L&T defers salary appraisals over Rs 12,000 crore billing loss since lock-down.
Engineering conglomerate L&T has lost Rs 12,000 crore worth billing due to the nationwide lock-down, the company’s top management told employees in a webinar this week as the work has stopped. L&T’ the first quarter historically always remains softer in terms of revenue run rate, not only it is important to set the tone for execution during the year ahead. Hence analysts says the progressing lock-down in first quarter can impact performance in subsequent quarters too which is the condition with almost all companies.
Subrahmanyan, CEO is understood to have said to the top management that the company is already spending Rs 500 crore on a monthly basis for the upkeep of 1.5 lakhs migrant workers staying at camp sites provided by L&T. These workers work on L&T’s sites and projects and they are being paid in full apart from being provided boarding and food. The company will bear this cost till the lock-down is there and operations do not return to normal. But once this crisis gets over each employee has to put double the effort to bridge the revenue gap, CEO says. He further said that since oil situation in Middle East will lead to issues there, the company must look at growing businesses in other geographies.
The crash in crude oil has put L&T company’s hydrocarbon business at risk. For several quarters, this division helped drive growth, clocking strong order flows both in domestic and international markets, and posting healthy profit margins. Currently, the hydrocarbon segment of the company enjoys the highest-ever order book of over ₹450 billion and margins in double-digit.
Also, there is a possibility that some of the company’s clients will face financial issues, while there might be others who would want to accelerate certain critical infrastructure projects, so the management must be ready to identify those opportunities, sources said. He also told the management that they must look after and be accommodative towards MSME vendors as they are critical partners for L&T.
On the order book side, analysts expect L&T to consolidate its position in certain business segments. “We see more scope for consolidation as the leader put its best foot forward in the engineering and construction (E&C) market. This would help L&T recover from cyclical lows; the extent of recovery, though, is contingent on how management addresses some key investor concerns,” analysts with Edelweiss said.
In conclusion, the recovery would be gradual after the lock-down and the escalation and employment costs are expected to increase. Thus getting out would be a bit harder than expected.