L&T manufactures the Launcher System for the Pinaka MBRL
The current government has cleared orders worth Rs 2.4 lakh crore over the last two years, says JD Patil, Senior VP and Head of Defence and Aerospace at L&T.
In an interview with CNBC-TV18, he said that the company expects defence orders of around Rs 21000 crore in the next fiscal year and hopes for the orderbook to grow up to Rs 50000 crore in the next three years.
Below is the transcript of JD Patil’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: Defence and the orders that will come from the government of India was the big buzz word for the better part of 2015. With two years of the government gone by, can you tell us what is the order book in defence looking like? Has something come in or are you still at an L1 stage? Are you still at a bidding stage?
A: In fact, the new government, over last exactly two years has cleared programmes worth roughly Rs 2,40,000 crore and we actually hope this momentum continues and we see clear signs of this momentum continuing. For Larsen and Toubro, I can see in the next three years, whatever the government has already cleared, the next three years should get us somewhere close to Rs 50,000 crore within immediate near-term kind of order inflow.
Latha: That is in the near-term, you expect your order book to be Rs 50,000 crore, but what is the current order book for L&T on the defence side?
A: The current order book obviously, we really do not report this. It is quite a handsome number. Obviously, we do not really talk of the sectoral order book as of today. What we certainly can talk of is what we expect to be building over the next couple of years.
Sonia: You spoke about Rs 50,000 crore of orders over the next three years, just two figures from your end – one, what could the margins potential be for many of these projects and upon maturation of the projects, what could the margins be? And also, on revenues, what could the revenue profile be from the defence space over the next two years.
A: Typically, defence revenues do not pickup in the year the order is received. It generally starts the next financial year. And that is the nature of this business being a bit of a long-term. Most of the programmes stay in your book for about three years and some go a little bit beyond three years. As a result, one would see that the revenues will genuinely trail by about a year. As far as profitability is concerned, it is certainly is far better than the L&T average.
Latha: When you say far better, is this mid-teens that you are talking about in terms of a margin?
A: L&T, today does roughly 10 percent. We hope to do far better on defence and since we are long-term, in our case, bulk of the technology is within the house and we actually save on what otherwise some other player would have paid out of the country.
Latha: You said that it is with a three year frame that the revenues flow in. So, should we expect the first revenues from defence to come into the profit and loss (P&L) only in FY19?
A: FY17-FY18. This year we expect some sizeable order, at least crossing USD three billion, we should be booking in the year that begins April 1. So, the next financial year, we see at least close to Rs 20,000-21,000 crore coming in. That should actually get us a sizeable revenues coming in the subsequent financial year that is FY17-FY18.
Sonia: Are there any major challenges to execute these orders in terms of either supporting infrastructure or anything from the government’s end?
A: From the government’s side, we see the regulatory mechanisms have genuinely eased out and evolved. What we see in L&T, unlike many others, we already have the infrastructure in place. We have eight factories that today produce defence goods. So, most of the investment that P&T made, during the last 5-6 financial years is coming in for good position for us. So, we do not really see much of an infrastructural gaps today.
Latha: The Rs 50,000 crore order you were speaking about is from the Indian government. Is L&T also a major defence exporter?
A: In fact, we have started building revenues on the export front. Today, we do just a meagre, for L&T, it is a very small number, but about Rs 100-150 crore, we do today. We are certainly looking at some major opportunities outside the country, because obviously, that is something which is an add-on over what we do for Indian defence.