi. We can do it in the entire country. The government schools in the country are in a bad shape. We will arrange good quality education across the country. We know how to do it,” he said.

Kejriwal also promised to end the Agniveer scheme and ensure that farmers get MSP for their crops as per the Swaminathan Commission’s report. “Rashtra Sarvopari is our guarantee. China has occupied our land and we will free it from their occupation,” he said. Kejriwal also promised to provide full statehood to Delhi.

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Macro & financial stability, boost to infra, extended PLI likely key areas in Modi 3.0



If one were to go by the Central Government’s poll manifesto which has stayed aligned to the pre-poll interim Budget, a strong adherence to the path of macro and financial stability as priorities, marked by low inflation, strong external balances, high growth, and fiscal prudence, appears to be the likely scenario if it comes back to power. A DBS Group research by Radhika Rao, senior economist, DBS Group Research and Taimur Baig, MD and Chief Economist, DBS Group Research indicates that the government will continue with the infrastructure push, policies to expand the manufacturing sector, and establish the country’s position as a voice of the Global South.

On the first, the focus will be on improving physical and digital infrastructure, marked by new metro networks, new railway tracks, new-age trains, improved connectivity, new bullet trains, roads, and energy infrastructure. Concurrently, besides expanding the 5G network, improving rural broadband connectivity, exploring 6G technology and the digitization of land records, amongst others, were highlighted in the to-do lists, as per Rao and Baig.

Secondly, Make-in-India and PLI schemes are likely to be expanded, with an emphasis on employment creation, simplification of regulatory processes, appropriate infra for manufacturing hubs, and R&D. A mix of traditional and new-age sectors will likely be prioritized, including a globally competitive food-processing industry, and core sectors (steel, cement, metals, engineering etc), besides a push towards indigenous defense manufacturing, pharma, new age & chip manufacturing, auto and electric vehicles, amongst others.

Existing social welfare programs are likely to be enhanced with better outreach, including, a middle-class focus through the provision of high-value jobs, quality healthcare and infra to improve ease of living, amongst others. Also on the radar is affordable housing program expansion with a focus on slum redevelopment, sustainable cities, etc. The PM Garib Kalyan Anna Yojana is to be a priority, which will continue to provide free foodgrain ration to about 800 mn residents. On healthcare, Rao and Baig see continuity to provide quality free health treatment to up to 500,000 poor families under Ayushman Bharat.

The economists are also of the view that the PM Ujjwala Yojana, which has already benefited 100 mn with cooking gas connections, will be expanded. Subsidies for solar panels on roofs of 10 mn households up to 300 units/month under the PM Surya Ghar Muft Bijli Yojana, unorganized workers, farmers and continuation of financial assistance to farmers under PM Kisan, farm self-sufficiency, etc.), start-ups and micro-credit enterprises, will be the other focus areas to boost the economy from a bottom-up approach.

Rao and Baig foresee limited fiscal implications from these announcements as part of these were included in the interim budget and the manifesto did not outline any new big-bang reforms or fresh social welfare spending programs. “We maintain our FY25 fiscal deficit assumption at -5.1% of GDP with the existing borrowing program,” says the economists.

A broad-based push towards more contentious structural reforms (land, labor, farming, etc.) did not receive a mention in the manifesto, which may still be prioritized if the party returns for a third term. In our view, the incoming government is neither limited by nor will be restricted by the poll promises. To that extent, the scope of reforms can be wider than what has been laid out in the respective manifestos.

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Govt extends date for submission of R&D proposals



The Government has extended the deadline for submission of proposals related to R&D scheme under the National Green Hydrogen Mission. The R&D scheme seeks to make the production, storage, transportation and utilisation of green hydrogen more affordable. It also aims to improve the efficiency, safety and reliability of the relevant processes and technologies involved in the green hydrogen value chain. Subsequent to the issue of the guidelines, the Ministry of New & Renewable Energy issued a call for proposals on 16 March, 2024.

While the Call for Proposals is receiving encouraging response, some stakeholders have requested more time for submission of R&D proposals. In view of such requests and to allow sufficient time to the institutions for submitting good-quality proposals, the Ministry has extended the deadline for submission of proposals to 27th April, 2024.

The scheme also aims to foster partnerships among industry, academia and government in order to establish an innovation ecosystem for green hydrogen technologies. The scheme will also help the scaling up and commercialisation of green hydrogen technologies by providing the necessary policy and regulatory support.

The R&D scheme will be implemented with a total budgetary outlay of Rs 400 crore till the financial year 2025-26. The support under the R&D programme includes all components of the green hydrogen value chain, namely, production, storage, compression, transportation, and utilisation.

The R&D projects supported under the mission will be goal-oriented, time bound, and suitable to be scaled up. In addition to industrial and institutional research, innovative MSMEs and start-ups working on indigenous technology development will also be encouraged under the Scheme.

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India, Brazil, South Africa to press for labour & social issues, sustainability



The Indian delegation also comprises Rupesh Kumar Thakur, Joint Secretary, and Rakesh Gaur, Deputy Director from the Ministry of Labour & Employment.

India, on Thursday, joined the G20’s two-day 2nd Employment Working Group (EWG) meeting under the Brazilian Presidency which is all set to address labour, employment and social issues for strong, sustainable, balanced and job-rich growth for all. India is co-chairing the 2nd EWG meeting, along with Brazil and South Africa, and is represented by Sumita Dawra, Secretary, Labour & Employment.

The Indian delegation also comprises Rupesh Kumar Thakur, Joint Secretary, and Rakesh Gaur, Deputy Director from the Ministry of Labour & Employment. India has pointed out that the priority areas of the 2nd EWG at Brasilia align with the priority areas and outcomes of previous G20 presidencies including Indian presidency, and commended the continuity in the multi-year agenda to create lasting positive change in the world of work. This not only sustains but also elevates the work initiated by the EWG during the Indian Presidency.

The focus areas for the 2nd EWG meeting are — creating quality employment and promoting decent labour, addressing a just transition amidst digital and energy transformations, leveraging technologies to enhance the quality of life for al and the emphasis on gender equity and promoting diversity in the world of employment for inclusivity, driving innovation and growth. On the first day of the meeting, deliberations were held on the over-arching theme of promotion of gender equality and promoting diversity in the workplace.

The Indian delegation emphasized the need for creating inclusive environments by ensuring equal representation and empowerment for all, irrespective of race, gender, ethnicity, or socio-economic background. To increase female labour force participation, India has enacted occupational safety health and working conditions code, 2020 which entitles women to be employed in all establishments for all types of work with their consent at night time. This provision has already been implemented in underground mines.

In 2017, the Government amended the Maternity Benefit Act of 1961, which increased the ‘maternity leave with pay protection’ from 12 weeks to 26 weeks for all women working in establishments employing 10 or more workers. This is expected to reduce the motherhood pay gap among the working mothers. To aid migrant workers, India’s innovative policy ‘One Nation, One Ration Card’ allows migrants to access their entitled food grains from anywhere in the Public Distribution System network in the country.

A landmark step in fostering inclusion in the workforce is the e-Shram portal, launched to create a national database of unorganized workers, especially migrant and construction workers. This initiative, providing the e-Shram card, enables access to benefits under various social security schemes.

The portal allows an unorganized worker to register himself or herself on the portal on self-declaration basis, under 400 occupations in 30 broad occupation sectors. More than 290 million unorganized workers have been registered on this portal so far.

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India to spend USD 3.7 billion to fence Myanmar border



India plans to spend nearly $3.7 billion to fence its 1,610-km (1,000-mile) porous border with Myanmar within about a decade, said a source with direct knowledge of the matter, to prevent smuggling and other illegal activities. New Delhi said earlier this year it would fence the border and end a decades-old visa-free movement policy with coup-hit Myanmar for border citizens for reasons of national security and to maintain the demographic structure of its northeastern region.

A government committee earlier this month approved the cost for the fencing, which needs to be approved by Prime Minister Narendra Modi’s cabinet, said the source who declined to be named as they were not authorised to talk to the media. The prime minister’s office and the ministries of home, finance, foreign affairs and information and broadcasting did not immediately respond to an email seeking comment.

Myanmar has so far not commented on India’s fencing plans. Since a military coup in Myanmar in 2021, thousands of civilians and hundreds of troops have fled from there to Indian states where people on both sides share ethnic and familial ties. This has worried New Delhi because of risk of communal tensions spreading to India. Some members of the Indian government have also blamed the porous border for abetting the tense situation in the restive north-eastern Indian state of Manipur, abutting Myanmar.

For nearly a year, Manipur has been engulfed by a civil war-like situation between two ethnic groups, one of which shares lineage with Myanmar’s Chin tribe. The committee of senior Indian officials also agreed to build parallel roads along the fence and 1,700 km (1,050 miles) of feeder roads connecting military bases to the border, the source said.

The fence and the adjoining road will cost nearly 125 million rupees per km, more than double that of the 55 million per km cost for the border fence with Bangladesh built in 2020, the source said, because of the difficult hilly terrain and the use of technology to prevent intrusion and corrosion.

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However, Stock highlighted the enormity of the challenge, noting that between 40% and 70% of criminal profits are reinvested, perpetuating the cycle of illicit financial activity.

In a press briefing held on Wednesday, Interpol Secretary General Jurgen Stock unveiled alarming statistics regarding the extent of undetected money laundering and illegal trade transactions plaguing the global banking network. Stock revealed that over 96% of the money transacted through this network remains undetected, with only 2-3% of the estimated USD 2-3 trillion from illegal trade being tracked and returned to victims.

Interpol, working in conjunction with law enforcement agencies and private financial sectors across its 196 member countries, is committed to combating the rising tide of fraud perpetrated by illicit traders. These criminal activities encompass a wide spectrum, including drug trafficking, human trafficking, arms dealing, and the illicit movement of financial assets.

Stock emphasized the urgent need to establish mechanisms for monitoring transactions within the global banking network. Currently, efforts are underway to engage banking associations worldwide in setting up such a framework. However, Stock highlighted the enormity of the challenge, noting that between 40% and 70% of criminal profits are reinvested, perpetuating the cycle of illicit financial activity. The lack of real-time information sharing poses a significant obstacle to law enforcement agencies in their efforts to combat money laundering and illegal trade.

Stock underscored the role of Artificial Intelligence (AI) in exacerbating this problem, citing its use in voice cloning and other fraudulent activities. Criminal organizations are leveraging AI technologies to expand their operations and evade detection on a global scale. Stock emphasized the importance of enhanced cooperation between law enforcement agencies and private sector banking groups. Realtime information sharing is crucial in the fight against illegal wealth accumulation.

Drawing inspiration from initiatives such as the “Singapore Anti-Scam Centre,” Stock called for the adoption of similar models in other countries to strengthen the collective response to financial crimes. In conclusion, Stock’s revelations underscore the pressing need for concerted action to combat global financial crimes. Enhanced cooperation between public and private sectors, coupled with innovative strategies for monitoring and combating illicit transactions, is essential to safeguarding the integrity of the global financial system.

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