SWOT Analysis Report on Larsen Toubro - L&T
SWOT
Analysis of Larsen and Toubro, L&T Company Case Study Dissertation Writing Help
Strengths
Market leadership providing competitive edge
L&T is a
technology, engineering, construction, and manufacturing company. It is one of
the largest and most respected companies in India for engineering, manufacture
and integration of custom made technology-intensive equipment and systems. The
company has manufacturing facilities in India, China, Oman and Saudi Arabia;
and has its customers in more than 30 countries. L&T has a strong brand
name, having built the world's largest coal gasifier made in India and exported
to China, the world's biggest ethylene oxide reactor for a petrochemical
complex in the Gulf, the world's largest Fluid Catalytic Cracker regenerator
for a refinery, and the world's longest limestone conveyor. L&T also played
a critical role in building India's first nuclear powered submarine. In FY2013,
the largest ten players in the Indian engineering sector reported $47 billion
of revenues with L&T’s market share of over 60% ($28.3 billion). In August
2013, Engineering News Record, the international contractors’ magazine, ranked
L&T Construction 48th among the world’s top international contractors and
28th among the world’s top global contractors, based on 2012
revenues. The company can leverage its strong brand name and market leadership
position to gain competitive advantage and also expand into international
markets.
Strong technical
expertise reinforces leadership position
Technology plays
a very important role in all of L&T's operations. In engineering and
construction, L&T's technology capabilities include a strategic mix of
in-house strengths and the expertise of its joint venture partners. Engineering
centers carry out process design and simulation, analysis of computational
fluid dynamics, mechanical design, failure analysis, and trouble shooting.
L&T has set up an engineering and project management centre in Abu Dhabi to
undertake oil and gas related projects as well as engineering and consultancy
services.
In
manufacturing, L&T's design and engineering capabilities enable it to set
new benchmarks in terms of scale, sophistication, and speed.The company has
engineering centers at the manufacturing locations. L&T's electrical and
electronics division is a pioneer in the design of switchgear and switchboards
that are engineered for tropical conditions. It has built further on this
experience, and has leveraged its research and development strengths to develop
a host of new products and features.
In technology
services, L&T develops optimal solutions for its global clients.The
embedded systems unit provides technological assistance across a broad spectrum
of operations including design, maintenance, re-engineering, testing,
prototyping, and industrial design. A strong technical expertise helps the
company to reinforce its leadership position, sustain its competitive
strengths, and provides with an edge over its competitors.
Strong project
pipeline ensures revenue growth
L&T has a
very strong pipeline of projects which would be completed in the next few
years. Order book as at March 31, 2013 was worth INR1,536,040 million
(approximately $28,293.9 million) as against 708,200 million (approximately
$13,045 million) as at March 31, 2009. Further, the company’s order book inflow
increased at a compounded growth of 14.2% since FY2009. It was primarily due to
bulk orders received by the company from engineering and construction. The
company received 49% of the orders received from the infrastructure sector. The
engineering and construction division received new orders worth INR797,660
million (approximately $14,692.9 million) in FY2013 for projects such as 220/33
kV Grid Station at Zakher & Ayn Al Faydha in the UAE, 11 kV Power Distribution
Network for Emirates Palace, Concourse 4 of Dubai International Airport, a
tunnel between Shankar Vihar and Hauz Khas awarded by Delhi Metro Rail
Corporation, Rajasthan Atomic Power Plant, Riyadh Metro Project, Al -Batinah
Expressway Project, and others. Large number of projects in L&T’s pipeline
ensures a steady revenue growth.
Weaknesses
Major dependence
on domestic operations for revenue generation
L&T is
largely dependent on its domestic operations for generating its revenues. In
FY2013, the company's domestic (India) operations contributed more than 70% of
the total revenues. The company's revenues can be affected with any adverse
events occurring in the domestic market such as adverse economic conditions and
foreign currency fluctuations, among others. Higher dependence on domestic
operations to generate revenues could drastically affect L&T's revenues and
profitability. Increasing debt impacting financial flexibility L&T’s debts
are increasing steadily. The company’s debts in the form of loans increased to
INR619,940 million ($11,419.3 million) in FY2013 from INR327,980 million ($6,041.4
million) in FY2011. Increase in loans registered a compound annual rate of
change (CARC) of 35.5% over the FY2011-13 period. As a result, L&T’s
interest expense over the period FY2011-13 increased to INR20,950.2 million
($385.9 million) from INR8,027.5 million ($147.9 million) in FY2011. L&T’s
increasing debts is impacting the company’s financial flexibility.
Opportunities
Strategic joint
ventures strengthening business
L&T has
entered into several joint ventures in the recent past. During March 2013, the
company completed the ownership transactions related to its India based group
company Audco India Limited (AIL), a manufacturer of industrial valves. In
December 2012, L&T signed a contract with PETRONAS Carigali Myanmar (Hong
Kong) Limited for executing an offshore engineering, procurement, construction,
installation and commissioning project valued at over $100 million. Also during
2012, L&T acquired Indo Pacific Housing Finance, Ltd., a housing finance
company and the UK based Thalest Limited, a holding company engaged in offering
integrated platform management system and integrated bridge system solutions
for naval warships and mercantile marine ships, vessels and floating systems.
In the same year, L&T formed a strategic partnership with the UK based Cyan
Holdings plc, an integrated system design company to collaborate in the
development, supply and delivery of advanced metering solutions comprising
utility meters equipped with Cyan's wireless communication capability for AMI,
smart metering and smart grid pilot projects.
L&T’s joint
ventures in diversified areas such as finance, defense, transmission and
distribution and power plant equipment market could strengthen its presence in
these business lines and add to its expertise.
Growing Indian
construction and engineering industry
Construction and
engineering industry in India is growing rapidly. The industry grew by 4.4% in
2012 to reach a value of $117.4 billion. In 2017, the Indian construction and
engineering industry is forecast to have a value of $162 billion, an increase
of 38% since 2012. This industry is expected to register a Compound Annual
Growth Rate of (CAGR) of 6.6% over the period 2012–17. The Planning Commission
of India has proposed an investment of around $1 trillion in construction
sector in the 12th five-year plan (2012-2017). In 2011, Union government
conferred infrastructure status to fertilizer industry which has created
conducive environment for revamping and modification of fertilizer plants. L&T
is one of the largest players in the Indian construction and engineering
industry. The company is well placed to leverage from the growing Indian
construction and engineering industry and further enhance its business in the
coming years.
High global oil
and gas capital expenditure plans likely to enhance business
The global oil
and gas capital expenditure (Capex) plans are forecasted to remain high over
the coming years. This is likely to provide more business opportunities for the
company’s engineering and construction projects division in 2014. Key drivers
of growth in this sector in near future include increasing brownfield prospects
particularly in Middle East and Africa; the trend within Indian refining units
going for downstream petrochemical units for value added products; and growing
prospects in new business lines (gas processing, poly propylene and coal
gasification). In addition, the growing thrust on gas production and
transportation is expected to increase investments in cross country gas
pipeline projects and to bring in more business. L&T is well placed to tap
the growing global oil and gas capex plans and enhance its business in the
coming years.
Threats
Economic
challenges in India could adversely impact the company’s business
The Indian
economy witnessed a decadal low growth in FY2013 with GDP of 5%. The country
has seen economic expansion drop since the start of the FY2011 to levels even
below the crisis years of FY2009. The slowdown which started in the industrial
sector also extended to services sector. While the moderation in growth in
agriculture was largely on account of the rainfall deficiency, the deceleration
of industrial production growth to 1.2% in FY2013 from 2.7% in FY2012 was
mainly due to domestic supply bottlenecks, contraction in mining and slowing
growth in manufacturing and electricity sectors. Also, the country continued to
face persistent challenges due to high inflation, tight monetary policy,
deteriorating external balance and the global uncertainties. In addition, government
expenditure growth decelerated from 8.6% in FY2012 to 3.9% in FY2013 due to the
fiscal consolidation by the government to reduce the deficit. Continued
economic challenges in India, the company’s largest geographic market could
lead to further slow-down in industrial production and impact L&T’s
business prospects.
Challenges in
land acquisition likely to affect business
Challenges in
land acquisition are affecting L&T’s projects. Land acquisition issues are
causing delays and concerns to projects under various segments within the
group. Difficulties in land acquisition are slowing down the pace of project
award decisions. Environmental and land acquisition issues are current barriers
in the near term for expansion of mining equipment demand. Power projects and
new projects in minerals and metals sector face hurdles due to land acquisition
issues, environmental clearances, and coal linkages. Moreover, in 2013, Indian
government passed ‘The Land Acquisition, Rehabilitation and Resettlement Bill,
2011’. As per the bill, compensation for the owners of the acquired land should
be four times the market value in rural areas and twice in urban areas.
Projects involving land acquisition that are undertaken by private companies
and public private partnerships must have consent of 80% of the people
affected. L&T presently has many ongoing projects under public private
partnership. For instance, the land acquisition bill is expected to raise Navi
Mumbai airport's project cost by INR50,000 million ($921 million). Challenges
in land acquisition are likely to affect L&T’s business.
Intense competition may reduce profitability
The company
faces stiff competition in the international market. The engineering and
construction segment faces intense competition from construction majors in the
Middle East including ABB of Sweden and Bechtel of the US.These companies have
substantially greater resources and superior capabilities than L&T. In the
domestic market, the company primarily competes with players like Hindalco,
Sundaram Fasteners, Gammon India, and Lanco Infratech among others. Stiff
competition in the marketplace could erode the company's market share and
reduce its profitability.
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