Also read: L&T may sell 20% stake in infra arm, shares gain
Raman further stated that India's acute power shortage is adversely impacting industry. Besides, he also clarified that there is no truth to L&T-Mitsubishi joint venture buying out BGR-Hitachi JV.
The World Bank's decision to debar L&T from participating in projects has had a negligible impact on the company's financials, informed Raman. However, L&T has been proactive in tightening bid norms post the World Bank issue, he said.
Here is the edited transcript of the interview on CNBC-TV18.
Q: As CFO of India's most loved infrastructure company what is your key challenge for 2013, is it maintaining margins in a difficult economic environment or growing your order book in what seems to be a difficult investment cycle?
A: It is a tough call because there is a bit of optimism in there about things moving forward. The businesses are looking forward to get some surge in the order intake as compared to possibly the past 18 to 24 months. Having said that, the past 24 months have really made the competitive pressures very intense, both in domestic market and international markets.
We find that the prices are getting tighter, the contract terms are getting tougher. Consequently, limited opportunities that are available for people to bid receives a lot of attention. There is definitely pressure on margins from the pricing end of it. So far as the cost is concerned, much of the profitability of organisations such as ourselves who are executing projects would depend on how efficiently we manage our cost, how we keep our productivity increasing as we go along. The margin is going to be more a function of cost play rather than pricing play in the market place.
Q: In the context of this more difficult pricing environment there are reports that there could be some consolidation in the power space. For example, the L&T-Mitsubishi joint venture that you run is apparently looking to buy out the BGR-Hitachi joint venture. Is there any truth to that and could there be such consolidation which alleviate some of these pricing pressures that you alluded to?
A: Since you are speaking about power sector, we are having several parts of the country with outages of 16 hours and 18 hours. If you look at what the countrty needs and the capacity that has been lined up, I do not think it is a case of excess capacity, it is a case of not utilizing the capacity smartly.
My own sense is that the case is not yet ripe for across the board consolidation. Some selective consolidation could happen, particularly from a global context. For example, the development about Hitachi, Mitsubishi is at a global plane and the consequences of that in different parts of the world can have an ancillary effect to it. But, in so far as local players and consolidation is concerned, I still think our productive capacity is adequate if the opportunities are lined up appropriately.
Here we have a situation of the opportunities being inadequately placed and it is not so much for capacity to be in excess.
Q: Is there no truth to that BGR-Hitachi joint venture buy news for L&T?
A: No, at the moment there is no truth in what is being suggested. But, it is a fact that globally Hitachi and Mitsubishi are coming together. We will have to wait and watch for developments in this space.
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