MUMBAI: Larsen & Toubro is poised to bag a Rs1,500-crore road project in Abu Dhabi with a local partner, marking a big step forward in the engineering major's strategy to push hard for foreign business when the local market is drying up and some orders face cancellation.
A senior executive from Delma Engineering, L&T's partner in the United Arab Emirates, said the joint venture had emerged the best bidder for the Abu Dhabi Department of Transport's project for widening of Mafraq toAl Ghweifat highway. L&T executives are cautiously optimistic. "We are well placed in the bid for the project, but we don't want to speculate until we officially get the project," said SN Subrahmanyan, director & senior executive vice-president (construction) at L&T, Separately, L&T announced bagging an AED 943.11 million (around Rs1,400 crore) project from Abu Dhabi Airports Company PJSC to develop the Midfield Terminal Complex - an airside construction project. The order would be executed in 28 months.
"We are currently executing the Salalah airport expansion project in Abu Dhabi and see more prospects in the Middle East," Subrahmanyan said. Officials said Abu DhabiDepartment of Transport may award the project in the next 45 days, and the project would be executed over 30 months. The L&T Delma JV is bidding for two more road projects in Abu Dhabi.
"There has been slight setback in road projects in India. Projects under the build-operatetransfer (BOT) model are not moving ahead, while NHAI's plans of awarding EPC contracts has not yet translated into orders," Subrahmanyan said.
To beat the slowdown in domestic infrastructure sector, L&T has increased its thrust on overseas business, particularly in the Middle East. In India, The company has not bagged any road construction orders in the last five months and stares at a potential cancellation of overRs4,000 crore after two of its clients — GMRBSE 2.09 % and GVK— decided to terminate their respective contracts to develop roads for National Highways Authority of India (NHAI) citing inordinate delays in getting clearances.
L&T's construction division executes cash contracts for EPC (engineering, procurement and construction) projects, while its subsidiary L&T IDPL is a project developer that takes up projects on BOT basis. L&T IDPL has been conservative in bidding for new projects, which has dried the pipeline for in-house EPC work for L&T.
The $13.5 billion-conglomerate currently derives over 80% of its sales from the domestic market. Middle East, its key international market, accounts for around 15% of the total sales. In a report on Tuesday, JP Morgan said, "Amid a delay in fruition of reform measures announced by the government and weak investment sentiment, L&T has managed to surprise on order inflows supported by its portfolio diversity. The capex cycle has bottomed out and L&T is best-positioned to benefit from a recovery."
The brokerage upgraded its rating for L&T to 'overweight' from 'neutral', but cautioned, "Margins shall remain a perennial concern."