Larsen & Toubro share price in focus: Infra major sees limited impact from West Asian tensions; 95% projects on track

The company, which derives over 35% of its revenue from the conflict-hit Middle East region following the US and Israel’s strikes on Iran and subsequent retaliatory actions, flagged logistics and supply chain disruptions as key challenges, warning of potential revenue risks if the situation persists.

L&T does not see any immediate impact on revenues, as the 5% of projects where work has been stalled do not contribute significantly to the topline, Subramanian Sarma, its deputy managing director, told reporters over the weekend.

However, if the logistical issues do not get resolved in three months, there can be an impact through revenue deferment, Sarma added.

Stating that none of its sites have faced any attack and all its staff and workers in the Middle East are safe, Sarma said work at 5 of the 100 projects in the region has ceased either because the company took a decision to that effect by itself or because a customer suggested doing so due to risk factors such as proximity to a military base, and so on.

"There has been no disruption in 95% of the sites. It is business as usual," Sarma said, adding that work is suspended or disrupted in 5% of the projects.

The company has 8,000 staffers and 2,000 of their family members and an additional 20,000 contractual workers at its sites in the Middle East, Sarma said, adding that none of the staff have evinced any interest in returning.

It has, however, stopped sending any new workers into the Middle East since the conflict started, he said.

Sarma said the Middle East has been a "second home" to the homegrown company, where it has expanded over the last three decades.

Elaborating on the supply chain challenges, Sarma said the company generally keeps supplies that can last up to three months at a project site itself and added that the last two weeks have seen disruptions in the supply lines.

'Everybody is looking at alternatives to the problems created in the Strait of Hormuz, and utilising ports in Oman is among the possible alternatives for the evacuation of cargoes,' Sarma said, exuding confidence that a solution will be found soon.

Other key points

Once the conflict is over, L&T sees business opportunities in reconstruction, faster ordering of new projects, a shift to alternative sources of energy like renewables, and newer evacuation routes for oil and gas, which may involve laying pipelines, Sarma said.

If Iran integrates better with the world and there are no sanctions, it will provide a lucrative business opportunity, Sarma said, specifying that at present, it has no exposure to the country.

The presence in the Middle East has been a "very rewarding" one for L&T, Sarma said, adding that it believes that it will continue. The conflict is a short-term "aberration", and the geography continues to hold business promise over the long term, Sarma said.

L&T hopes the govt will continue capex

Amid concerns over a surge in the import bill because of commodity price hardening in the wake of the Middle East conflict, Larsen & Toubro is hoping that the government continues with its capital expenditure even if it means a widening of the fiscal deficit.

The engineering, procurement, and construction major feels the government should borrow more if needed to continue with capital expenditure, a senior official has said.

"The import bill will go up because of oil and gas prices. The government will have to balance it. They will maybe temporarily raise the deficit; maybe they will borrow more," Sarma added.