Management Discussion & Analysis - L&T India-Investor …investors.larsentoubro.com/upload/...s_Discussion_and_Analysis07.pdf · has emerged a thrust area for L&T which has ... to

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Review of the Economy

The Indian economy, characterized by strongmacro-economic fundamentals, has drawn theworld�s attention as one of the fastest growingeconomies with future promise. The nation hascontinued on its high growth trajectoryregistering an impressive growth of 9.4%during fiscal year 2006-2007. The averageGDP growth rate reported for the last 4 yearsis a record 8.6 percent. The industrial sectorremained buoyant, driven by robustperformances from manufacturing, servicesand construction sectors. Foreign trade hasbeen growing at an average rate of 27% duringthe past 3 years. Savings and investment ratesare estimated at a healthy 32.4% & 33.8% ofGDP respectively. It is heartening to note thatforeign direct investment during the fiscal year2006-2007 has doubled to USD 15 billion andis expected to scale up with further openingup of core and infrastructure sectors.

Inflation has been moderate and is expectedto be contained at the present level of around5%, supported by a strong rupee, timelymonetary policy measures of the RBI and abuoyant economy. International credit ratingagencies S&P and Moodys have raised India�scredit outlook to investment grade, influencedlargely by accelerated growth record andastute handling of debt by the government.The only sore note has been the sluggishgrowth of agriculture, averaging at 2.3% duringthe 10th five year plan.

The global economy recorded a growth of5.4% during the year 2006 with an improvedUS economy recording a growth of 3.3%.However, some moderation in growth isforecast for the year 2007 with the globalgrowth rate falling to 4.9% and the USeconomy slowing to 2.2%. The oil richcountries, particularly in Middle-East & SouthEast Asian region, have acceleratedinvestment in the infrastructure & constructionsectors. With growing cooperation amongstthe oil producing countries, thanks to windfallgains from stable high oil prices, joint effortsare being initiated for ramping up explorationfacilities and distribution network.

Infrastructure & Capital Goods Industry

In 2006-2007, Indian industry had a stronggrowth of over 11%, ably supported by a 12%

Management Discussion & Analysis

growth in manufacturing. Reflecting thebuoyant capacity addition in the economy, thecapital goods industry grew by a healthy 17%.

A notable feature of the current growth phaseis the significant rise in the rate of capitalformation which has moved from 25% in 2002-2003 to 32% of GDP in 2005-2006. However,the rate of capital formation needs to furtheraccelerate so as avoid capacity constraints.The government has planned a series ofmeasures to encourage private sectorparticipation and increase spending oninfrastructure. Efforts have been made tostreamline procedures and introduceinnovative schemes to exploit the country�ssurging foreign exchange reserves.

In the core sectors, power generation hasgrown by 7.3% during 2006-2007. In theensuing year, output would be higher withmany mega projects in the offing under bothprivate and public sectors. Crude oilproduction and throughput by refineries haveincreased over the previous year by 6% &12% respectively. Capacities are being rampedup in Railways, Roads, Ports, Airports andUrban infrastructure to sustain the momentumof double digit growth in the industrial sector.

The estimated investment requirement forinfrastructure has now been pegged at aroundUSD 450 billion against the earlier estimateof USD 320 billion during the 11th five yearplan. This is both a challenge and anopportunity for the government and the privatesector. Sustained efforts are required toimprove every segment of infrastructure tosustain the growth momentum of the economy.

Business Performance

Buoyed by economic growth, within India andoutside, the Company has yet again produceda robust performance in 2006-2007. The paceof infrastructure development has picked upin the country and in the neighbouring regions.Industries such as crude oil production &refining, gas processing, cement, steel andother metals have achieved smart growthduring the year. The favorable all-roundeconomic climate has opened up opportunitiesfor the capital goods sector includingconstruction and heavy engineeringmanufacturing companies. As a result, allbusiness divisions of the Company have

registered impressive performance during theyear. The upturn was equally commendablefor the Group�s Subsidiary and Associatecompanies, particularly in informationtechnology, financial services & machinerymanufacturing sectors.

Strategic Initiatives

The Company and the Group haveconsolidated growth oriented initiatives underthe �LAKSHYA� program during the year.Creation of new facilities and expansion inexisting manufacturing facilities have beeninitiated across all business divisions.Divisions have undertaken many operationalexcellence programs so as to improve marginsand become more competitive through productpositioning in international markets. In orderto scale up the business in hydrocarbon midand down stream sector, a separate verticalhas been formed, which combines the entiregamut of engineering, procurement,construction and project managementservices. Creation of similar business verticalsin other business lines of the Company isunderway. Initiatives for talent attraction andretention have also been accelerated duringthe year to capitalize on emerging businessopportunities.

The Company has successfully completed theamalgamation of residual electrical businesstaken over from Datar Switchgear Limited,thereby adding new product portfolio in themedium tension switchgears. With a view tobuilding a large capital base in theinfrastructure subsidiaries, the Companyinfused fresh capital during the year. Powerhas emerged a thrust area for L&T which hasbuilt expertise in power plant construction anderection. In order to establish a strongpresence in the international and local powerspace, the Company has entered into a jointventure with Mitsubishi Heavy IndustriesLimited for manufacture of super criticalboilers. In order to reap the benefits ofmanufacturing and easy access to newmarkets, the Company has set up facilities formanufacture of industrial valves and rubberprocessing machinery in China and forswitchboards in Saudi Arabia. The Companyis presently exploring new businessopportunities in the field of Water and

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Railways. It has made a modest beginning inthe ship building space and is currentlyexecuting orders for ships at its Hazira Works.

All the above strategic initiatives will ensurethat the Company is able to harness emerginggrowth potential. Considering the impressivetrack record of the Company during the pastfew years, the confidence level of thebusinesses in achieving the challenging�LAKSHYA� targets has soared.

In this backdrop, the management is pleasedto present the analysis of Division-wise

performance for the year 2006-2007 and itsoutlook for the future. This outlook is basedon the present assessment of the currentbusiness environment. It may vary dependingon the changes in the underlying economicenvironment, both in India and abroad.

The Company�s businesses have beenclassified in to 6 Operating Divisions:

(i) Engineering, Construction & Contracts,

(ii) Engineering & Construction - (Projects),

(iii) Heavy Engineering,

Year 2006-2007 at a Glance

(iv) Electrical & Electronics,

(v) Machinery & Industrial Products and

(vi) Technology Services.The management of Larsen & ToubroLimited presents the analysis of Division-wise performance of the Company for theyear 2006-2007 and its outlook for thefuture. This outlook is based onassessment of the current businessenvironment. It may vary due to futureeconomic and other development both inIndia and abroad.

L&T

� New Order inflow at Rs. 30,602 crore in Current Year as against Rs. 22,370 crore in Previous Year (USD 7.55 Billion & USD 5.52Billion respectively) � 37% growth year-on-year.

� Order Book as at March 31, 2007 Rs. 36,882 crore as against Rs. 24,857 crore as at March 31, 2006 (USD 9.10 Billion & USD 6.13Billion respectively) � 48% growth year-on-year.

� Gross Sales at Rs. 17,901 crore in Current Year as against Rs. 14,966 crore in Previous Year (USD 4.42 Billion & USD 3.69 Billionrespectively) � 20% growth over previous year

� Segment wise composition of revenues:

Engineering & Construction Segment � 73.5% in Current Year as against 75.8% in Previous Year

Electrical & Electronics Segment � 11.3% in Current Year as against 10.2% in Previous Year

Machinery & Industrial Products Segment � 10% in Current Year as against 9.6% in Previous Year

Others Segment � 5.2% in Current Year as against 4.4% in Previous Year

� PBDIT excluding extra-ordinary items at Rs. 2,209 crore in Current Year as against Rs. 1,503 crore in Previous Year (USD 545 Mio &USD 371 Mio respectively) � up by 47%

� PAT including extra-ordinary items at Rs. 1,403 crore in Current Year as against Rs. 1,012 crore in PY (USD 346 Mio & USD 250 Miorespectively) � up by 39%

� Gross Debt Equity ratio of 0.36 : 1 as against 0.32 : 1 in Previous Year

L&T Group

� Gross Sales at Rs. 20,700 crore in Current Year as against Rs. 16,747 crore in Previous Year (USD 5.11 Billion & USD 4.13 Billionrespectively) � 24% growth over Previous Year

� PAT including extra-ordinary items at Rs. 2,240 crore in Current Year as against Rs. 1,317 crore in Previous Year (USD 553 Mio &USD 325 Mio respectively) � up by 70%

Note: RBI reference exchange rate of Rs. 40.53 per USD prevailing as at May 28, 2007 has been applied for conversion.

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K. V. RangaswamiWhole-time Director &

President (Construction)

ENGINEERING, CONSTRUCTION& CONTRACTS DIVISION

Overview

L&T undertakes engineering design andconstruction of Buildings, Factories,infrastructure and industrial projects coveringcivil, mechanical, electrical and instrumentationengineering disciplines, Transmission Lines,Sub-stations through its Engineering,Construction and Contracts (ECC) Division.ECC is India�s largest constructionorganization with many of the country�s prizedlandmark constructions to its credit. TheDivision is equipped with the requisiteexpertise and wide-ranging experience toundertake lump-sum turnkey (LSTK) contractswith single-source responsibility. The projectsare executed using state-of-the-art design toolsand project management techniques. This hasenabled ECC to establish itself as anundisputed leader in Indian Constructionindustry.

ECC�s track record of over six decades coversall industrial sectors and infrastructure projectswith its leading-edge capabilities coveringevery discipline of construction: civil,mechanical, electrical and instrumentation.ECC operates through 7 Domestic regions and2 international zones for project execution.

As a testimony to the Division�s sustainedefforts to retain its leadership and achieveexcellence through continual improvementprocesses, the Division has bagged manyprestigious awards like CII EXIM Bank Awardfor Business Excellence, NDTV ProfitBusiness Leadership Award in Infrastructureetc., during 2006-2007.

Kensington Oval Stadium at Barbados, West Indies -- reconstructed by L&T for 2007 CricketWorld Cup.

Business environment

The construction industry has grown at anaverage rate of 9.7 % over last 6 years whichis higher than the country�s GDP growth rateover the same period. The constructionindustry which employs almost 30 millionpeople is the second largest employer afteragriculture in India. A remarkable improvementwas witnessed in the performance parametersof the business sectors, clearly indicating theeffectiveness of various initiatives taken foroperational efficiency.

In line with the Division�s aspirations to moveup the value chain by executing large sizedprojects on turnkey basis, mega projects likeDelhi International Airport, NTPC Barh,

expansion of Vizag Steel Plant, ReliancePetroleum Project, Dhamra Port, BisalpurWater Supply Project, Vadodara-Bharuch &Palanpur Saroopganj Road Projects andTapovan-Vishnugad Hydel Project werebagged during the financial year.

Opportunities & Challenges

A review of the market with the potentialinvestments in different sectors of the economyreveals good opportunities for the ConstructionIndustry. However, the Government�s initiativefor private participation in Infrastructuredevelopment has led to foray of new playersfrom unrelated businesses into the industry,who are building up their strengths inConstruction / Operations & Maintenance, by

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engaging reputed Project Managementconsultants and strategic tie ups / allianceswith global companies. Mobilization of skilledmanpower & experienced Engineers forexecution of the projects is also posing a majorchallenge.

Business overview for the major sectors ofthe Division is discussed below:

INDUSTRIAL PROJECTS AND UTILITIESSECTOR (IPU)

In the year 2006-2007, the sector continuedon its growth trend receiving large value ordersin Minerals & Metals and Bulk MaterialHandling business. With the businessenvironment being conducive, the sector hasbeen performing well over the last five years.

L&T and its consortium partners bagged majorEPC orders of Blast Furnace from RashtriyaIspat Nigam Limited for their plant at Vizag.Projects at Tata Steel are under execution andare expected to be completed ahead ofschedule. Non-ferrous segment witnessedsuccessful completion of its earlier expansionprojects and preparations to launch furtherexpansion schemes are underway.

Having successfully handled an industrialwater project through the Public PrivatePartnership route, the sector now looksforward to repeat such modules in other states.Since water supply projects are a point offocus for nearly all State Governments due toa demand supply gap, large value ordersinvolving transmission and treatment of Water

together with O&M will be the order of theday. The sector is in the process ofconsolidating and enhancing the Engineeringskills and capabilities to handle such projects.

This sector has seen new players enteringthe market. However our strong competencyin providing turnkey solutions for EPC projectsand in water management schemes forirrigation and drinking purposes & excellentimplementation capabilities will sustainenhanced business opportunities.

HYDROCARBON & POWER SECTOR (HCP)

During 2006-2007 Reliance Industries Limitedentered in the construction phase in Jamnagarfor their 29MMT expansion project and a major

Second Vivekananda Bridge, under construction in Kolkata.

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part of Civil & Mechanical construction workscommenced at Reliance�s Gas Processingand Despatch Terminal at Kakinada. BothJamnagar and Kakinada Projects fetched asubstantial level of order booking (apprx.Rs. 500 Crore) for the sector. The Divisionalso secured construction contracts of NapthaCracker and Poly Propylene packages fromIOCL Panipat to the extent of Rs. 300 Crore.The Division has entered into the Gas GridProjects with ONGC on EPC route. In Pipelinearea, the Division has completed andcommissioned both Mora-Vapi Pipeline andAnand-Rajkot Pipeline Projects. In theinternational market, the Division has baggeda USD 130 Mn order from KAFCO Kuwait forconstruction of their New Depot Aviation FuelHandling Project on EPC basis.

The Division has secured some major powerproject works at 8 x 135MW Barmer TPS, 4 x600MW Jharsuguda TPS and 250MW TATATrombay TPS. Availability of fuel, especially gas,continues to be an issue of concern and as aresult commissioning of around 2000MW of gas

based Power Plants and also commencementof many new projects under Public and privatesector are expected to be delayed.

Outlook continues to be bright for Refineries/Petrochemicals and Pipelines business.Greenfield Refineries construction has alreadycommenced in Bina and Bhatinda. Qualityupgradation projects have been taken up forimplementation at Panipat, Vadodara,Mangalore, Guwahati, Dighboi and Barauni.Similarly Petrochemical Projects are alsoactive at Dahej and Panipat. Mega andIntegrated Refinery cum PetrochemicalComplexes are scheduled to start during thisyear at Jamnagar and Paradeep.

In case of Pipelines business Reliance, GAILand GSPL are expanding their network ofpipelines to the extent of 2000Km to dischargethe Gas from Kakinada coast and Gujaratcoast to the potential customers, en-route. TheGulf market is active and L&T�s country officesat Kuwait, Oman, Qatar, Kingdom of SaudiArabia (KSA) and United Arab Emirates (UAE)

are geared up to exploit much of the businesspotential.

BUILDING & FACTORIES SECTOR (B&F)

The Building & Factories Sector is geared upto tap full potential by enhancing in-houseDesign & Build capabilities and establishingUAE and Oman offices to capitalize on thefavorable international business opportunities.Well-established competency cells of thesector are continuously upgrading thetechnology, improving construction methods,imparting relevant training & orientation to staffand workmen so as to attain seamlessexecution of projects involving Multi-Disciplinary activities.

Major thrust is given by the sector forenhancing the capabilities for providing totalbuilding solution with single point responsibilityto the customer.

L&T Concrete has maintained its marketleadership in Ready Mix Concrete (RMC)business in India. Acceptance of cementsubstitutes has also helped in popularizingRMC. The Division has plans to expand RMCoperations across India & abroad and hasstarted its RMC station in the UAE (Dubai). Ithas also laid focus on high strength concretewith continued R&D efforts to create a newvalue proposition in the market. The divisionplans to set up a number of new RMC plantsin India and abroad during 2007-2008.

TRANSPORTATION INFRASTRUCTURESECTOR ( TI )

The sector has secured two projects in Roads,through BOT route and three Delhi MetroRailway Corporation (DMRC) orders throughcompetitive bidding during 2006-2007. Withthe thrust in development of Airports, thesector has also bagged the mega order ofRunways & Taxiways for Delhi InternationalAirport. Financial closure has been achievedfor the Embankment, bridges for the rail linkand Jetty works in case of Dhamra Port. The

400 kV D/C transmission line towers supplied and erected by L&T in Andhra Pradesh. L&T hasestablished niche markets in the Middle East, South East Asia, SAARC countries and SouthAmerica for transmission line projects.

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Second Vivekananda Bridge Project at Kolkatais nearing completion. The Division�s twoairport jobs (Bangalore and Hyderabad) andPanipat Elevated Corridor are progressingtowards completion ahead of schedule.

Construction of six-lane National Highways,four-lane State Highways and Expresswaysunder NHDP offer good potential for ourRoads business. Continued emphasis on theMetro rail network in the cities like Mumbai,Bangalore & Hyderabad and the recentannouncement of dedicated Rail freightcorridor present significant opportunities forthe Sector.

POWER TRANSMISSION ANDDISTRIBUTION (PT&D)

The thrust by the Government towardsenhancement of Power Generation,Transmission and Distribution continues witha special emphasis on providing quality powerto the villages. This gives good businesspotential for both the Business Units -Electrical Instrumentation & Communication(EI & C) and Transmission Line & RailwaysConstruction (TLRC).

During the year, the Sector has furtherconsolidated its domestic operations in EHV

The world's longest cross-country conveyor (17 km) designed and built by L&T to transport 1.2 mtpa of shale and limestone from Meghalaya (India)to Chhatak (Bangladesh). L&T executes turnkey construction contracts for bulk material handling projects involving systems design and engineer-ing, manufacture, supply and commissioning.

L&T�s construction services are deployed forregional rural water supply schemes. L&Talso offers turnkey project services for watertransmission, distribution and water treatmentprojects in India and abroad.

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Switchyard, Transmission Lines and RuralPower Development under Accelerated PowerDevelopment & Reforms Programme (APDRP)and Rajiv Gandhi Grameen Vidyutikaran Yojna(RGGVY) schemes. The Sector has also re-looked at its Railway business in view ofsubstantial growth initiatives of the Railwayssuch as Feeder Route Electrification, safetyimprovement through Signaling and also theexpected Dedicated Freight Corridors.

Power Grid Corporation continues to be thesingle largest customer for both the BusinessUnits. In addition, new thrust on IPP relatedTransmission Line jobs on turn-key basis,UHV/EHV Sub-Stations, EPC projects by StateElectricity Boards are also generatingsubstantial business. As a result of boomingeconomy, good opportunities in the IndustrialElectrification are opening up for variousprojects being set up in Ferrous / Non-Ferrous,

Oil and Gas and Power Sectors.

HYDEL & NUCLEAR SECTOR (H&N):

The Hydel Business Unit (HBU) has madereasonable progress in terms of quantitativegrowth as well as qualitative achievementsduring 2006-2007. The prestigious high-technology underground LPG storage cavernproject at Vizag was completed successfully.The 900 MW Purulia Pumped StorageProject, the largest pumped storage projectin India, was completed successfully. TheHBU booked its first BOT project order inHydel sector, the 99 MW Singoli- BhatwariHydel Power Project. A large concrete damproject at Vel igonda progressedsatisfactorily. The HBU secured its firstTunnel Boring Machine Project from NTPCfor the 520 MW Tapovan Vishnugad HydelProject.

India�s highest altitude railway bridge, the 88-metre high 308-metre Jhajjar Khad bridge on the Northern Railway�s Jammu-Baramullah line, links theUdhampur-Katra section.

The Nuclear Business Unit consolidated theon-going works for complete mechanicalerection for the 2 x 1000 MW KudankulamNuclear Power Project and completed aprestigious and complex Spent Fuel StorageFacility at Tarapur for BARC.

The Hydel Power scene continues to be bright,with the Government laying emphasis on Hydelprojects. About 18,000 MW of Hydel powercapacities are being planned in the 11th FiveYear Plan. Many IPP projects are being offeredand the Division is also pursuing some goodprojects in Himachal Pradesh, Uttarakhand,Sikkim and Nepal.

With continuing progress in the Indo-USnuclear power co-operation treaties, there areconsiderable expectations on the growth ofnuclear power in India. Bids are likely to beinvited for at least two nuclear power projects

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1300-metre jetty resting on a row of single-pile trestles at Karaikal, Pondicherry. L&T undertakesdesign and construction of ports, harbours and other waterfront structures.

Under ground LPG storage cavern project of SALPG at Visakhapatnam.

in the coming year and the Division hopes toplay a significant part in these projects.

Significant Initiatives

The Division has launched several initiativesaimed at enhanced operational efficiency andvalue creation to stakeholders. Notableamongst them are focus on large projects,selective geographical spread in internationalarena, strategic tie up with vendors and keycustomer management.

In addition, the Division has consolidated onits initiatives relating to institutionalization ofrisk management processes right through pre-bid stage. It has augmented the in-houseengineering & design capabil it ies andintegrated the same with business sectors toleverage in executing large design & buildprojects.

These initiatives have paid off well for theDivision�s performance during the year 2006-2007.

Outlook

The construction sector, which contributes65% of the capital spend, is likely to witnessa 10-12% growth during the coming years.

The Division seeks to augment its valuecreation efforts by entrusting end to endresponsibil ity to the business sectors,responsible to plan / augment / manage theirown resource & capital expenditurerequirements. This initiative would drive thesectors in achieving global competitiveness.

Investments in Industrial sectors are expectedto come up largely from capacity expansions /modernizations in Steel, non-metal,automobiles, cement etc. These offer potentialto Industrial Projects & Utilities Sector.Investments in Infrastructure sector areexpected to continue in Roads, Railways,Urban Infrastructure, and Irrigation etc. On theglobal front, Middle-East countries continueto be the focus with vast potential in civil &urban infrastructure projects, Powertransmission & distribution etc. The Divisiontherefore sees a bright future for all itsbusiness sectors in the medium term.

With expectations of an upsurge ofinvestments in the Industrial and Infrastructuresectors, the outlook for 2007-2008 isencouraging.

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K. VenkataramananWhole-time Director & President

(Engineering & Construction Projects)

ENGINEERING &CONSTRUCTIONPROJECTS DIVISION

Overview

L&T�s Engineering & Construction ProjectsDivision [E&C(P)] possesses integratedstrengths in process design, basic and detailedengineering, modular fabrication, procurement,project management, construction andcommissioning. It undertakes single pointresponsibility for execution of projects inHydrocarbon Up-stream, Hydrocarbon mid anddown-stream, Power and Mineral sectors inIndia and abroad.

The Division�s operations in India and abroadare ably supported by Engineering Centres atMumbai, Vadodara and Faridabad, a wellequipped Modular Fabrication facility at Haziraand a marketing / execution support office atAbu Dhabi. During the year under review, theDivision made progress on initiatives aimed atexpanding its offerings and enhancing itsexecution capabilities in Hydrocarbon Upstreamsector and Power sector, detailed later.

Business Environment

Market Overview

With oil prices continuing at attractive levels,the investment climate in HydrocarbonUpstream sector remained encouraging. Thedomestic as well as the international marketpresented significant opportunities in offshoreplatforms, replacement and modification ofpipelines and platforms.In mid and down-stream sector, the continuedemphasis on implementation of Euro norms(Euro III & IV) / British Standard (BS II) projectsby the Government of India offered EPCopportunities. However, budgetary constraintsresulted in delays in awarding the projects orthe customer adopting the conventional mode.The Division is focusing on international

opportunities in the Middle East, where therewere investments in new capacity creation,clean fuel projects and downstreampetrochemicals.

The Power sector witnessed efforts tostrengthen the policy framework required toachieve the huge targets of new powergeneration capacities. During the year, theGovernment provided further impetus to thePower sector by approving some major PowerEquipment manufacturers and encouraging theallotment of captive coal blocks for privatesector power producers. The Government alsomade a major headway on the Ultra MegaPower Projects (UMPP), by fast trackfinalization of one out of nine projects.

Competition

The year under review saw the emergence ofa few strong EPC players in the domestichydrocarbon sector. Some major internationalplayers are seen focusing again on Indianmarkets with stringent delivery and costcompetitiveness as their strengths. In thepower sector, bids favored Original EquipmentManufacturers (OEM) due to definite costadvantages enjoyed. For UMPP bids, besidesjoining with the OEM�s, the past developmentexperience and the gas / coal pricing arecritical from competitiveness perspective.In the international market, the competitioncomes from MNC companies with nicheofferings.

L&T-built process platform complex at Bombay High produces over 10 million barrels of oil peryear. L&T has dedicated project teams backed by extensive fabrication facilities and comprehen-sive marine and offshore installation capabilities to offer the full range of solutions for oil and gasproduction and processing.

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While making progress on the previous yearinitiatives, which were focussed on buildingthe capability and capacities, the year underreview saw initiatives taken aimed at achievingoperational excellence.

Enhance Design and Engineering Capacity

During the year, efforts were made to doubleengineering capacities, enabling to reachapproximately 700,000 billable hours. TheFaridabad engineering centre, inaugurated lastyear, has grown as planned, to 200 engineersfrom various disciplines. This has helpeddeepen our engineering capabilities in mid anddown-stream.

Enhance execution capabilities / costcompetitiveness

The Modular Fabrication yard at Sohar, Oman,set-up with joint venture partner, the ZubairCorporation of Oman, became operationaltowards the end of the year. The yard is beingequipped with crit ical machinery andmanagement / execution team for a worldclass fabrication yard. The Division expectsto build high end products like Jack- up rigs,Floaters and Large Topsides for FPSO�s atthis facility.

The joint venture agreement with SapuraCrestPetroleum Berhad, Malaysia for building aHeavy Lift cum Pipelay vessel was signed inApril 2007. With major procurement andconstruction agreement with the shipyard

being finalised, the vessel is expected to beoperational by mid 2009. The state of the artvessel wil l give the Division offshoreinstallation capabil ity and significantcompetitive strength.

The Transfer of Technology Agreement andJoint Venture Agreement with Mitsubishi HeavyIndustries Limited, for manufacture ofsupercritical boilers including pulverisers arein place. The location for the manufacturingfacility is under evaluation. This initiative willenhance the competitiveness of EPC businessin the power sector, where significantopportunities are coming up.

The Division is in negotiation with possiblejoint venture partners for manufacture of supercritical steam turbines which will be a

An isomerization project executed on an engineering-procurement-construction-commissioning basis by L&T for a major refinery project nearMangalore, South India. L&T has strategic alliances with world leaders for the latest technology that enables it to execute major refinery packageson Lumpsum Turnkey basis.

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significant step to bolster the EPC capabilitiesin the power sector.

Strengthen International presenceBusiness Development Managers have beenplaced in each of the GCC countries andMalaysia, the target markets for the Division.With support from Head Office, the effort willgive fillip to the pre-qualification efforts. Toachieve the ambitious growth plans in Middle

East, an Engineering and Project ManagementCentre is being set up in Sharjah. Tosuccessfully pursue major opportunities in thetarget countries, joint ventures with localpartners have been / are being set-up.

Achieve Operational Excellence

The Division undertook, with the help ofexternal expert assistance, an initiative to

identify the areas for quantum improvementin Engineering Management, Procurement andProject Management. Required actions suchas re-organization of various functions,staffing, global sourcing are underimplementation. Standard OperatingProcedures for various aspects of ProjectExecution / Management have beenimplemented.

A single-stream 553,000 metric tonne per annum Purified Terephthalic Acid (PTA) plant at Panipat. L&T won the silver award of the Royal Societyfor Prevention of Accidents, UK, for zero time lost to accidents in the implementation and commissioning of this world-scale project.

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Business Outlook

Hydrocarbon

The high Oil & Gas capital expenditure by oilrich countries offers good business prospectsfor EPC players. On domestic turf, the newdiscoveries and the aging of some of theexisting platforms offer business opportunities.Significant spending is expected in the down-stream hydrocarbon sector both for setting upnew refineries as well as upgradation of oldrefineries. Gas being the cheaper and cleanerfuel alternative, demand for gas is expectedto more than double in next 5 years. Largeinvestments are expected in gas processingfacilities, such as LNG liquefaction, re-gasification and separation projects. ThePetrochemical sector is also attractingconsiderable investment.

HR Initiatives

Skill building through capability and leadershipdevelopment programs, optimum utilisation ofexisting resources, certification of projectmanagement executives as Qualified ProjectManagement Professionals by InternationalProject Management Association, UK aresome of the initiatives taken.

388.5 MW natural-gas-based combined cycle power plant at Vemagiri in Andhra Pradesh, SouthIndia. L&T�s EPC capabilities extend across all types of power projects.

PowerThe sharp increase in the demand for power,has engaged the Government�s attention tobuild significant new generation capacities.Capacity addition is planned through the ultramega projects based on supercrit icaltechnology. Power sector will focus onopportunities in coal based, gas based andNuclear power projects. The 11th plan (2007-2012) has targeted a capacity addition ofaround 70,000 MW. The next two of thebalance seven UMPPs are expected to bebid shortly. Further boost is expected with thefinalization of the policy for setting up largeMerchant Power Plants. The Indo-US Nuclearpact expected to be cleared by the USCongress towards the end of this calendaryear, would open up major opportunities forsetting up Nuclear Power Plants in India. Thebusiness outlook for the Division therefore isencouraging.

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M. V. KotwalWhole-time Director &

Senior Executive Vice President(Heavy Engineering)

HEAVY ENGINEERINGDIVISION

OverviewHeavy Engineering Division has made a namein the global market for its quality products. TheDivision manufactures and supplies custom-designed and engineered critical equipmentsand systems to core sector industries likeFertilizer, Refinery, Petrochemical, Chemical, Oil& Gas, Thermal & Nuclear Power, Aerospace,and equipment & systems for Defenceapplications. The Division is the preferredsupplier of equipment for a select range ofproducts, globally. The Division has also enteredinto ship-building business for construction ofspecial commercial vessels and warships forthe navy as well as the coast guard.The Division�s manufacturing facilities arelocated at Mumbai in Maharashtra, Hazira &Baroda in Gujarat and Visakhapatnam inAndhra Pradesh. The manufacturing locationsare supported by dedicated engineeringcenters. A Strategic Electronics Center forDefence electronic systems design &engineering operates from Bangalore.The Division has set up two �TechnologyDevelopment Centers� for development of newproducts and manufacturing technologies. TheDivision has implemented a structuredcontinuous improvement program forimprovements in quality, delivery performanceand manufacturing technology.Business EnvironmentThe global market for process plant equipmentbusiness continues to provide opportunities forexports. Greenfield refineries, petrochemicaland fertilizer complexes in Middle East; coalgasification equipment in China and the USOff-Road Diesel program will drive demand forprocess plant equipment. However, �Gas toLiquid� projects have been delayed againstearlier expectations of large opportunitiescoming up in the near term.Refinery upgradation programs and fertilizerplant modernization programs will provide

One of the world�s largest FCC regenerators, fabricated by L&T at its works complex at Hazira onIndia�s western seaboard. Internal diameter: 16.3 metres. Weight: 1320 MT.

opportunities in the domestic process plantmarket. With the formation of �SpecialEconomic Zones� in the country, opportunitieshave opened up for supply of process plantequipment to the SEZs which are treated onpar with Exports. The reduction in customsduties announced prior to the Union Budgethas adversely impacted the costcompetitiveness of Indian Capital Goodsmanufacturers.

The opening up of Defence sector continuesto make steady but slow progress towardsinvolving Private sector in Defence Production.Process for grant of �Raksha Udyog Ratna�(RUR) status to select technology players hasbeen initiated. Defence ProcurementProcedure (DPP) �06 has introduced a �Make�category for indigenous development andseries production of Defence systems. This

opens up business opportunities for Indianmanufacturers. Public private partnershipmodel also provides opportunities for buildingcritical products and systems for the Defencesector.

International Shipbuilding market is currentlybooming. Government of India has appointeda committee of experts to review current policiesregarding ship building. The Division sees goodopportunities for this business as well.


The Division is one of the top players in theglobal process plant equipment market. TheDivision has launched a number of keyinitiatives for maintaining its leadership in theglobal process plant equipment market as wellas for gaining an early mover advantage in theDefence equipment sector.

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Multi-barrel rocket-launching system for India's defence services -- designed and developed byL&T -- largely through in-house R&D. Other land-based weapon systems built by L&T includemulti-mode universal missile launchers.

Capacity Augmentation

The Division is bullish on the potential of globalprocess plant equipment market. To capitalizeon the booming market opportunities, theDivision is implementing a major expansion ofits Hazira Plant. A new shipyard at Hazira forconstruction of commercial vessels wascommissioned during the year under review.This yard is being expanded further with theinstallation of ship lift system for newconstruction, repairs and refit of ships includingdefence and paramilitary vessels.Manufacturing plant at Ranoli has beenexpanded during the year to add capacity forfabrication in metals as well as compositeproducts.

The Division has started construction work fora Precision Manufacturing Facility atCoimbatore in Tamilnadu which will cater tothe needs of Aerospace, Aviation, NuclearPower and sub-systems for Missiles. A modernWeapon Systems & Sensors ProductionComplex is also under construction at Talegaonoff Mumbai � Pune expressway. The Divisionhas entrusted the responsibility of developingreliable new sources of materials to a dedicatedGlobal Sourcing Cell. Development ofdedicated sub-contractors to supplement in-house capacity is another focused area for theDivision.

Capability Building

The two �Technology Development Centers� �one for Process Plant Equipment Sector andsecond for other Strategic Sectors � have beenworking on new product development,modification of existing products andcontinuous development / adaptation ofmanufacturing technology. The Division hastied-up with NCL, SAMEER (Society for AppliedMicrowave Electronics Engineering &Research) and ISRO for specific technologies/ programs. The Division is in the process ofsetting up a �Warship & Submarine Designcenter� to strengthen its capabilities in the Navalvessels construction business.

The Division requires skilled technicalmanpower for the high end technology spacein which it operates. To meet this challenge,the Division has sponsored M.Tech programin association with IITs and other leadingEngineering institutes. The Division has alsotaken several measures to enhance employeeengagement, focus on training & competencybuilding, performance management system andcareer planning for its employees.

Thrust on Exports

The Division relies on an Export led growthstrategy. Export order booking during 2006-2007 saw a healthy increase. The Division�stwin strategy of focusing on equipmentproviding high throughput per constrainedresource and of developing close relationshipswith major EPC contractors / ProcessLicensors has been highly successful ingrowing the export business.

Productivity Improvement Initiatives

The Division launched Project �SARAL�(Simplification And Rationalisation Across L&T-HED) for implementing a �Product LifecycleManagement� (PLM) solution across alllocations and businesses of the Division. ThePLM implementation project is expected to helpin knowledge management, reduce cycle timeand simplify processes across departments.The Division is focusing on improvingmanufacturing operations through automation,TPM, Six Sigma and improvement of businessprocesses through I.T. enabled re-engineering.

The Division has put in place a structuredmethodology for protection of its IntellectualProperty Rights. During 2006-2007, the Divisionfiled six IPR applications.

OutlookThere are increasing business opportunities forProcess Plant Equipment Exports in themedium term. Major prospects from largegreenfield refineries and Fertilizer plants in theMiddle East are envisaged. Anticipation of highprices will continue to fuel interest in the CoalGasification projects. The Middle East, China& South America will be the major markets forthe Division�s Exports.In the domestic market, the Division seesopportunities in Refinery upgradation projectsand in modernization of Fertilizer plants in theshort to medium term.The Government of India has planned toincrease the installed capacity of Nuclear powerto 40,000 MW in the next fourteen years. Thereare good business prospects in the medium tolong term from this sector if India is acceptedas member country of Nuclear Suppliers Group.In the Defence Sector, the Government policyon offset programs throws up opportunities inthe medium to long term. The �Defence OffsetsFacilitation Agency� (DOFA) is in place and willhelp in providing business prospects as wellas capability building up opportunities to Indianmanufacturers. Overall, the Division sees goodmarket opportunities in all the segments inwhich it operates.

56

R. N. MukhijaWhole-time Director & President

(Electrical & Electronics)

ELECTRICAL ANDELECTRONICS DIVISION

Overview

The Electrical & Electronics Division (EBG)comprises six Strategic Business Units(SBUs). These are Electrical StandardProducts (ESP), Electrical Systems &Equipment (ESE), Metering & ProtectionSystems (MPS), Control & Automation (C&A),Medical Equipment & Systems (MED) andPetroleum Dispensing Pumps & Systems(PDP). EBG has played a leading role in mostof its businesses in the domestic market andhas improved performance in the internationalmarket.

The Division has manufacturing facilities atPowai (Mumbai), Navi Mumbai, Ahmednagar,Faridabad and Mysore with sales & marketingspread over India & other identified regions.The Division is developing a new facility inCoimbatore for its ESE and PDP businesses.Activities of Datar Switchgear Limited, Nashik,have been fully integrated at Ahmednagarcampus after the completion of acquisitionprocess.

All these existing and upcoming facilities arecovered under ISO 9001, ISO 14001 andOHSAS 18001 certifications. At its 100% ownedsubsidiary in Wuxi (China), high-end air circuitbreakers were assembled & deliveries madein the last quarter. The Joint Venture formanufacturing switchboards and Motor ControlCentres in Saudi Arabia has made significantprogress.


Growth in the electricals industry is fuelled bycapacity expansions and continuousdevelopment in infrastructure. The current thrustof Government of India on rural electrificationand the directive for 100% metering of electricityhave offered opportunities to the industry. Inurban infrastructure areas, current growth incommercial and residential complexes, malls,IT parks, hospitals, stadiums etc has increaseddemand. The consistent growth in the electricalindustry for the past few years as well as thepromise it holds for the future has attractedmultinational companies to expand theiroperations in India.

Outside India, the major focus is on China andthe Middle-East countries. The growth inelectricity demand, fuelled by China�s economicgrowth, has boosted the demand for theproducts offered by the industry. Gulf countriesare making large investments in thedevelopment of infrastructure, power,desalination plants, refineries and other areas.


In order to address the emerging opportunities,several strategic initiatives have beenundertaken aimed at increasing capacities,developing world-class products & services andprocess orientation.

L&T offers a comprehensive range of low-tension switchgear, with an array of versions andaccessories to meet the needs of virtually every application. Most products are certified by ASTA(U.K.) / KEMA (the Netherlands) and carry CE / CSA / UL marks.

57

Development of new products andtechnologies

ESP introduced a new range of miniature circuitbreakers & earth leakage protection devices,high HP submersible pump controllers foragriculture market, Switch-Disconnectors andSwitch-Disconnector-Fuse units for OEM andutility markets, pan assemblies with mouldedcase circuit breakers, economic range of draw-out circuit breakers. Petroleum DispensingPumps and Systems business launched Sprint10V2, Sprint 20V2, Sprint 100 and Sprint 200models.

Intellectual Property Rights

In 2006-2007, EBG has filed application for 80patents, 19 design registration and 7trademarks.

Quality initiatives

In 2006-2007, 61 Six Sigma projects werecompleted and 10 �TQM for Excellence�programs were conducted with 337 participantsto involve the employees in a structured wayof solving problems.

Thrust on exports

ESP, ESE and C&A businesses haveconsolidated their market positions in the Gulf,South East Asia, Africa, China and othercountries while medical equipments wereshipped to the US and Europe. PDP businessexported petroleum-dispensing pumps toWestern Europe and Gulf countries.

LASER programme was continued forachieving operational excellence across theDivision, covering initiatives related to businesslevel supply chain management, procurementoptimisation, sales & marketing effectivenessand service management and manufacturing

excellence.

L&T's custom-engineered switchboards,equipped with both conventional and'intelligent' protection, control and communica-tion systems meet the power control anddistribution needs of industry.

L&T's domestic meters blend accuracy with aesthetics.

Global sourcing

The Division sources the most cost-effectivematerials without compromising on the qualityof inputs. Other initiatives have enabled thebusinesses to absorb the effect of rising inputcost to the maximum possible.

EVA Awareness

The EVA focus has helped the Division toenhance value creation. Awareness aboutmaximising value proposition has helped insignificant reduction in working capital andmargins have improved.

Outlook

The focus on power sector with planning ofseveral UMPPs ensures continuous growth ofelectrical industry, both up-stream and down-stream, at least for the next few years. TheNational Highway development programs willthrow up the need and demand for petrol fillingstations with increase in vehicular traffic.Capacity additions are being witnessed in manycore industries like steel, cement,petrochemicals, refineries etc, which will fueldemand for electrical and automation systems.

On international front, Gulf will continue towitness large-scale infrastructure developmentthat promises big opportunities for the Electricaland Control & Automation businesses. In China,the sheer size of electrical market, recentaddition of more than 100,000 MW powergeneration capacities and continuousinvestment in infrastructure developmentpromises a big market for electrical products.Electrical Systems is focussing on developinga niche place for its switchboards overseas.

58

J. P. NayakWhole-time Director & President

(Machinery & Industrial Products)

MACHINERY & INDUSTRIALPRODUCTS DIVISION

Overview

Machinery and Industrial Products Division(MIPD) is organized into three main businesssectors:

� Construction Equipment Business

� Industrial Products and

� Industrial Machinery.

Construction Equipment Business Sector(CEBS) markets and renders support forConstruction & Mining Equipment business.The Sector comprises marketing business units(BUs) and manufacturing joint venturecompanies (JVs)

� Construction & Mining Business Unit (CMB)which markets Equipment manufactured byL&T-Komatsu Limited, India and the entirerange of Equipment available from KomatsuWorldwide.

� L&T-Komatsu Limited (LTK) � the 50:50 JVwith Komatsu that manufactures HydraulicExcavators and Hydraulic Components, allof which are distributed in India by CMB;

� L&T-Case Equipment Private Limited(LTCEPL), a 50:50 JV with CNH Globaln.v., which manufactures and marketsBackhoe Loaders and VibratoryCompactors;

� Tractor Engineers Limited (TENGL), thewholly-owned subsidiary, whichmanufactures and markets UndercarriageSystems for excavators and MaterialHandling Systems like apron conveyors etcand

� Product Development Centre, Coimbatorewhich renders manufacturing engineeringand product development assistance to theCEB Sector.

Industrial Products Sector markets andrenders support service for Industrial Productsbusiness which comprises marketing businessunits and manufacturing Joint VentureCompanies:

� Valves Business Unit

� Welding Products Business

� Industrial Products Business

� Audco India Limited, a 50:50 JV withFlowserve Corporation, USA

� EWAC Alloys Limited, 50:50 JV with MEC,Germany

� Larsen & Toubro LLC, a wholly ownedsubsidiary distributing industrial valves inNorth America

� Larsen & Toubro (Jiangsu) Valve CompanyLimited, a subsidiary of L&T, based in China.

Valves Business Unit markets productsmanufactured by Audco India Limited &Larsen & Toubro (Jiangsu) Valve CompanyLimited. Welding Products Businessmarkets products manufactured by EWACAlloys Limited, inverter based weldingequipment from FRONIUS, Austria, and ArcSpray / HVOF / Plasma Systems andconsumables from TAFA-PRAXAIR, U.S.A.Welding Products Business provides TotalSolutions in the field of repair & maintenanceof critical components. Industrial Products

Komatsu Models PC1250-7 Hydraulic Excavator and HD465-5 Dump Trucks operating in a coalmining project in India. L&T markets a wide range of construction and mining equipmentmanufactured by L&T-Komatsu Limited and Komatsu Limited.

59

and Cutting Tools (INP) business marketsIndustrial cutting tools manufactured byISCAR Limited, Israel. The products areused on CNC machines used for metalcutting of components used in automotiveand engineering industry.

Industrial Machinery Sector comprisesmanufacturing and marketing business units atKansbahal & Chennai for:

� Crushing & surface mining equipments,paper processing machineries (KansbahalWorks)

� Mechanical & Hydraulic tyre curing presses(LTM business unit)

The sector also has manufacturing of relatedmachineries through joint venture companies;namely,

� Voith Paper Technology (India) Limited, a50:50 JV with Voith Paper Holding GmbH& Co. KG, Heidenheim

� L&T Demag Plastics Machinery Limited, a50:50 JV with Demag Ergotech GmbH

� Larsen & Toubro (Qingdao) RubberMachinery Company Limited, a subsidiaryof L&T based in China

LTM Business Unit manufactures and marketsRubber Processing Machinery including TyreCuring Presses and Tyre Building Machinesfrom its plant located in Chennai & L&T(Qingdao) Rubber Machinery Company Limitedin China. The business unit is an approvedsupplier of machinery to all the domestic andglobal Tyre Majors. The unit also markets plasticprocessing machines manufactured by L&T

Demag Plastics Machinery Limited.

The businesses are carried out by therespective Strategic Business Units (SBUs) allover India and in international markets, andare co-ordinated by the Divisional office atBangalore. The Division enjoys good marketshare for most of its product lines in thedomestic market.


The Construction Equipment Industry in Indiagrew at around 35% during the year. BusinessUnits (BUs) in Construction EquipmentBusiness Sector grew at a much higher ratethan the industry improving the overall marketshare.

The increased investments in Oil, Gas &Refining globally, offer growth opportunities forValves Business. There is increasedcompetition by Chinese manufacturers who arenow able to obtain approvals from select oilmajors. However, with applications moving tohigh pressure and larger size valves, coupledwith requirement of more exotic metals andthe group�s capability to offer projectmanagement support, it would be better placedvis-à-vis the competition.

A positive growth trend in Automotive,Cement, Steel, Hydel Power and Railwaysaugers well for the Welding ProductsBusiness. There is also an increase indemand from customers for Total Solutions& Ready to Use Wear Parts.

Large investments are foreseen in Cement,Coal & Iron Ore Mining, Wind Energy, andPaper & Pulp industries as well as RoadProjects. International Companies like Metso(Finland), Sandvik (Sweden) and Terex Pegson(UK), however, pose a great challenge in thefield of Mobile Crushing Plants, where ourProduct is just under field trial presently.

Investments by the Tyre Industry in India arelikely to be good and this will provide improvedprospects for LTM BU. The competition fromChinese and East European manufacturers andlowering of import duties and strengthening ofthe rupee against dollar has put pressure on

L&T-CASE Loader Backhoe model 770 engaged in an iron ore mining project. This is the newestaddition to the company's range of construction equipment.

One of the biggest machines manufactured by L&T-Demag Plastics Machinery Limited for supplyto Turkey. The company is equipped with advanced facilities for design, manufacturing andtesting of plastic injection moulding machines.

60

prices of Tyre Machinery in both the domesticand the international markets.


Construction Equipment Business Sector

The Sector received Komatsu�s Distributorshipfor Mining Equipment in India during the year.Large orders were received for MiningEquipment � large Excavators, Dozers,Loaders and Dump Trucks - marking a newbeginning in distribution of Komatsu MiningEquipment. The mining BU signed an

agreement for Distributorship of Scania Multi-axle Trucks for deployment in India�sConstruction and Mining sectors. This will pavethe way for significant business in the followingyears.

The BU introduced indigenously manufacturedModel PC 130 Excavators in the 13T Class.The new indigenously developed BackhoeLoader Model L&T-Case 770 has proved a bighit with customers helping the manufacturingJV (L&T Case Equipment) to register recordproduction and sales improving its marketshare. Introduction of Assembly � line conceptswith equal Pitch times at each stage at L&T

Komatsu and L&T Case has resulted inimproved daily production, sales and dispatchof machines.

Tractor Engineers Limited (TENGL) hascommissioned new manufacturing facilities atTalegaon in Maharashtra with the bestpractices of Lean Manufacturing Methods,which should help to double volumes in 2007-2008. TENGL participated at INTERMATExhibition in France in April 2006 andconsequently made a successful beginning inexport market with supplies to Germany, UK,Turkey and Australia.

Part of the wide range of industrial valves marketed by L&T. These products find application in the projects and plants of global majors in oil & gas,petrochemical, chemical and power domains.

61

A product development Centre has beenestablished at Coimbatore for serving theoverall needs of the Sector as well as otherUnits of Division. This will focus on bothProduct and Manufacturing Engineeringdevelopment activities.

Industrial Products Sector

Valves Business Unit has taken initiatives inoperational efficiency improvement and talentmanagement. Significant progress has beenmade to set up a manufacturing facility in Chinathrough Joint Venture Company � Larsen &Toubro Jiangsu Valve Co Ltd, Yancheng, China,which will complement and supplement theproducts offered by Audco India Limited. Thecommercial production will commence in thesecond quarter of 2007. Initiatives are alsounderway to enhance our product offerings tothe global markets in the form of TrunnionMounted Ball Valves and Triple offset ButterflyValves.

The Welding Products Business has inductedthe Thyristorised MIG machines in their productportfolio along with other synergic products forgrowth. New products have been introduced inthe cutting tools segment with focus onsolutions for the automotive sector.

Industrial machinery Sector

Kansbahal Works exported three SurfaceMiners in this year; 2 to Togo in West Africaand 1 to Qatar which are all performing well.An aesthetically & ergonomically improvedversion of Surface Miner will roll out during thecurrent year, which will further enhance theproduct image and acceptability, particularly inglobal markets. The first prototype of truckmounted-heavy duty Mobile Crusher has beenput under field testing. 1.6 MW Wind TurbineCastings were fully developed for one of thecustomers, Vestas.

LTM Business plans to promote large OTRsize Curing presses in addition to Truck sizeMechanical Presses. It plans to capture asignificant share of Global Hydraulic Pressmarket by focusing on cost reduction efforts.As a strategy to combat Chinese competition,a manufacturing facility in China, Larsen &

A range of advanced, application-engineered Eutectic welding alloys, patented processes andsystems widely used for reclamation of critical machine components.

Toubro (Qingdao) Rubber Machinery CompanyLimited has been set up, which has alreadycommenced commercial production during theyear.

Outlook

Increases in manufacturing capacities for steel& cement will trigger increased privatizedmining. The government�s thrust on agricultureand rural roads will also fuel the demand forconstruction and mining equipments.

Capacities are in place for manufacture andmarketing of more than 6000 machines overall.Manufacturing capacities are being enhancedsubstantially at LTK and LTCEPL and newproducts are also planned. Steps are underwayto expand the Service Station at Durgapur andfor setting up a new Service Station near Delhi.With the new facility at Talegaon in operation,TENGL is poised to double its sales. TENGLis also participating at BAUMA Exhibition ofConstruction Equipment at Munich, Germany

to further increase its export thrust.

Investments in refineries, Gas to Liquid (GTL)projects in Middle East and clean fuel projectsand refineries capacity would create goodbusiness prospects for Valves Business Unit.

New investments by Tyre majors in India andabroad offer growth opportunities for LTMBusiness unit. With the manufacturing JV inChina in operation, a good growth in businessis expected. Increased capacities by Steeland Paper sectors are expected to providegood business opportunities for KansbahalWorks.

MIPD with its diversified manufacturing activitiescontinues to give thrust on OperationalExcellence in all units. Given the positiveoutlook of the economy and leveraging thebenefits of major initiatives such as Chinasourcing & manufacturing, resourceoptimisation and IT enabled services, thedivision is poised for a sustained growth.

62

V. K. MagapuWhole-time Direcror &

Senior Executive Vice President(IT & Technology Services)

IT & TECHNOLOGY SERVICESDIVISION

OverviewTechnology Services comprising e-Engineeringsolutions (e-ES) and embedded systems(EmSyS) are an integral part of the design orexecution stage of any turnkey project orequipment / product manufacture. Consideringthe growing need for projects engineering andincreased manufacturing activity at competitivecost in the country and abroad, the Division hasexpanded IT enabled services and systems atMumbai, Baroda, Faridabad & Mysore,

With a vibrant team of 1000+ engineers spreadacross 3 dedicated off-shore engineering centersat Vadodara, Chennai and Bangalore, e-ESprovides a wide range of core engineeringsolutions to help customers achieve theirobjectives of innovation, cost reduction andfaster time-to-market. Using cutting-edgetechnology of CAD / CAM / CAE / PDM, e-ESprovides end-to-end engineering servicesincluding Product Engineering and Design,Engineering Analysis, Design Automation,Production Engineering, Engineering ProcessSupport, Asset Information Management andPlant Engineering etc. to various industryverticals e.g. Automotive, Aerospace, Off-Highway Equipment, Industrial Products, Marineand Ship Design, Plant Engineering etc.

EmSyS caters to Electronics Product Design &Development encompassing Hardware,Firmware & Application Software and enclosuredesign. EmSyS has nearly 650 engineers in itscentres in Mysore, Bangalore & Mumbai. Itaddresses Automotive, Medical, IndustrialProducts and Semiconductor verticals.


Engineering Service outsourcing hastremendous market potential, as projected bymany user forums and managementconsultants, for next few years. Market is facing

tough competition from engineering servicefirms to grab the biggest pie of this outsourcingbusiness. As in every year, e-Engineering hasseen a good growth in this year too, with additionof 300 engineers and 15 new major clients onboard. e-Engineering�s unique value-add,flexible onsite / offshore model, speed, qualityand effective execution help it achieve its nicheposition in the market to service global clients.

India is poised for a very big leap in this�Outsourced Product Development� market.Market projections are that it would be aboutUSD 60 billion in 2020. EmSyS backed up withgreat experience in its own �productdevelopment� combined with its experience in�electronic product manufacturing� is in a verygood position to take a big share of this pie.


e-ES has moved up the value chain and is tryingto engage with the clients at the higher level ofengineering services which eventually resultsinto high volume, high margin business. With itssuccessful track record and domain skills, e-EShas moved to client-partner relationship fromclient-supplier relationship with most of its clientse.g. Paccar, Oshkosh, Delphi, CNH, AGCO,Shell, Chevron etc. Account farming has beenone of the focus areas during the year along withnew account generation. e-ES has startedparticipating in many overseas exhibitions whichhelped e-ES increase market visibility and createnew leads. e-ES has been on advisory panel ofNasscom for engineering service survey. Withrecent achievement of SEI-CMMI Level 3, e-ES

The head quarters of L&T Infotech at Powai, Mumbai is rapidly becoming a landmark in thevicinity.

63

is pursuing for Level 5. Engineer Traineerecruitment and training process has been oneof the salient aspects of generating and retainingtalent pool to meet future requirements.

EmSyS was the first business unit in the worldto achieve SEI CMMI® Level 5 using all the fourcomponents. With Six-Sigma initiatives,continuous improvement has become a part ofthe quality movement. It has a Global ProductDevelopment Centre for Danaher. EmSyScontributes to Design, Maintenance, Re-engineering, Testing, Prototyping, coordinationwith manufacturing units and even IndustrialDesigners, Tool Development Centres forvarious Fortune 500 as well as other importantcustomers around the Globe. It has generatedand passed on many �Patentable ideas� to itscustomers. EmSyS has been getting repeatorders from every customer that it has served.

OutlookMarket is expected to see a lot of new entrantsover and above the existing players. This willcall for a competitive advantage over others togrow and sustain. e-ES, being part of a largeengineering & manufacturing company, canbecome a one-stop-shop for all customerrequirements by synergizing with other businessdivisions. This will give us an edge over othercompetitors.

Large scale multi use of embedded systems andsoftware across the global markets augur wellfor EmSyS products. With an established andreputed client base and many potentialcustomers being actively pursued, the Divisionis poised for good growth.

The sprawling Infotech Centre in Bangalore.

IT Center at Mahape, Navi Mumbai was inaugurated during the year - bolstering L&T�s network ofdevelopment centres.

64

Annexure AThe details of major orders secured during the year ended March 31, 2007 are given below:Domestic April 2006 � March 2007

Rs. CroreConstruction of Airport Terminal - 3 including preliminaries at Delhi for Delhi International Airport Limited ECC 5565EPC contract for construction, installation and commissioning of Captive Power Plant (EPCC package 4) E&C(P) 1143for Naphtha Cracker project, at Panipat, Haryana for Indian Oil Corporation LimitedConstruction of port facilities, embarkment, bridges, jetty and township including railway electrification ECC 1110and water system works at Dhamra Port, Orissa for The Dhamra Port Company LimitedEPC contract for construction, installation and commissioning of Naphtha cracker and associated E&C(P) 913unit for Naphtha Cracker project, at Panipat , Haryana for Indian Oil Corporation LimitedDesign, manufacturing and commissioning of blast furnace 3, inclusive of civil and structural ECC 767works on a turnkey basis at Visakhapatnam for Rashtriya Ispat Nigam LimitedConstruction of Vadodara Bharuch road in Gujarat for L&T Vadodara Bharuch Tollway Limited ECC 750Jaipur Bisalpur water transmission project in Rajasthan for Rajasthan Urban Infrastructure ECC 482Development ProjectsConstruction of Palanpur Saroopganj road in Gujarat for L&T Interstate Road Corridor Limited ECC 460

OverseasEngineering, procurement, installation and commissioning (EPIC package 14) for 2 new offshoreplatform top-sides, a flare platform and interconnecting bridge for block 5 development in Qatarfor Maersk Oil Qatar AS E&C(P) 1131(248 USD Mio)Residual basic engineering, detailed engineering, project management and procurement of theequipment and materials for 700 tonnes per day (TDP) methanol and 100 TPD carbon monoxideplant at AL-Jubail, Kingdom of Saudi Arabia for Saudi Formaldehyde Chemical Company E&C(P) 550(122.3 USD Mio)Building of 4 Nos of RO-RO / LO-LO semi submersible Heavy Lift Container Carrier Vessels forZadeko Ship Management CV, Netherlands HED 440(100 USD Mio)Supply and installation of 6 Nos of 33/11 kv package substations, Abudhabi for Abudhabi Water &Electricity Authority ECC 406(94.4 USD Mio)

List of some of the major orders executed during the year 2006-2007 Operating DivisionDomesticPTA Unit for Indian Oil Corporation LimitedE&C (P)9 well platform project for ONGC E&C (P)DHDT & Hydrogen Block for Panipat Refinery for Indian Oil Corporation Limited E&C (P)Isomerisation Unit at Mangal for MRPL E&C (P)Jaipur-Kishengarh road job for GVK Jaipur Kishengarh Expressway Private Limited ECCDSatara-Kolhapur Road, Package-IV for Maharashtra State Road Development Corporation ECCDSinter Plant No. 3 for Tata Steel Limited ECCDMicrosoft Project Hyderabad - Main for Microsoft India (R&D) Private Limited ECCDNPCIL-C5 - Kudankulam for Nuclear Power Corporation of India Limited ECCDSidhpur Sanganer Pipeline (SSPL) for Indian Oil Corporation Limited ECCDMMRDA Mass Housing for Mumbai Metropolitan Rural Development Authority ECCDP 1703A Platform for DRDL HEDSafety Vessel for Bhavini HEDAmmonia Converter Shell for IFFCO PHULPUR-II HEDOverseasGas gathering plant at Bu Hasa, Abu Dhabi, for Gasco E&C (P)Sulphur Recovery Unit for Abu Dhabi Oil Refining Company E&C (P)400KV TL - FUJAIRAH for Union Water & Electricity Company ECCDSONGO-SONGO GAS PIPE LINE PROJECT - TANZANIA for Songas Limited ECCD400KV TL BHUTAN for Tala Hydro Electric Project Authority ECCDGasifier Internals & Pressure Vessel for Shenhua HEDGasifier Internals & Pressure Vessel for Yunan Tianan HEDGasifier Internals & Pressure Vessel for Zhong Yuan HEDEO Reactor R 101 A/B for PETROCHINA LIAOYANG HED

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Financial analysis and review 2006-2007L&T Independent Financial Performance reviewL&T Independent Financial Performance reviewL&T Independent Financial Performance reviewL&T Independent Financial Performance reviewL&T Independent Financial Performance reviewEncouraging financials

The Company has yet again produced an impressive financialperformance in all its parameters, namely, revenue growth,

operating margins and resource utilization. It is hearteningto note that all the business segments have withstood thecompetition from established international players and

succeeded in generating an improved performance. Almostall the businesses have achieved a comfortable Return onCapital Employed (ROCE) and have reported positive

Economic Value Added (EVA). This was achieved both byimproving profitability as well as containing capital employed

in the business. This is reflected in the Company’s ROCE,which increased significantly from 18.7% to 20.4%. The

Return on Net Worth (RONW) smartly increased from 25.7%to 27.2%. Economic Value Added at the Company level atRs. 570 crore, is higher by 56% over the previous year.

Order Inflow & Sales

The Company secured fresh orders worth Rs. 30602 croreduring the year, registering a growth of 37% over the previous

year. Orders secured in infrastructure and hydro carbonsectors have grown in size & complexity, some of themexceeding Rs. 1,000 crore. The mega scale of projects called

for detailed planning, engineering and execution skills.Despite stiff competition from some of the international andnational players, the quality of orders bagged during the

year is promising. The growth in orders has been sustainedboth in product and equipment businesses, being in therange of 31% to 34%.

Sales and service income for the year at Rs.17,901 crore,increased by 20% as compared to the previous year atRs. 14,966 crore. New orders have generated healthy

margins, largely due to judicious selection of project orders,adherence to a risk management process, improved productpositioning and maintenance of high standards of quality

and delivery commitments.

Y. M. DeosthaleeWhole-time Director &Chief Financial Officer

10

15

20

25

30

2006-20072005-20062004-20052003-2004

ROCE % & RONW % TrendExcluding extra ordinary and one time gains

Per

cen

tag

e

ROCE %

20.7 21.0 21.9

26.9

13.5 14.216.1

20.2

RONW %

0

100

200

300

400

500

600

2006-20072005-20062004-20052003-2004

Economic Value AddedExcluding extra ordinary and one time gains

Rs.

cro

re

4379

217

553

0

50

100

150

200

250

300

350

Customer SalesOrder Inflow

Order Inflow & Sales Trend

Rs.

in B

illio

n

2003-2004 2004-2005

131149

224

306

98

150179

133

2005-2006 2006-2007

66

Order Book as at the year end stands at Rs. 36,882 crore, arecord increase of 48% over the previous year end.

Other Income

Continuing its initiatives on divestment of non-core portfolio,the Company, during the year sold its investment in TullowIndia Limited, a company in oil exploration, at a profit of Rs.

23 crore. Recurring Other Income increased by 40% to Rs.404 crore, contributed by higher dividend income andexchange gains.

Cost of Sales

Manufacturing, Construction and Operating Expenses duringthe year 2006-2007 at Rs. 13,078 crore reduced to 74% ofNet Sales vis a vis 78% in 2005-2006. This improvement

has been achieved through efficient project executioncapabilities, better product range offerings & improvedlogistics management, despite increase in input cost of

metals and other commodities like steel & cement. This hascontributed to a smart increase in operating margins. TheCompany is pursuing many operational excellence programs

with the help of renowned consultants so as to optimize thecosts and achieve higher operational efficiency.

Staff cost at Rs. 1,258 crore has increased during the yearby 41%, which translates into an increase of 1% on Net

Sales compared to the previous year. The Company added4,043 employees during the year to ramp up project andmanufacturing capacities, both at existing and new locations.

Also in order to align the compensation package with that ofthe best in industry, the Company carried out revisions inthe pay of managerial and skilled manpower. The combined

effect of these factors accounted for the increase in overallstaff cost, which also included an element of provision foremployee benefits in consonance with the requirements of

the Accounting Standard 15 [Revised] - Employee Benefits.With booming industrial and service sectors, the Companyexpects intense competition for talent acquisition in technical

and managerial skills and therefore considers prudent toinvest in quality human resources.

Sales, Administration and Other Expenses at Rs. 1,499

crore has been contained at 8.5% of the Net Sales. Witha view to expanding international business, the overseastravel has increased leading to increase in travel

expenses. The increase in professional fees is mainlydue to consultancy fees paid for Operational Excellenceinitiatives for optimizing manufacturing and project costs.

Increases in Advertising expenses include corporate brandcampaign expenses incurred to propel the Company’sbrand image as a Technology & Engineering Company.

Insurance costs have grown in line with increase in thevolume of marine-cum-erection policies obtained forexecution of construction and turnkey projects. Other

administrative expenses like, rent, rates & taxes, packaging& forwarding, power & general maintenance expenses haveincreased in proportion to the level of activities and

deployment of resources.

0

100

200

300

400

2006-20072005-20062004-20052003-2004

Order Book at end of year

Rs.

in B

illio

n

167 177

249

369

70

75

80

85

90

2006-20072005-20062004-20052003-2004

Mfg., Construction & Operating Expenses as % of Sales

Per

cen

tag

e

Mfg., Construction & Operating Expenses

78.4 78.5

74.4

80.3

3

6

9

12

2006-20072005-20062004-20052003-2004

Staff and Sales, Administration & Other Expenses as % of Sales

Per

cen

tag

e

Staff Expenses

9.9

8.3 8.4 8.5

7.1

5.9 6.1

7.2

Sales, Administration and Other Expenses

67

Interest Cost

The gross interest cost at Rs. 93 crore is lower by 29% over

the previous year, largely due to redemption of higher interestbearing debentures, judicious management of borrowingsand lower exchange loss on foreign currency denominated

loans. Significant efforts made by business segments toarrest the growing working capital requirements have alsoaided the efficient funds management by the Treasury. The

interest income increased to Rs. 59 crore largely contributedby income on long term bonds held for capital gainsexemption. The net Interest cost has therefore significantly

dropped to Rs. 34 crore, representing 2% of the averagedebt during the year.

Robust Profitability

Buoyed by the general upturn in the economy, all thebusiness segments have posted healthy growth in profitabilityover the previous year. Excluding an exceptional gain of

Rs. 23 crore on sale of investment, the Company’s OperatingProfit [PBDIT] at Rs. 2,186 crore grew by 55% on a like tolike basis over the previous year. On similar basis, the Profit

before Tax [PBT] excluding exceptional gains at Rs. 1,982crore showed a robust increase of 62% as compared to theprevious year.

Income Tax provision grew by 68% over the previous yearat Rs. 612 crore in keeping with the increase in profits. The

effective tax rate, however, works out to 30.5% of the bookprofits, marginally lower when compared to that in theprevious year.

Profit after Tax excluding exceptional gains registered ahealthy growth of 60% at Rs. 1,385 crore as compared tothe previous year figure of Rs. 863 crore. Basic Earnings

Per Share [EPS] post issue of bonus shares increased by

32% to Rs. 50.22 per share, on a larger number of qualifyingshares including shares issued pursuant to the conversion

of Foreign Currency Convertible Bonds and allotment ofshares under the Company’s ESOP scheme.

Segment wise Performance

Engineering & Construction Segment

The financial highlights of this segment are:

Rs.crore

2006-2007 2005-20062005-20062005-20062005-20062005-2006

Order Inflow 25,249 18,480

Order Book (End) 35333 23,858

Gross Revenues * 13,425 11,570

EBITDA % on Gross revenues 11.3% 8.0%

Funds Employed as % of

Gross Revenues 21.5% 25.5%

* The above figures include Inter Segment revenues

The Segment bagged large project & construction orders inthe sectors of Airports, Power Plants, Deep water Port,Refineries & Petrochemicals, Steel, Roads, Process Plants,

Water, Realty & other infrastructure sectors within India. Inthe international arena, the Segment bagged orders fromdiverse sectors such as Hydrocarbon, Ship building, Power

& Commercial Structures. Export Orders constituted 18% ofthe total Order Inflow. The share of Orders in excess of Rs.100 crore each increased from 9% in 2005-2006 to 16% in

2006-2007, signifying the increased scale of operations.

Revenues grew by 16%, largely out of the opening OrderBook as on April 01, 2006. The Segment experienced some

delays on the part of customers in providing the requisiteclearances for some of the mega projects execution, thereby

5

7

9

11

13

2006-20072005-20062004-20052003-2004

Operating Margin %Excluding extra ordinary and one time gains

Per

cen

tag

e

PBDIT/Net Sales

9.3

8.3

12.4

9.7

20

30

40

50

60

2006-20072005-20062004-20052003-2004

Earnings per Share of Rs. 2Post Issue of Bonus Shares (1:1)

Per

cen

tag

e

EPS Rupees

21.41

38.81 38.03

50.22

68

partially impacting the milestone invoicing. The revenuegrowth momentum is expected to accelerate in the coming

year aided by a robust Order Book position as at March 31,2007.

Segment Operating margin surged ahead by a clear 3%

point to 11.3%, vindicating the high quality of orders executedduring the year. Adherence to the project timelines,operational & procurement efficiencies and above all,

judicious selection of orders right at the pre-bid stage hascontributed to improved performance of the Segment.

Segment Net Funds Employed as at the year end at Rs.

2887 crore is lower by 2% when compared to the year endposition of previous year. The reduction in spite of highersales has been achieved through higher level of customer

advances and astute management of suppliers’ credit.

Electrical & Electronics Segment

The Segment financial highlights are:

Rs.crore

2006-2007 2005-20062005-20062005-20062005-20062005-2006


EBITDA % on GrossRevenues 15.9% 15.4%



* Gross Revenues include Inter Segment revenues

The Segment led by Electrical Standard Products yet again

surpassed the Industry average growth and delivered arobust revenue growth of 33% over the previous year. BarringPetrol dispensing pumps and systems, the rest of the product

lines have registered a smart growth in revenue rangingfrom 26% to 46% over the previous year.

The Segment operating margins improved further by almost

one percent, inspite of the significant increase of 1.3% incommodity prices. The surge in demand for industrialproducts has helped in improvement of product realizations.

The businesses have ensured sustained quality offeringsthereby commanding a premium in the market. With improvedplant utilization and global sourcing initiatives the operating

costs have been reigned in effectively.

The Segment had to face severe competition from the multi-national companies offering liberal credit period. This has

adversely impacted the working capital requirements of theSegment. Measures are proposed to contain the

manufacturing working capital through operational excellenceprograms like Lean manufacturing.

Machinery & Industrial Products Segment

With significant growth in diversified product business, duringthe year, this new Segment has been carved out from the

Company’s total business portfolio. The Segment financialhighlights are presented as under:

Rs.crore

2006-2007 2005-20062005-20062005-20062005-20062005-2006



Funds Employed as % ofGross Revenues 16.9% 14.3%

* Gross Revenues include Inter Segment revenues

The Segment led by Construction and mining equipmentbusiness registered a healthy growth in revenues and

margins. Sales grew by 25% over the previous year drivenby the last quarter growth of 44%. Improved profitabilitydemonstrated the ability to command higher realizations from

both domestic and international markets.

Other businesses

The Segment constitutes Ready Mix Concrete business and

Technology Services (engineering design & embeddedsystems). The financial highlights of the Segmentare:

Rs.crore

2006-2007 2005-20062005-20062005-20062005-20062005-2006

Gross Revenues * 941 672




*Gross Revenues include Inter Segment revenues

In tandem with the growth in construction industry, ReadyMix Cement [RMC] business reported 56% increase inrevenues at Rs. 765 crore over the previous year. Higher

level of outsourcing helped in the growth of TechnologyServices by 82% over the previous year. Segment marginswere marginally lower at 9.2% due to unprecedented

increase in cement cost witnessed by RMC business. Yearend Funds employed were lower at 21% of the grossrevenues.

69

Funds Employed

One of the significant highlights of financial performance for

the year has been gradual reduction in net working capitalemployed in business segments. The average net workingcapital reduced from Rs. 2,905 crore at the beginning of the

year to Rs. 2,270 crore by the end of 2006-2007, a significantdrop of 22%. This enabled businesses to ramp up theircapacities significantly during the year.

Year end Customer Outstanding at Rs. 5,505 crore,represented 112 days of sales as compared to 117 days ofsales in 2005-2006. The temporary increases in inventory

levels of materials, work in progress and other advanceswere well covered by higher customer advances and vendorcredits.

The Company incurred Rs. 800 crore towards capitalexpenditure mainly for ramping up capacities at existingand new locations. Hazira Campus is being developed as a

major hub for fabrication of complex piece of equipmentand ship building. Coimbatore Campus is fast developinginto another manufacturing hub, which will cater to the

increased needs of Electrical, heavy engineering & Valvesmanufacturing businesses.

The surplus funds generated out of businesses have helped

the Company to invest further mainly in fast developingInfrastructure & Financial services Subsidiaries, totaling toRs. 806 crore.

Financial condition and Liquidity

The Company’s cash flow position as at the year end hassignificantly improved over the previous year end position.

Increased liquidity has strengthened the Company’s abilityto launch new growth initiatives for the existing and emerging

businesses, viz. ship building, power, infrastructure andfinancial services.

Rs.croreLiquidity & Capital Resources 2006-2007 2005-20062005-20062005-20062005-20062005-2006Cash & cash equivalents at

beginning of the period 583.20 828.02

Add: Net Cash provided/

(used) by:

Operating activities 2,130.46 1,369.25

Investing activities (1,588.18) (1,326.30)

Financing activities (31.05) (287.77)

Cash & cash equivalents atend of the period 1,094.43 583.20

Fresh foreign currency borrowings were raised from Banksat extremely competitive rate to the extent of Rs. 460 crorein the form of Buyers’ credit and Export Packing Credit and

additional Rs. 585 crore as other short term loans. Theadditional funds raised were used in repayment of costlierloans and debentures besides utilizing for capital expenditure

to enhance the operating capabilities of the business segments.

The gross debt equity ratio remains low at 0.36:1 whichdemonstrates the Company’s ability to further leverage itsstrong financial position to fund its growth ambitions. The

Company continues to enjoy the highest credit rating of“AAA” for its long term debt instruments.

L&T Consolidated Group Financial Performance Review

L&T Group has delivered an equally robust performancefor the year 2006-2007, on the back of a healthy growth inrevenues and profitability of its key Subsidiaries and

Associate companies. Notable amongst them are L&TInfotech and L&T Finance, both 100% Subsidiaries, whohave registered over 65% growth in revenues and over 100%

growth in profit after tax.

The consolidated financial statements have been drawn asper Accounting Standards 21 and 23 issued by the Institute

of Chartered Accountants of India. A total of 61 Subsidiarycompanies, 23 Associate companies and 12 Joint Ventureshave been consolidated in arriving at the Group performance.

These companies operate broadly in the following sectors:

• Information technology, financial products & services

• Engineering & project management

• Infrastructure development projects & services

• Manufacturing of industrial equipment, machinery andproducts

10

30

50

70

90

2006-20072005-20062004-20052003-2004

Year end Working Capital Ratios

Per

cen

tag

e o

f G

ross

Sal

es

Gross Working Capital%

69.366.4 63.7 66.4

22.3 24.417.5 14.2

Net Working Capital%

70

The Group Total Income including exceptional gains wassignificantly higher at Rs. 21,342 crore reflecting a growth

of 25% over the previous year. The smart growth is largelydue to significant increase in revenues of DomesticSubsidiaries by 51% & International Subsidiaries by 112%

over the previous year. Apart from the growth in traditionalIT and finance sectors, sustained growth has come fromconstruction sector in the Gulf, on the back of buoyancy in

the oil economy.

The Group reported Profit After Tax [PAT] at Rs. 2,240

crore for 2006-2007, registering handsome growth of 70%over the previous year’s PAT of Rs. 1317 crore. The GroupPAT includes Rs. 430 crore [previous year Rs. 266 crore]

exceptional gains arising out of dilution / divestment of stakein some of its Subsidiaries and infusion of capital by thirdparties at a premium. Excluding the above exceptional gains,

the growth in PAT is 72%. The share of profits contributedby Subsidiary companies at Rs. 455 crore, constituted 20%of the Group profits. The share of profits of Associate

companies has also increased significantly by 32% atRs. 95 crore, largely contributed by the manufacturing JVcompanies.

The Group Earnings per Share post issue of bonus sharesat Rs. 80.19 underscores the high potential of the Group’sbusiness portfolio towards value creation. The consolidated

gross Debt to Equity as on March 31, 2007 has increasedto 0.94:1, largely due to increase in commercial financeportfolio borrowings to capitalize on the booming financial

sector. With values yet to be unlocked out of the Group’sbusiness portfolio in the infrastructure and core sectors, theGroup’s present financial strength awaits further leveraging

in medium to long term.

Risk Management

The Company’s Engineering & Construction segment, themajor constituent of its business portfolio, represents anentire array of project-centric businesses, focused primarily

on execution of large-value projects. The Companyrecognizes the need to actively manage the inherentoperational risks of this business segment which, when

effectively done, carries the potential of producing significantrewards. A risk management framework has been introducedand institutionalized in the Company towards this end.

This framework of risk management has also brought withinits ambit the product-centric and manufacturing-led

businesses of the Company which, however, run relativelymuch lower risks both in terms of magnitude and severity.

There has been an attempt to progressively increase theshare of product & manufacturing-led businesses in theCompany’s overall business portfolio to bring about a

perceptible change in the Company’s risk profile for thebetter. The following table shows the revenue-mix over theyears:

2006-2007 2005-2006 2004-2005

Project Business 65% 69 % 74%

Product/Mfg.

led business 35% 31 % 26%

Risks & Concerns

Typically, the Company’s business, operating results, cashflows and financial well-being are subject to various risks

and uncertainties including, without limitation, those set forthbelow. Any one of these risks has the potential of causingthe actual operating results in future to vary materially from

current results or from anticipated future results.

1. Macro Environment

The Company is susceptible to the changes in economic,monetary and fiscal policies of the Government. Being

a predominant player in the capital goods sector, derivingsubstantial revenues from the public sector, theCompany can be adversely affected by the delay or

paucity of Government / Public sector investmentdecisions in core sector projects, commodity priceinflation, volatile currency fluctuation, hardening interest

rates, etc.

The Company also faces risk arising out of its operation

in multiple countries in as much as these countries areprone to unfavourable changes in their governmentpolicies and regulations towards foreign enterprises,

embargoes / trade restrictions, tax increases, adverseexchange rate fluctuations, changes in labour laws, localcontent stipulations, etc.

The Company follows a process of actively trackingsuch changes in the economic environment and taking

pro-active steps to overcome their downsides throughtimely remedial measures.

2. Severe Competition in the market-place

The Company operates in a market in which several

established global players aggressively compete in their

71

respective business domains. This competitive pressurecan adversely affect the Company’s revenue & margins.

New competitors entering the markets in which theCompany operates, and the current competitors decidingto focus more on these markets lead to over-crowding,

intensifying the highly competitive condition that alreadyexists.

The Company continues its efforts to access superior

technology, forge alliance with reputed global playerswhile bidding for large projects, follow proactive costmanagement practices and create newer market

opportunities in order to guard its competitive edge.

3. Attracting & retaining right talent

The company’s success depends largely on its continued

ability to hire, assimilate and retain qualified personnel.Due to the booming job market both in the country &abroad, especially in the Middle East, the challenge of

retaining quality talent has been enormous. Loss of anykey employee, failure of any key employee to performhis or her best in the current position or the Company’s

inability to attract and retain skilled employees,particularly in the Technical and Management cadrescould be detrimental to the Company’s business.

A number of measures have been taken by theCompany through its progressive HR practices andLeadership programs, as also by accessing talent pool

overseas by establishing operations in the Middle Eastand offering avenues for fast track growth to highperformers. Introduction of a new and improved

compensation structure, ESOPs and restructuring of theManagement cadres are some of the initiatives taken toattract and retain quality talent.

4. Risks of fixed-price contracts

A large number of contracts executed by the Companyare in the nature of fixed-price contracts. These contracts

may not provide complete protection against commodityprice increases and other inflationary effects of costincrease. Unless accurate estimation of costs is made

and adequate monitoring of actual cost performance iscarried out, it may result in cost overruns and marginerosion. This may also lead to delayed delivery, quality

disputes and failure to meet contractual obligationsresulting in loss of credibility before the client.

The Company has significantly strengthened its

engineering capabilities and built strong project

management teams to achieve better accuracy in projectestimation and cost management. Past learning from

projects is used extensively to ensure that similarmistakes are not repeated.

5. Ability of key suppliers to meet quality and deliveryrequirements

High dependence of the Company on certain keysuppliers of raw materials, equipment and components

makes it vulnerable to the failures of such suppliers tomaintain their price & delivery commitments. Suchfailures can lead to an increase in the cost of projects,

products and services and also impact its ability to meetdelivery commitments to customers.

The Company generally attempts to forge pre-bid tie-

ups with important suppliers of equipment and rawmaterials to obtain committed cost and delivery. A closesupervision by the Company’s engineers at the suppliers’

works aims to ensure quality and delivery commitments.

6. Financial risks

(a) Liquidity and interest rate risks

The Company’s confidence of raising long term debtin global markets has strengthened after its verysuccessful international debt syndication during the

year. Given the high liquidity in these markets,coupled with a large appetite for lending toestablished Indian entities, the Company is well

poised to fund expansion of manufacturing facilitiesand business investments. The highest possibleP1+ domestic credit rating held by the Company

helps it address short term liquidity concerns. Avariety of funding alternatives spanning differentcurrencies, maturity profiles and investor classes

help the Company mitigate interest rate risk.

(b) Foreign exchange fluctuation

With a growing thrust on exports and global

sourcing, the Company is subject to significantforeign exchange fluctuations. Business investmentsin Middle East and China, and increasing

international borrowings also result in currencyexposures. Apart from a natural hedge resultingfrom the above, the Company’s Treasury desk

works with the business units before and after theexposures are crystallized, and manages risks

72

through operations in global currency markets inaccordance with policies approved by the Board of

Directors.

(c) Commodity Price Volatility

The Company is exposed to variations in prices of

steel, oil, cement, copper, nickel, zinc, aluminum,etc, in its project and product businesses. Risingmaterial costs affect profitabil ity and

competitiveness, particularly since long termcontracts may not have price escalation clauses.The Company manages the commodity price risk

through various initiatives, viz. bulk procurement,freezing critical commodity/ component prices priorto bidding for projects, hedging etc.

Risk Management Framework

The Company has adopted a Risk Management frameworkwhich comprises the risk organization structure, procedures

and the risk management policies formulated both at theenterprise and at the Operating Division (OD) level. Theframework seeks to facilitate building a common understanding

of the exposure to the various risks and uncertainties at anearly stage, for timely response and their effective mitigation.This framework is operational across the divisions of the

Company and is used with advantage to meet the growingcomplexities of business in the country and overseas.

The Company has laid a clear focus on Project Risk

management with a view to strengthening its projectperformance and avoiding surprises in project deliverables.A mechanism of risk assessment of all large-value projects,

followed by a high-level review, prior to bidding issystematically followed.

A system has also been put in place to take stock of the

risks at the post-award stage and track and monitor themitigation initiatives during the course of execution of theprojects. Project review committees have been constituted

to review the risks of ongoing projects at regular intervals.This process is facilitated by the Risk Offices set up at theCorporate and Divisional levels.

The task of identifying, quantifying & mitigating businessrisks has been integrated with the various operating divisionsof the company. Guided by the Risk Management framework,

each operating division of the company has formulated itsown risk management policy, structure and procedures tocater to the unique nature of its business.

To achieve the desired degree of sophistication in riskmanagement techniques, the Company makes use of various

risk software and statistical tools to be able to better analyzeand assess the risk elements and arrive at the optimumcontingencies required in long-delivery high-value projects.

Internal Control System

An effective internal control system supported by anEnterprise Resource Planning platform for all business

processes ensures that all transaction controls are continuallyreviewed and mitigated, and risks of inaccurate financialreporting and fraud, if any, are dealt with immediately and

adequately addressed.

The Company has a well established system of internalcontrol in all its operational areas complying with the relevantprovisions on ‘internal control’, under the Companies

(Auditor’s) Report Order, 2003 and as prescribed underrevised Clause 49 of the Listing Agreement with the StockExchange. The Company’s internal control system covers

following aspects of business processes & reporting:

• Financial propriety of business transactions

• Accurate financial reporting of transactions as perapplicable accounting standards and policies of the

Company

• Safeguarding assets of the Company

• Compliance with prevalent statutes, listing agreement

provisions, management authorizations, policies andprocedures

• Review of information technology systems and businessprocesses and recommending measures to rectify

observed areas of concerns and weaknesses therein,and suggesting ways of optimizing cost and resourcesand mitigating profit leakages.

The control mechanism involves well documented policies,authorization guidelines commensurate with the level of

responsibility and standard operating procedures specific tothe respective businesses. The above mechanism isreviewed through Corporate Audit Services Department as

an apex body, in addition to business level independentevaluations.

The significant observations made in internal audit reportson business processes, systems, procedures and internal

control and the status on implementation of recommendedremedial measures, are regularly presented to and reviewedby the Audit Committee of the Board.

73

The S&A companies have registered a strong growth in therevenues and profitability during the year 2006-07 with major

contribution from Larsen & Toubro Infotech Limited, L&TFinance Limited, HPL Cogeneration Limited, L&T InfocityLimited, AUDCO India Limited, L&T-Komatsu Limited and

L&T-Case Equipment Private Limited. The increase in profitsis also due to gains arising out of exits from certain SPVs inwhich L&T Infrastructure Development Projects Limited (L&T

IDPL) had minority holdings. The revenues of InternationalSubsidiary companies have grown over 45% and profitshave more than doubled primarily due to operations of Larsen

& Toubro International FZE.

REVIEW OF OPERATIONS OF KEY COMPANIES:

DOMESTIC COMPANIES

I. INFORMATION TECHNOLOGY & FINANCIALSERVICES

A. INFORMATION TECHNOLOGY SERVICES

a) LARSEN & TOUBRO INFOTECH LIMITED (L&TInfotech): Wholly Owned Subsidiary Company

L&T Infotech, formed in December 1996 by hiving offthe software division of L&T, is engaged in providingsoftware consultancy and solutions worldwide. It is

headquartered in Mumbai, India and is CMMI Level 5,PCMM Level 5, ISO 9001:2000, BS7799 assessed /certified. It has offices in India, USA, Canada, Denmark,

France, Germany, Gulf region, Japan, South Korea andUK. L&T Infotech has 3 overseas subsidiaries in Larsen& Toubro Infotech Gmbh, Germany, Larsen & Toubro

Information Technology Canada Limited, Canada andGDA Technologies Inc., USA.

The service offerings of L&T Infotech are in the areas

of Application Maintenance and Development, EnterpriseResource Planning and specialised services like DataWarehousing and Business Intelligence, High-end KPO

/ BPO, Testing Services and Infrastructure ManagementServices. In an increasingly competitive world, businessleaders are focusing more and more on the optimum

value to be derived from their investments in informationtechnology. Due to sharpened business focus, IT serviceproviders need to offer solutions that unlock value from

a plethora of systems co-existing in an enterprise. L&TInfotech, the wholly owned subsidiary of L&T, offersend-to-end software solutions and services geared to

match such needs.

Subsidiaries & Associates Portfolio

Larsen & Toubro Group’s business portfolio has been

steadily growing in tandem with the high growth aspirationsof the parent company. In order to leverage on its corecompetency honed over the years, the Company has been

stepping up its investments in related businesses throughSubsidiary & Associate (hereinafter referred to as S&A)companies. Many new ventures have been promoted during

the year while consolidating the existing business portfolio.

The main businesses covered by the S&A companies are(i) Information Technology Services (ii) Financial Services

(iii) Engineering Services (iv) Construction Services (v)Industrial and Electrical Products Manufacturing (vi) Power(vii) Infrastructure Development Projects including urban

infrastructure and IT Parks and (viii) Engineering andConstruction in hydrocarbons and infrastructure space inthe Middle East (ix) Electrical, Rubber Processing Machinery

and Industrial Valves Manufacturing in China. Larsen &Toubro Limited (L&T) sources products and services fromthese companies for some of its Engineering and

Construction projects. In addition, L&T does the sales andservicing of products manufactured by some of the associatecompanies.

The financial overview of S&A companies broadly groupedunder major categories is given below:

Rs. crore

Note: Revenues and profit after tax of Associates and Joint Ventures indicate L&T’sshare and excludes divestments during the year.

S&A Performance for the year ended March 31, 2007

Total Income Profit After Tax Investment

Particulars 2006-2007 2005-2006 2006-2007 2005-2006 31.3.2007

Subsidiaries (A)

Domestic OperationsDomestic OperationsDomestic OperationsDomestic OperationsDomestic Operations

Information Technology Services 1,446.15 953.03 163.10 86.00 68.00

Financial Services 282.62 153.03 65.09 36.34 488.98

Engineering Services 27.79 17.76 0.54 (4.14) 8.33

Manufacturing 103.96 76.88 13.26 5.46 0.30

Power 210.32 259.53 78.34 123.96 122.25

Infrastructure Companies 504.54 156.42 245.15 17.27 441.43

International OperationsInternational OperationsInternational OperationsInternational OperationsInternational Operations 1,134.20 779.27 132.01 63.83 182.97

Total (A) 3,709.58 2,395.92 697.49 328.72 1,312.26

Associates & Joint Ventures (B)

Domestic OperationsDomestic OperationsDomestic OperationsDomestic OperationsDomestic Operations

Engineering Services 62.68 39.95 11.84 5.66 16.32

Manufacturing Industrial 1,034.00 737.52 75.56 50.79 75.10

Infrastructure Companies 43.65 57.99 8.72 13.19 —

International OperationsInternational OperationsInternational OperationsInternational OperationsInternational Operations 17.65 23.37 (1.69) 2.32 —

Total (B) 1,157.98 858.83 94.43 71.96 91.42

Total (A+B) 4,867.56 3,254.75 791.92 400.68 1,403.68

74

Performance: The new centres at Bangalore, Chennaiand Mumbai have enabled L&T Infotech to consolidate

its presence at these locations and benefit from theeconomies of scale. The expansion of the campus atMahape, Mumbai is at an advanced stage of completion

and will provide additional seats. L&T Infotech has thusadequate infrastructure to meet the requirements of theprojected growth.

The year 2006-2007 continued to witness strong growthin offshore IT services space with India securing aleadership position as a preferred destination for offshore

IT and BPO industries. During the year, L&T Infotechachieved revenues of Rs. 1,280.63 crore (previous year:Rs. 798.08 crore) registering an increase of 60%. (On

consolidated basis, the turnover is Rs. 1,446.15 crore in2006-2007 (previous year: Rs. 953.03 crore). Leveragingthe heritage and domain expertise of L&T, L&T Infotech’s

services encompass a broad technology spectrum, withinternational business accounting for more than 97% ofits business. USA continues to be the leading destination

contributing 73% to the total software exports, Europe14% and balance by Asia-Pacific and rest of the world.57% of L&T Infotech exports come out of onsite services

and the balance through offshore development centers.The profit after tax, for the year, was Rs. 151.13 crore(previous year: Rs. 70.18). PAT Margins improved from

8.8% in the previous year to 11.8%.

L&T Infotech continues to focus on the chosen verticalsviz Banking, Financial Services and Insurance, Energy

and Petrochemicals, Product Engineering Services(comprising Communications and Embedded Software)and Manufacturing.

During the year, L&T Infotech acquired GDA

Technologies Inc., USA (GDA) for USD 27 million. GDAis an electronic design services firm based in Californiawith design centers in USA and India. It offers end-to-

end design solutions in semiconductor productdevelopment from IP licensing, logic design and physicalimplementation for advanced process technologies. GDA

became wholly owned subsidiary of the Company w.e.f.March 15, 2007. This acquisition of GDA Technologieswill help the Company deliver a broad set of chip design

and product realization services to global customers,thereby complementing the L&T Infotech’s capabilitiesin the IT services space.

Outlook:

L&T Infotech has been consistently delivering on itscommitment of superior quality and process executionand has nurtured long-standing client relationships. This

is reflected in over 90% of the revenues coming fromexisting clients coupled with continuous increase in itscustomer base. With strong support from L&T,

L&T Infotech has built the ability to ramp up rapidly asper the client’s requirements. It thus has uniquecombination of agility with stability. It is also in a position

to leverage domain and functional skills from the parentcompany in the areas of manufacturing, oil and gas,power, etc.

The growth momentum of the IT industry is expected tocontinue and Software exports of the country are

expected to reach US$ 35 billion by FY 2010. ApplicationDevelopment and Maintenance is expected to continuebeing the largest service line accounting for an estimated

Energy & Petrochemicals17%

Manufacturing32%

Product EngineeringServices

17%

Others1%

Banking, FinancialServices

10%

Insurance23%

L&T Infotech - Vertical-wise Revenues

0

300

600

900

1200

1500

Turnover

2006-072005-062004-052003-040

2000

4000

6000

8000

Manpower

378

579

798

1280

7220

6371

3728

2491

L&T Infotech - Turnover & Manpower

Turn

over

Man

pow

er

NumberRs. crore

75

US$ 14 billion in 2010. There is a significant room forgrowth for global offshore IT industry as only 10% of

the US$ 300 billion addressable market has beencurrently penetrated. Intense competition, on the otherhand, could lead to pricing pressures as also higher

costs resulting from wage inflation. L&T Infotech is tryingto address talent retention through employee-orientedHR policies and focus on training to provide employees

with challenging career tracks.

L&T Infotech is increasing its billing in non-dollarcurrencies and hedging its exposures to US dollars to

mitigate the impact of exchange rate fluctuations. Onsiteservicing of engagements is becoming restrictiveespecially in USA. However, with the proven offshore

outsourcing model and expectation of long term costleveraging, US Companies continue large scaleoutsourcing, despite local pressure to retain jobs. L&T

Infotech strives to be a globally benchmarked solutionprovider with a firm belief that quality is a cost-saver.L&T Infotech is expected to continue its growth trajectory

and improve its margins.

b) LARSEN & TOUBRO INFOTECH, GmbH (L&TInfotech GmbH): Subsidiary Company

During the year, L&T Infotech GmbH recorded revenuesof Rs. 25.51 crore (previous year: Rs. 24.81 crore). Theprofit for the year was Rs. 0.39 crore (previous year:

Rs. 0.19 crore). During the year, the Company hastaken steps to increase its sales coverage. It has beenable to secure a few clients with strong potential and

the same is expected to reflect in improved performancein the coming years.

c) LARSEN & TOUBRO INFORMATION TECHNOLOGYCANADA LIMITED (L&T IT Canada): SubsidiaryCompany

L&T Infotech acquired control of L&T IT Canada in

October 2005. The total revenue for the year amountedto Rs.15.69 crore (previous year: Rs. 4.38 crore for theperiod October 14, 2005 to March 31, 2006). The profit

after tax was Rs. 0.37 crore (previous year: loss of Rs.0.25 crore). With the increased sales focus, theCompany has been able to open a few new relationships

and is concentrating on providing solutions to thesecustomers, which is expected to reflect in improvedrevenue growth in the coming years.

B. FINANCIAL SERVICES

a) L&T FINANCE LIMITED (LTF): Wholly ownedSubsidiary Company

LTF, a wholly owned subsidiary of L&T, is a Non BankingFinance Company (NBFC) registered with RBI. It offers

a gamut of financial products viz. Financial Lease,Operating Lease, Hire Purchase, Term Loans, BillsDiscounting etc. to cater to varied needs of customers.

The main avenues for growth in Corporate FinanceProducts are increasing demand from the parent companybusinesses, capital expenditure by Corporates and

increased requirement of working capital finance, ingeneral. Construction Equipment Finance is slated togrow at an accelerated pace of over 20% during the next

three years. Roads, ports, irrigation, mining and housingsectors will be the main drivers of this growth. LTF hasalso been able to create a niche in the Commercial

Vehicles market and has extended its tractor financeproducts to cover tractors and farm implements of allleading original equipment manufacturers. LTF’s thrust

in rural markets will throw open additional opportunities.

Performance: The last twelve months witnessed a smarteconomic growth in the country which is reflected in

strong credit offtake. LTF registered a major growth indisbursements across its key business segments suchas Corporate Finance, Construction Equipment Finance,

Tractor Finance and Commercial Vehicle Finance. In afree interest rate regime, asset-liability management(ALM) assumes key importance. LTF has an ALM

committee that monitors various aspects of ALM fromtime to time.

0

50

100

150

200

250

300

PAT Income

2006-072005-062004-05

110

24

149.1

35.1

275.4

62.6

LTF - Income & PATRs crore

76

This has been a year of significant growth in revenuesand profits. Revenues grew by 85% to Rs. 275.38 crore

(previous year: Rs.149.06 crore) and profit after taxhave increased by 78% to Rs. 62.61 crore. (previousyear: Rs. 35.14 crore). During the year, LTF issued 2.5

crore equity shares of Rs. 10/- each at a premium ofRs. 30/- per share to L&T, the Holding Company.

II. ENGINEERING, CONSTRUCTION & CONTRACTS

A. L&T-RAMBØLL CONSULTING ENGINEERS LIMITED(L&T-Rambøll): Associate Company

L&T and Rambøll A/s of Denmark hold equal stake inL&T-Rambøll, formed in September 1998. L&T-Rambøllprovides civil engineering and project consultancy

services for transportation infrastructure projects relatingto Ports & Harbour, Roads & Highways, Bridges &Flyovers, Airports and Environmental Engineering. L&T-

Rambøll has its headquarters in Chennai and has officesin New Delhi, Hyderabad and Mumbai.

Performance: During the year, the revenues recordedwere Rs. 16.44 crore (previous year: Rs. 15.13 crore)and profit after tax was Rs. 2.91 crore (previous year:

Rs. 0.99 crore). L&T-Rambøll achieved its highestturnover and profit since its inception mainly due tolarge detailed engineering assignments secured during

the year both from L&T and other clients. In the Portsector, L&T-Rambøll has a very strong market presenceand is servicing major clients on the East and West

Coast. Most of these assignments are in the BOTsector either as project procurement advisors to thegovernment / owners or as detailed engineering

consultants to EPC contractors. In the Airport sector,L&T-Rambøll has completed detailed engineeringdesign of both the ongoing green field airport projects

for airside and land side facilities of runways and roads.Further, L&T-Rambøll is involved as project advisorsfor various states for many regional airports and has

set up a dedicated international design center forundertaking design engineering work for Europeancontractors.

Outlook: During the 11th Five year plan, the Centreand the State governments are planning to upgrade the

country’s transportation infrastructure in terms of qualityof facility and higher volume of traffic required to behandled. Most of the major upcoming infrastructure

projects are in the PPP format and this is a segment inwhich the Company has very good market presence.The next few years are expected to be buoyant for the

businesses of the company in the domestic market.Further, L&T-Rambøll has plans for rolling out a majorexpansion of its international business spurred by very

good market prospects in this sector.

0

1000

2000

3000

Asset Size

2006-072005-062004-05

853.3

1345.7

2922

LTF - Asset SizeRs crore

Outlook: Going forward, LTF will continue to improvecustomer reach by offering various credit structures

and widening its network. Sound treasury managementwill help in maintaining a healthy spread between themarket yields and borrowing costs. The business is

expected to grow significantly and despite pressure onmargins, the profits are expected to show a healthygrowth.

b) L&T CAPITAL COMPANY LIMITED (LTCCL):Subsidiary Company

LTCCL, a SEBI registered Portfolio ManagementServices and AMFI registered Mutual Fund Distributor /

Advisor, is a subsidiary of LTF engaged in fee basedintermediation in corporate and projectadvisory services, money market operations and debt

syndication.

Performance: Performance of LTCCL, during the year,

was good. The revenues increased to Rs. 7.24 crore(previous year: Rs. 3.98 crore) and profit after tax ofRs. 2.48 crore (previous year: Rs. 1.21 crore).

Outlook: LTCCL has stabilised its operations under itsPortfolio Management Services and plans to focus on

asset management in the coming years.

77

B. VOITH PAPER TECHNOLOGY (INDIA) LIMITED(VOITH PAPER): Associate Company

L&T and Voith Paper, Germany hold equal stake inVOITH PAPER which provides comprehensive

technology solutions to the paper industry covering theentire production process from fiber to paper. VOITHPAPER enjoys the status of being the preferred supplier

to the paper industry for its technological leadershipand (i) its constant endeavors to bring in new technologyfor production of paper and board and (ii) pioneering

efforts in the field of recycled fiber.

Performance: During the year, VOITH PAPER hasshown excellent performance. The revenues were Rs.30.81 crore (previous year: Rs. 14.96 crore) registering

an increase of 106%. The profit after tax was Rs. 8.91crore (previous year: Rs. 3.20 crore), improved by 178%mainly on account of improved efficiency in project

execution and increase in commission income.

Outlook: The paper industry is experiencing an upswingwith a growth of 75%. With planned capacityenhancement and quality up-gradation by the paper

industry, the future looks promising for VOITH PAPER.

C. INTERNATIONAL SEAPORT DREDGING LIMITED(ISDL): Subsidiary Company

ISDL, promoted by Belgian dredging multi-national,Dredging International NV, was incorporated in March

2004. The business spectrum of ISDL includes dredging,marine engineering services, land reclamation involvingdesign, constructing, developing, modernizing, extending

and maintaining ports and harbours in India & the MiddleEast countries. ISDL has emerged as a reliable marineand dredging contractor in India and the Middle East

with a consistent track record of completing projects asper schedule. In May 2006, L&T acquired a stake of61% in International Seaport Dredging Limited which

was subsequently converted into a public company inNovember 2006.

Performance: During the year, ISDL has completedcontracts for maintenance dredging for Gujarat Adani

Port Limited and advanced extraction of material forfilling in port backup area for Gangavaram Port Limited.ISDL has also received hire income out of charters of

its dredging equipment to entities in and outside India.During the year, ISDL has recorded a revenue growth

of 71% at Rs. 68.86 crore (previous year: Rs. 40.28crore) and a profit after tax of Rs. 5.46 crore (previous

year: Rs. 4.40 crore). Additional investment of Rs 11.3crore by way of Preference Shares has been madeduring the year by L&T.

Outlook: The positive growth trend is expected to

continue with numerous port infrastructure projectscoming up in India.

D. L&T INFRASTRUCTURE DEVELOPMENT PROJECTSLIMITED (L&TIDPL): Subsidiary Company

ROADS &

BRIDGES

REALESTATE

AIRPORTS

PORTS

9 Projects 3 operational1480 lane km.

Rs. 43 Bn

3 Projects2 operational33 Mn TPA

Rs. 30 Bn

19 projects 8 operational22 Mn sq. ft.

Rs. 61 Bn

1 Project 23 Mn passengers

Rs. 19 Bn

Total 32 Projects13 operational

Total Project Outlay Rs. 153 Bn

Equity Invested Rs. 6.5 Bn

L&TIDPL, a subsidiary of L&T, promotes / invests in

Public Private Partnerships (PPPs) for variousinfrastructure projects. L&TIDPL is in the business ofidentifying & developing infrastructure projects, operation

& maintenance of these projects and providing relatedadvisory services. Projects developed and targeted bythe Company include highways and expressways,

bridges, seaports, airports, water supply projects,transmission lines and railways, IT and ITES parks,residential complexes etc. The company draws on L&T’s

traditional strengths, wide-ranging experience andexpertise to execute projects on turnkey basis. L&TIDPLhas also invested in a subsidiary, L&T Urban

Infrastructure Limited with a specific focus on urbaninfrastructure / property development.

The company has a dedicated in-house team withexpertise in various aspects of project implementationfrom planning to execution to operation and

maintenance. While some of the projects are operational,others are at different levels of completion and areexpected to generate revenues in future.

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Performance: In April 2006, the equity of L&TIDPL wasdiluted to the extent of 21.6% in favour of private equity

investors comprising JP Morgan Chase & Co and IDFCfor Rs. 550 crore. L&T continues to hold the balance78.4% stake in L&TIDPL. The combination of JP Morgan

Chase’s international experience and IDFC’s knowledgeof India’s infrastructure sector would reinforce L&TIDPL’sprocesses in selecting right investments in the sector

and help accelerate value creation.

During the year, L&TIDPL has reported a total income

of Rs. 198.42 crore (previous year: Rs. 6.63 crore) andprofit after tax of Rs. 161.20 crore (previous year: lossof Rs. 8.41 crore). The substantial increase in profit

during the year was due to gains arising out of exit fromGVK Jaipur Kishangarh Expressway Limited. During theyear, L&TIDPL also exited from Gujarat Toll Road

Investment Company Limited and VishakhapatnamIndustrial Water Supply Company Limited. The loss inthe previous year was mainly on account of interest

cost for the funds raised for investing into variousprojects that are yet to yield returns.

As of March 2007, L&TIDPL has a portfolio across thecountry consisting of 9 road projects, 3 port projectsand 1 airport project, while 19 real estate projects are

held through its subsidiary L&T Urban InfrastractureLimited (L&TUIL). The total project outlay for the presentportfolio is estimated to be around Rs. 153 Billion.

L&TIDPL’s current portfolio (L&TIDPL’s equity stake ason March 31, 2007 is given in brackets) includes:

Operational SPVs

• Narmada Infrastructure Construction EnterpriseLimited (100%)*

• L&T Transportation Infrastructure Limited (100%)*

• L&T Western India Tollbridge Limited (100%)*

• Kakinada Seaports Limited (39.2%)

• International Seaports (Haldia) Private Limited (22.3%)

• Tidel Park Limited (9%)

SPVs Under Implementation

• L&T Panipat Elevated Corridor Limited (100%)

• L&T Krishnagiri Thopur Toll Road Limited (100%)

• L&T Vadodara Bharuch Tollway Limited (100%)

• L&T Western Andhra Tollways Limited (100%)

• L&T Interstate Road Corridor Limited (100%)

• Second Vivekananda Bridge Tollway CompanyPrivate Limited (33.3%)

• The Dhamra Port Company Limited (50%)

• Bangalore International Airport Limited (17%)

• L&T Infrastructure Development Projects Lanka(Private) Limited (95%)

The above projects are at various stages of development /construction.

* Equity stake also includes L&T’s equity stake in these SPVs.

D.1 Transportation & Infrastructure ProjectsOperational SPVs

a. NARMADA INFRASTRUCTURE CONSTRUCTIONENTERPRISE LIMITED (NICE)

NICE constructed, on a Build-Operate-Transfer (BOT)

basis, a second two-lane bridge at Zadeshwar acrossthe Narmada River in Gujarat on National Highway(NH-8) as per the agreement entered into withGovernment of India & Government of Gujarat. The

project was completed in November 2000 and theconcession will last for a period of 15 years.

Performance: During the year, NICE recorded totalrevenues of Rs. 32.10 crore (previous year: Rs. 31.23

crore) and a profit after tax of Rs.10.78 crore (previousyear: Rs. 5.03 crore). The repayment of term loans asper repayment schedule is in progress, which will bring

down the interest cost. The increase in traffic coupledwith the annual tariff increase will increase theprofitability in the future years.

b. L&T TRANSPORTATION INFRASTRUCTURELIMITED (L&TTIL)

L&TTIL completed, on BOT basis, the construction of a

28 km bypass at Coimbatore Section of NationalHighway (NH-47) in December 1998 and two-lane bridgeat Athupalam on River Noyyal in Coimbatore in January

2000 as per agreement entered into with Governmentof India and Government of Tamil Nadu. The totalconcession period (including construction) is 32 years

for the bypass and 21 years for the bridge.

Performance: L&TTIL recorded revenues of Rs. 23.54

crore (previous year: Rs. 20.44 crore) and profit aftertax of Rs. 8.12 crore (previous year: Rs.8.64 crore).

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With the expected increase in traffic coupled with annualincrease in tariff rates, L&TTIL expects to grow profitably.

c. L&T WESTERN INDIA TOLLBRIDGE LIMITED (L&TWIT)

In February 2001, L&TWIT constructed on BOT basis,a two-lane bridge across River Watrak including itsapproaches near village Kheda in Ahmedabad–

Vadodara Section of NH-8 as per an agreement enteredinto with Government of India and Government ofGujarat. The concession period is for 10 years.

Performance: L&TWIT clocked revenues of Rs. 10.83crore (previous year: Rs. 9.58 crore) and profit after tax

of Rs. 2.41 crore (previous year: Rs. 0.86 crore).Insurance claim lodged towards damage on account offloods in July 2005 was settled at Rs. 0.52 crore. The

Company expects stable operations during the year2007-08.

d. KAKINADA SEAPORTS LIMITED (KSPL)

KSPL, a 39% associate of L&TIDPL formed in December

1998, is a joint venture with Konsortium Ports Pte Ltdand South India Infrastructure Development Company,Emgee Logistics Pvt Ltd, Salgaocar Mining Industries

Pvt Ltd and Everlink Asia Investments Ltd. KSPL isengaged in operation of the existing deep water port atKakinada on Operate, Manage, Share and Transfer

basis with provision for development of further facilitieson BOOT basis.

Performance: The Port is connected to the rail networkand is presently performing well with improved cargovolumes. The Port handled around 13.30 million tons of

cargo (previous year: 12.00 million tons of cargo) andreported a revenues of Rs. 88.17 crores during theyear (previous year: Rs. 79.37 crores) registering a

growth of 11%. Profit after tax was lower at Rs. 21.86crores (previous year: Rs. 27.72 crores) primarily dueto the increase in the operational costs, coupled with

the increment in the Minimum Guaranteed Amountpayable to the Government of Andhra Pradesh.

Outlook: Phase I and Phase II of the project with a totalproject cost of Rs. 340 crore is in an advanced stage ofconstruction and is expected to be completed in 2008.

Once the project is completed, with the boom in oil andgas exploration activities in the Krishna Godavari Basinand the additional licences given under NELP-VI, the

revenues and the profitability of KSPL are expected toimprove.

e. INTERNATIONAL SEAPORTS (HALDIA) PRIVATELIMITED (ISPHL)

ISPHL is a SPV formed in December 1999 forconstruction, operation, management and maintenanceof multipurpose berth at Haldia Dock Complex in which

L&TIDPL holds 22% equity stake. It has constructedBerth No. 4A at Haldia Dock Complex of Kolkata PortTrust for handling bulk cargo with license for a period of

30 years on Build-Own-Operate-Transfer basis and thecommercial operations have started in January 2004.

Performance: The facility has been performing at nearerto the maximum capacity levels handling 3.30 million

tons of coking coal. During the year, ISPHL recordedrevenue of Rs. 66.73 crores (previous year: Rs. 61.54crores) and a healthy profit after tax of Rs. 11.26 crores

(previous year: Rs. 7.95 crores).

Outlook: With stabilization in the handling systems,ISPHL is expected to continue to perform well.

SPVs under Implementation

f. L&T PANIPAT ELEVATED CORRIDOR LIMITED(L&TPECL)

L&TPECL was formed in July 2005 to construct a 3.4km six-lane elevated flyover on National Highway

(NH-1) in the city of Panipat, Haryana on BOT basis.L&TPECL will design, engineer, finance, construct,operate and maintain the above for a total concession

period of 20 years including construction period.

g. L&T KRISHNAGIRI THOPUR TOLL ROAD LIMITED(L&TKTTL)

L&TKTTL was incorporated in November 2005 to design,

construct, develop, finance and operate the road fromKrishnagiri to Thumppadi and improve, operate andmaintain the road from Thumppadi to Thopurghat on

NH-7 in the State of Tamil Nadu on BOT basis. Theconcession period is of 20 years including theconstruction period of 30 months.

h. L&T VADODARA BHARUCH TOLLWAY LIMITED(L&TVBTL)

L&TVBTL was incorporated in December, 2005 fordevelopment of the six-laning of NH-8 from Vadodara

to Bharuch in Gujarat on a BOT basis. The 83.3 kmstretch is a part of the Golden Quadrilateral and is an

80

important link in the high density corridor connectingMumbai and Delhi. The concession period is for 15

years including construction.

i. L&T WESTERN ANDHRA TOLLWAYS LIMITED(L&TWATL)

L&TWATL was incorporated in November 2005 to

execute the project for four-laning of the road fromJadcherla to Kothakota section of NH-7 in the State ofAndhra Pradesh on BOT basis. Coming under the North-

South Corridor programme of NHAI, this 56 km roadstretch forms an important link in the Hyderabad-Bangalore corridor. The concession period is for 20

years including construction.

j. L&T INTERSTATE ROAD CORRIDOR LIMITED(L&TIRCL)

L&TIRCL, formed in February 2006, is executing the

four-laning of the 76 km highway between Palanpur,Gujarat and Saroopganj, Rajasthan on theEast-West Corridor (NH-14) and is the main route for

east bound commercial traffic from Kandla to Mundraports. This is the first annuity project awarded to Larsen& Toubro Group in the road sector. NHAI will pay the

annuity as equated half yearly installments for a periodof 15 years.

k. SECOND VIVEKANANDA BRIDGE TOLLWAYCOMPANY PRIVATE LIMITED (SVBTC)

SVBTC is a Company formed during the year 2000-01,for constructing a bridge across River Hooghly nearKolkata on a BOT basis. The Project has a total length

of 6.1 Km. including Main Bridge (880 metres) and theapproach on the Howrah & Kolkata sides.

l. THE DHAMRA PORT COMPANY LIMITED (DPCL)

DPCL, formed for developing the existing minor port at

Dhamra into a deepwater all-weather port under Build-Own-Operate-Share-Transfer basis for a period of 34years (including 4 years of construction), is a 50:50

joint venture between L&TIDPL and Tata Steel. DPCLhas obtained all the clearances required for thecommencement of construction activity. The project with

a total layout of Rs. 2,463 Crore for phase I, has achievedfinancial closure with the signing of loan agreements inFebruary 2007 with a consortium of lenders led by the

Industrial Development Bank of India (IDBI).

Sheltered between the mainland and Kanika sandsIsland on the eastern coast, Dhamra Port will be a

deepwater all-weather port of its kind in India, with adraught of 18.5 metres, which could accommodate supercape-size vessels up to 1,80,000 DWT. This will be an

advantage to the mineral hinterland of north Orissa,Jharkand, West Bengal and Chhattisgarh which are inclose proximity to the port and where a large number of

steel plants and mineral based industries are located,besides many more which are on the anvil. The highlymechanized and advanced material handling facilities

planned at the port will offer the users loading anddischarge rates comparable to the world’s best. Theproject includes 62.5 km rail connectivity to the main

Howrah-Chennai line at Bhadrak.

The port will eventually have 13 berths to handle over83 million tons of cargo per annum. Of these, the first

two berths, with a handling capacity of up to 25 milliontons of bulk cargo per annum, will come up in the firstphase. When fully developed, the port will handle all

types of cargo, such as dry bulk, liquid and containercargo. Apart from Tata Steel who is a co-promoter ofthe port, a number of other steel plants, mines and

industries in the region will use the port, which willbecome eastern India’s major gateway to the world. Inview of L&T’s proven capability to execute projects of

this nature, it is expected that the project will becompleted as per schedule in 2010.

m. BANGALORE INTERNATIONAL AIRPORT LIMITED(BIAL)

BIAL is a joint venture Company set up to develop apassenger-friendly and operationally efficient

greenfield airport at Devanhalli, on a Build-Own-Operate-Transfer basis. This project consisting of constructionof a 4,000 m runway, a state-of-art terminal building

and other infrastructure is being executed by aconsortium led by Siemens and comprises L&T andUnique Zurich Airport besides the State promoters. The

initial development plan is expected to be completed byApril 2008.

n. L&T INFRASTRUCTURE DEVELOPMENTPROJECTS LANKA (PRIVATE) LIMITED (LTIDPLPL)

LTIDPLPL was formed in April 2006 for developing ahigh-rise residential-cum-commercial complex in the

81

heart of Colombo, Sri Lanka which is expected to belaunched in 2007.

D.2 URBAN INFRASTRUCTURE

L&T URBAN INFRASTRUCTURE LIMITED (L&TUIL):Subsidiary Company of L&TIDPL

L&TUIL was formed in March 2006 in order to tap therapidly growing real estate business and provide focusedattention and for real estate projects. During the year,

Rs. 95 crore was raised from Housing DevelopmentFinance Corporation Limited (HDFC) and HDFC IndiaReal Estate Fund (HIREF). 75% of the equity of L&TUIL

is held by L&TIDPL, 14.9% by HDFC and balance 10.1%by HIREF.

Performance: During its first year of operations, therevenues of the Company were Rs. 6.35 crore and the

profit after tax was Rs. 0.30 crores.

L&TUIL has a diversified portfolio (L&TUIL’s equity stakeas on March 31, 2007 is given in brackets) consistingof IT and ITES facilities, Residential facilities as well as

Commercial facilities like hotels, exhibition centre asfollows:

Operational SPVs

• L&T Infocity Limited (89%)

• L&T Infocity Lanka Private Limited (46.3%)

• L&T Infocity Infrastructure Limited (45.4%)

• Hyderabad International Trade Expositions Limited(47.8%)

• Cyber Park Development & Construction Limited

(51%)

• L&T- Crossroads Private Limited (50%)

• Vizag IT Park Limited (23.1%)

SPVs Under Implementation

• L&T Tech Park Limited (51%)

• L&T South City Projects Limited (51%)

• L&T Phoenix Infoparks Limited (51%)

• L&T Vision Ventures Limited (68%)

• CSJ Infrastructure Private Limited (80%)

• L&T Bangalore Airport Hotel Limited (100%)

Operational Urban Infrastructure SPVs

a. L&T INFOCITY LIMITED (L&TIL)

L&TIL, formed in April 1997, is a Joint Venture withAndhra Pradesh Industrial Investment Corporation(11%), incorporated to develop information technology

parks (HITEC city) for providing infrastructure facilitiesfor IT and Financial Services sector and Consultancyorganizations.

Performance: L&TIL successfully completed building

of two multi tenanted facilities - CYBER TOWERS andCYBER GATEWAY aggregating a total built up area of1.36 million sq. ft. which has been fully occupied by

over 40 companies including Microsoft, Oracle, GECapital, HSBC, Dell, ICICI Bank, etc. Further, threebuild-to-suit facilities using state of the art technology

have been developed for HSBC, Deloitte and Motorolaat HITEC City, Hyderabad. All these facilities havebecome fully operational during 2006-2007 and have

started yielding revenues. The infrastructure developedby L&TIL in HITEC City, making it a prestigious landmark of Hyderabad, brought a metamorphosis to the IT

face of Hyderabad city and have changed the fortunesof its skilled workforce by not only creating gainfulemployment but also by substantial value addition to

the real estate.

The mega residential project, Serene County, launchedby L&TIL during the year 2005 took off very well andhas completed its first phase. The second phase of

Serene County was launched in April 2007 and is gettingexcellent response from market.

L&TIL has registered a landmark growth in revenues

and profit after tax during the year. The revenues haveincreased to Rs. 108.80 crore (previous year: Rs. 30.88crore) and profit after tax have increased to Rs. 41.83

crore (previous year: Rs. 11.17 crore). This stupendousperformance sets a very challenging benchmark for thecoming years in its ability to conceive, plan, execute

and deliver high end real estate projects on beneficialterms.

Outlook: Andhra Pradesh Industrial InfrastructureCorporation Limited (APIIC) believes that IT Park

developments, on the lines of Hyderabad, could alsotake place at the other tier II and tier III cities of AndhraPradesh. In this direction, L&TIL has successfully bid

82

for the IT SEZ at Vijayawada on a 30 acre landthrough an SPV to be partnered by L&TIL and APIIC

with 74% and 26% shareholding respectively. Withgrowing face of IT for Southern cities, the outlook isvery promising.

b. L&T INFOCITY LANKA PRIVATE LIMITED (L&TILPL)

With L&TIL as the lead partner holding 52% equity stake,

L&TILPL built an exclusive build-to-suit IT Park (185,000sq. ft.) close to the Parliament of Sri Lanka in April2005. The facility has been leased for an initial

period of 9 years to HSBC Electronic Data ProcessingLanka Private Limited (HDPL) where it runs a major IT-enabled service operation of back office processing /

call centre.

Performance: During the year, the Company registeredrevenues of Rs. 4.33 crore (previous year: Rs. 4.34crore) and profit after tax of Rs. 1.45 crore (previous

year: Rs. 1.88 crore).

Outlook: Many new IT majors are looking at Colomboas a possible destination for setting up ITES facilitiesfor their back office operations. With a satisfied customer

like HSBC, the Company may do further projects atColombo / other places in Srilanka.

c. L&T INFOCITY INFRASTRUCTURE LIMITED(L&TIIL)

L&TIIL built an exclusive build-to-suit IT Park (180,000

sq. ft.) at Salt Lake, Kolkata in January 2006. The facilityhas been leased for an initial period of 9 years to HSBCElectronic Data Processing India Private Limited (HDPI)

where it runs its IT-enabled service operations of backoffice processing / call centre. L&TIL holds 51% equitystake in L&TIIL.

Performance: During the year, the Company registered

revenues of Rs. 4.95 crore (previous year: Rs. 1.66crore) and profit after tax of Rs. 1.43 crore (previousyear: Rs. 0.23 crore).

d. HYDERABAD INTERNATIONAL TRADEEXPOSITIONS LIMITED (HITEX)

HITEX was promoted by L&TIL, National Academy ofConstruction (NAC), Hyderabad Urban DevelopmentAuthority, Andhra Pradesh Tourism Development

Corporation and Municipal Corporation of Hyderabad inAugust 2001. L&TIL holds 53.7% in HITEX. This modern

fully air-cooled trade exposition centre is being developedon a 100-acre plot at Cyberabad in a phased manner.

There are exhibition halls, open display area, a largeparking area, offices of exhibition service providers andancillary services and other related facilities. It can be

used as a venue for world class exhibitions for productlaunches and other corporate events. Various other valueadded services and ancillary facilities are also offered to

exhibition organisers, exhibitors and visitors. HITEX beinga premier and state-of-the art venue for exhibitions ismost suitable for holding technology focused trade shows.

Andhra Pradesh Expositions Private Limited, Hyderabad,a 100% subsidiary of HITEX, organizes exhibitions /

trade fairs and events at the exposition centre incollaboration with national and international eventmanagement companies.

Performance: During the year, the revenues wereRs. 11.77 crore (previous year: Rs. 8.13 crore)and profit after tax Rs. 0.78 (previous year: loss

Rs. 0.65 crore).

Outlook: Exhibition Industry is in its nascent stage inIndia. Emergence of new technology also creates

opportunities for the industry for showcasing the same.The future looks bright with the current growth of Indianeconomy attracting many international companies to

India and many new exhibitions being organised onnew & varied themes.

e. CYBER PARK DEVELOPMENT & CONSTRUCTIONLIMITED (CPDCL)

CPDCL, formed in February 2002, has taken land on

lease from Software Technology Park India, Governmentof India, New Delhi for a period of 66 years forconstructing a state-of-the-art Information Technology

Park in Bangalore. It has completed construction ofCyber Park-Phase 1 in March 2005 and has planned todevelop its Phase 2 in 2007-08.

Performance: During the year, Cyber Park has reportedrevenues of Rs. 34.59 crore (previous year: Rs. 3.25

crore) and profit after tax of Rs. 11.38 crore (previousyear: loss Rs. 5.89 crore).

Outlook: CPDCL is expecting good demand for its

second phase as the elevated road on Hosur Road isexpected to be operational in 2008.

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Urban Infrastructure SPVs under Implementation

f. L&T TECH PARK LIMITED (L&TTPL)

L&TTPL has taken on lease four acres of land for a

period of 90 years from Infoparks, Kerala, to develop astate-of-the-art Information Technology Park atKakkanad, Kochi. The construction of Phase I is

expected to be completed in 2007.

g. L&T SOUTH CITY PROJECTS LIMITED (L&TSCPL)

L&TSCPL, a Company formed during the year, is a51% subsidiary of L&TUIL in partnership with Dinesh

Ranka 24.5% and Pragnya Fund 24.5%. Developmentof integrated township at Siruseri which is closer to ITCorridor in Chennai, Tamil Nadu is planned to be

launched in 2007.

h. L&T PHOENIX INFOPARKS LIMITED (L&TPIL)

L&TPIL which became a subsidiary in October 2006has been formed for development of new IT

Parks in Hyderabad at HITEC City-2 and atIntellicity.

The first project named HITEC City-2 is an extension ofthe prestigious land mark project HITEC City thathas placed Hyderabad on the global IT map.

Offering 3 million sq. ft., HITEC City-2 is being developedas a Special Economic Zone (SEZ) for the IT / ITESunits on 25 acres of land in Gachibowli, near HITEC

City. The Ministry of Commerce and Industry hasgranted a formal approval to the project and has notifiedit as Special Economic Zone in the Gazette of India.

During the year, the Company commenced infrastructureworks and construction of compound wall at HITECCity-2 project.

The second project – Intellicity, accentuating thewalk to work concept, envisages development of

an IT Park of 0.3 million sq. ft., supplementedwith residential towers of 0.85 mill ion sq. ft.,on 8.4 acres of land at Nanakramguda, in the

latest IT corridor of Cyberabad, Hyderabad. TheGovernment of Andhra Pradesh has granted IT Parkstatus to the IT Tower at Intellicity. During the

year, the Company has started development of the ITTower, which is slated for completion byMarch 2008.

i. L&T VISION VENTURES LIMITED (L&TVVL)

L&TVVL, a Company formed during the year 2006-07,is a 68% subsidiary of L&TUIL in partnership with VisionVentures Private Limited, Hyderabad. L&TVVL proposes

to develop a township project at Vepagunta located inVisakhapatnam, Andhra Pradesh.

j. CSJ INFRASTRUCTURE PRIVATE LIMITED (CSJ)

CSJ has become a subsidiary of L&TUIL in March 2007

consequent to L&TUIL’s investment in it. CSJ has beenformed for the purposes of development of commercialshopping complex / Mall at Chandigarh.

k. L&T BANGALORE AIRPORT HOTEL LIMITED(L&TBAHL)

A Framework Agreement was signed by L&T and

EIH Hotels Limited (Oberoi group) with BIAL fordevelopment of a premier business hotel at BangaloreInternational Airport. The Agreement enables L&TUIL

to invest 74% of the equity in the SPV to be formed.L&TBAHL was formed in December 2006 for thispurpose.

III. ENGINEERING & CONSTRUCTION PROJECTS

A. HPL COGENERATION LIMITED (HPLCL): SubsidiaryCompany

HPLCL, a 51% subsidiary, is a special purpose companyset up as a joint venture between L&T and Haldia

Petrochemicals Limited, Kolkata for the purpose ofowning and operating a 116 MW Combined CycleCogeneration Power Plant at Haldia, West Bengal about

140 Kms south of Kolkata. The electric power and steamgenerated by the plant are supplied exclusively to thepetrochemical complex of “Haldia Petrochemicals

Limited (HPL)”, which is located adjacent to the powerplant complex.

Performance: HPLCL is the sole supplier of steam andpower to HPL and has successfully met the entire

demand of HPL. During the year, the revenues wereRs. 168.78 crore (previous year: Rs. 171.37 crore) andprofit after tax was Rs. 90.54 crore (previous year: Rs.

97.07 crore).

Outlook: HPLCL has entered into a long term power

and steam supply arrangement with HPL. HPLCL couldbenefit by way of improved capacity utilization throughforthcoming expansion of HPL, additional demand for

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power arising out of growth of down-stream industriesin Haldia and IOC expansion plans.

B. INDIA INFRASTRUCTURE DEVELOPERS LIMITED(IIDL) : Wholly owned Subsidiary Company

IIDL, a wholly owned subsidiary of L&T, provides a 2 X

45 MW captive co-generation plant on lease to IndianPetrochemicals Corporation Limited at Gandhar, Gujarat.IIDL is a Special Purpose Vehicle and is registered as

a Non-Banking Finance Company with RBI.

Performance: During the year, IIDL registered revenuesof Rs. 41.54 crore (previous year: Rs. 88.16 crore).

A portion of the revenues is linked to the rupeedollar exchange rate. With significant rupeeappreciation during the year, the revenues and profitability

were adversely impacted resulting into a net loss of Rs.12.20 crore (previous year: profit after tax Rs. 26.89 crore).

Outlook: During the previous year, L&T Power

Investments Private Limited [L&TPL] merged into IIDL,whereby L&TPL’s investment in Raykal AluminiumCompany Private Limited [RACPL] became a part of

IIDL’s portfolio. With the above merger, Company’sfinancials have been strengthened.

C. L&T–SARGENT & LUNDY LIMITED (LTSL):Subsidiary Company.

LTSL is a joint venture with Sargent & Lundy LLC (S&L)of USA, a leading power plant engineering company

with over 118 years of experience. LTSL provides powerplant engineering services to its parent companies aswell as to a few niche customers in India and abroad.

The engineering services cover the entire value chainfrom conceptualisation to commissioning assistance asEPC Contractor’s Engineer, Owner’s Engineer and as

Lender’s Engineer besides other specialised studies likefeasibility studies, etc.

Performance: During the year, LTSL recorded revenues

of Rs. 22.89 crore (previous year: Rs. 12.97 crore) andprofit after tax of Rs. 1.24 crore (previous year: loss ofRs. 4.60 crore). LTSL has bagged orders of about

Rs. 40 crore in 2006-2007, its major customers beingToshiba, Japan; Doosan, Korea; Arabian Bemco, SaudiArabia; Lanco Anpara Power Project Company,

MPPGCL, DVC, NTPC, etc. besides its parentcompanies L&T and S&L.

LTSL has been recently assessed as CMMI Level 3which indicates that its quality management systems

are robust enough to take up the upcoming challengesand demands of the power plant engineering business.LTSL has successfully established Concurrent

Engineering facilities with S&L, Chicago and a designoffice in Faridabad to attract the talent pool in theNational Capital Region and has opened a

representative office in the Middle East.

Outlook: Availability of skilled human resource is a

major challenge. Looking at the strong growth of powergeneration business in India as envisaged in the 11thFive year plan, as well as rising demand in Middle East,

Africa and South East Asian countries, the prospectsfor LTSL look bright.

D. L&T-CHIYODA LIMITED (LTC): Associate Company

L&T and Chiyoda Corporation, Japan hold equal stake

in LTC and was formed in November 1994. LTC is aninternationally reputed design & engineering consultancyorganization for Hydrocarbon Processing Industry

comprising Refinery Units, Petrochemical Plants,onshore Oil & Gas Processing Facilities, LNG / LPGPlants, Fertilizer Plants, etc. The engineering services

offered by LTC include Feasibility Studies, BasicEngineering, Front End Design & Engineering, DetailedEngineering, Procurement Assistance, Construction

Supervision, Commissioning Assistance and ProjectManagement Consultancy.

LTC has also developed high end engineeringcapabilities such as process simulation, Hazop studies,intelligent 3-D plant modelling, finite element analysis,

piping stress analysis, etc. LTC’s experience includesDetailed Engineering of the refinery processes such asDistillation, Cracking, Treating and Reforming. At the

petrochemical front, LTC has designed and engineeredplants including Methanol, Ethylene, Paraformaldehyde,PVC, etc. Company’s service portfolio also extends to

Oil & Gas Separation Unit, Gas Dehydration, Treatment,Recovery and Fractionation. In 13 years of operation,LTC has executed major projects for domestic clients

such as IOCL, BPCL, HPCL, CPCL, KRL, IPCL, ONGC,GAIL, CEIL as well as international clients such as TOC-Thailand, Sipchem-Saudi Arabia, KOC-Kuwait, QAFAC-

Qatar, FERTIL-Abu Dhabi, ORC-Oman, BAPCO-Bahrain, etc.

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Performance: During the year, the revenues wereRs. 53.03 crore (previous year: Rs. 34.23 crore) and

profit after tax was Rs. 7.80 crore (previous year:Rs. 3.91 crore). Profitability has improved mainly dueto increased level of exports at Rs. 45.60 crore

(previous year: Rs. 9.80 crore). A key export projectunder execution is Gas to Liquid project being executedwith Chiyoda Corporation for Qatar Shell GTL Limited.

In order to accommodate increased man-power,additional office facilities are being established. LTChas upgraded the existing leased line connectivity to 4

MBPS (earlier 2 MBPS) with Chiyoda and 2 MBPS withL&T to ensure smooth execution of their EPC projects.Quality aspects are accorded high priority in project

execution.

Outlook: The Ministry of Petroleum and Natural Gas is

keen on state refineries upgrading their efficiencies fromcurrent residue level of around 30% of processed crudeoil to just around 10% - 15% for matching international

standards. Growing E&P activities call for a lot ofopportunities for engineering companies to performconsultancy services for new facilities on onshore oil &

gas processing facilities, refinery units as well as revampof the existing facilities. Being an engineering partnerfor Chiyoda’s LNG / GTL Projects, LTC is getting a

good exposure to LNG plants. Increased investmentsplanned in Hydrocarbon sector in India as well as inMiddle East and meeting of clean fuel norms by domestic

refineries provide promising market for the Company’sservices.

E. L&T-VALDEL ENGINEERING LIMITED (L&T-Valdel) :Associate Company

L&T-Valdel, a 50:50 joint venture between L&T andValdel Corporation Private Limited, was incorporatedin October 2004 to provide (i) Front end engineering

design (FEED) and conceptual design, (ii) Detailedengineering services, (iii) Procurement engineeringservices and (iv) Project Management services to

the Process and Wellhead platform, revamping /modification of platforms and pipelines (onshore /offshore) projects.

Performance: The revenues during the year were higher

at Rs. 25.08 crore (previous year: Rs. 15.58 crore)reflecting a growth of 61%. The profit after tax alsoregistered higher at Rs. 4.07 crore (previous year: Rs.

3.23 crore). The reduction in profitability is mainly onaccount of additional overhead expenses due to capacity

build up, increase in wage rates and delays in awardsof major projects.

Outlook: L&T-Valdel is looking at a tie-up withInternational players for Deep Water, FEED and

Conceptual Design segments of business which will helpin transforming it to a High End Engineering company.ONGC is expected to commit huge investments in Indian

waters in the coming years and in addition business isexpected from other E&P Operators such as BritishGas, Cairn Energy, Niko, etc. in shallow as well as

deep water. Given the increasing energy demand in theeconomy and the investments planned in Oil & Gassector, both in India & in Middle East, the business

conditions are expected to be favourable in the yearsto come.

IV. HEAVY ENGINEERING

100% SPECTRUM INFOTECH PRIVATE LIMITED(SIPL): Subsidiary Company

The focus of SIPL, formed in 1995, is on technologyand product development in embedded solutions, controland signal processing for Defence Research

Development Organization Laboratories, AeronauticalDevelopment Agency, Defence PSUs and overseasclients. The Company became a 100% subsidiary of

L&T in March 2006 and since then a number of stepshave been taken for improving the Company’sinfrastructure and talent management.

Performance: The year saw a significant jump in theorder book position valued at Rs. 21.50 crore (previous

year: Rs. 1.12 crore) and its revenues were Rs. 4.90crore (previous year: Rs. 4.79 crore). Due to ahigher portion of marketing overheads and procurement

of one-time IT software, the Company incurred a lossof Rs. 0.70 crore (previous year: profit after taxRs. 0.46 crore).

Outlook: The outlook for defence electronics business

continues to show a positive trend. Public-privateparticipation during design and development phase willresult in a significant share of business for private

industry in the production phase and as such prospectsfor SIPL are bright.

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V. MACHINERY & INDUSTRIAL PRODUCTS

A. TRACTOR ENGINEERS LIMITED (TENGL): Whollyowned Subsidiary Company

TENGL is principally engaged in manufacture ofundercarriage systems for excavators, crawler tractors,bull dozers, etc. and material handling equipment like

apron conveyors, spares for oil field equipments, etc.Customer profile is largely OEMs in construction andmaterial handling equipment business which accounts

for 90% of the sales.

Performance: During the year, revenues were higher

at Rs. 103.96 crore (previous year: Rs. 76.88 crore)primarily due to increase in sales of undercarriagesystems and apron conveyors. The profit after tax

was Rs. 13.26 crore (previous year: Rs. 5.46 crore).It includes profit on sale of land at Mahape. As part ofits initiative of catering to export market, TENGL

has set up a new manufacturing facility at Talegaonfor expanding its capacity, which is expected tocommence production of under carriage systems in

the first quarter of the financial year 2007-2008. Duringthe year, TENGL has made a beginning in exportmarket with supplies to Germany, UK, Turkey &

Australia.

Outlook: Capacity augmentation, thrust on exports

and reduced overheads on account of new set upoutside Mumbai supported by expected growth ininfrastructure and industrial sectors is expected to

facilitate substantial increase in its revenues andprofitability. With a healthy order book of Rs. 85 croreas on March 31, 2007 (previous year: Rs. 20 crore),

the Company expects to deliver robust performance inthe coming years.

B. AUDCO INDIA LIMITED (AUDCO) : AssociateCompany

AUDCO, formed in November 1961 as a 50:50 JointVenture with the Flowserve Group (USA), is engagedin the manufacture and sale of (a) Industrial Pipeline

Valves (b) Safety systems and equipment (c) Pneumaticactuators and accessories. AUDCO is India’s leadingmanufacturer of industrial valves and has four

sophisticated manufacturing plants in Tamil Nadu viz.Manapakkam, Maraimalai Nagar, Kanchipuram and

Coimbatore with a total built-up area of around 55,000sq. metres. The Company can manufacture valves up

to 72-inch size and CI 2500 pressure rating. Superiorproduct quality, brand name, acceptance and approvalsby major end-users, state-of-the-art R&D set-up and

strong distribution network are its key strengths. AUDCOvalves are exported to USA, Canada, Europe, Australia,South Africa, Middle East and Far East. They are

approved by major oil companies including ExxonMobil,Shell, ChevronTexaco, SASOL and Saudi Aramco. InIndia, the major customers include ONGC, IOCL, HPCL

and BPCL.

Performance: AUDCO has ISO 9001:2000 QualityManagement System (QMS) certified by BVQI for all the

plants. The QMS also meets the requirement of APISpec Q1 for manufacturing monogrammed productsunder API 6D licence. AUDCO has Pressure Equipment

Directive (PED) Certificate from DNV, Norway for supplyof CE-marked valves to European Market as per PEDregulation 97/23/EC. All CE-marked Valves are also

certified for Explosive Atmosphere Directive (ATEX)as per PED regulation 94/9/EC. AD HPO approval asper AD Merkblatt is also available for valves supplied

to Germany.

During the year, the revenues increased by 19% to Rs.689.06 crore (previous year: Rs. 576.90 crore) and profit

after tax grew by 21% at Rs. 52.33 (previous year: Rs.43.29 crore). AUDCO also provides engineered /customised products at competitive prices. Audco is

expected to further improve its delivery capabilities tosupport reduced project time lines.

Outlook: The prospects for AUDCO look promising due

to buoyancy in the oil and gas sector in India and in theMiddle East as also due to Flowserve group’s plans forincreasing the outsourcing from AUDCO for Europe

& USA.

C. L&T-KOMATSU LIMITED (LTK): Associate Company

LTK, formed in July 1997 as a 50:50 joint venture

between L&T and Komatsu Asia Pacific Pte Limited,Singapore (a wholly owned subsidiary of KomatsuLimited, Japan), manufactures hydraulic excavators and

high pressure hydraulic systems & components and hasits manufacturing facility at Bangalore. LTK has ISO9001 accreditation for design, development,

87

manufacturing, sales and servicing and ISO 14001certification for Environment Management System.

Performance: LTK is able to take advantage of thecountry’s growth momentum to achieve substantialimprovements in sales & profi t . Of part icular

significance is its leadership position in the premiumsegments of 20T, 30T and 60T excavators. LTKlaunched PC130 model in January 2007. During the

year, LTK sold 1909 excavators registering a 51%increase. The revenues for the year were posted atRs. 806.06 crore (previous year: Rs. 534.56 crore)

and profit after tax was Rs. 58.39 crore (previous year:Rs. 40.07 crore). Innovative production systems i.e.,PC300 new assembly line and Hydraulic Cylinder

Assembly automation enabled enhanced productionvolumes. Global sourcing for cost effectiveness,outsourcing of fabricated structures and tie-up with two

major suppliers who have put up exclusive facility werethe additional efforts undertaken to meet the increasedmarket demand. Considerable efforts were also put in

by materials and logistics team in ensuring timelysupplies. Focus on reliability improvement resulted inreduced warranty claims and increased the mean time-

between-failure rate.

Outlook: LTK plans introduction of new models ofexcavators and new features on existing models to cater

to special customer needs. Prospects for LTK are brightas a result of acceleration in mining and infrastructurespends.

D. L&T-CASE EQUIPMENT PRIVATE LIMITED (L&T-Case): Associate Company

L&T-Case, formed in November 1998, is a 50:50 Joint

Venture between L&T and CNH America LLC. Themanufacturing facility is at Pithampur and is ISO 9001-certified for design, manufacture and supply of earth

moving and construction machinery like loader backhoesand vibratory compactors. L&T-Case also sells itsproducts to some government organisations like Director

General of Border Roads, Municipal Corporations andCorporate sector.

Performance: L&T-Case registered an impressive

growth in sales and profit after tax during the year. Therevenues have gone up by 83% to Rs. 323.75 crore

(previous year: Rs. 177.04 crore) and profit after taxwas Rs. 14.53 crore (previous year: Rs. 0.85 crore). A

number of HR initiatives, including the various teambuilding programs, were taken up during the yearresulting in improved productivity, product reliability and

harmonious Industrial Relations.

Outlook: India is emerging as the second largest market

for loader backhoes in the world. L&T-Case is wellpositioned with three models of loader backhoes L&T-580-S, L&T-Case 851 and L&T-Case 770. Market for

Vibratory compactors is also expected to remainbuoyant. With the government policies encouraginginvestment in infrastructure sector, the construction

equipment industry has received a growth momentumand accordingly the Company expects to continue itsgood performance in the coming years.

E. EWAC ALLOYS LIMITED (EWAC): AssociateCompany

EWAC, formed in April 1962, is a 50:50 joint venturewith the Messer Eutectic + Castolin and Group ofGermany and is a market leader in the business ofmaintenance & repair welding & welding solutions for

conservation of global metal resources. The principalproducts and services comprise maintenance & repair(M&R) consumables, specification grade electrodes, flux-

cored welding wires, wear plates / parts, weldingequipment, TeroCote lab services, etc. L&T marketsEWAC’s products in India with most of the sales being

through stockists.

Performance: With industrial growth of over 9%,

Welding Industry in general has done well. EWACreported revenues of Rs. 108.97 crore (previous year:Rs. 74.17 crore) and profit after tax of Rs. 22.63 crore

(previous year: Rs. 14.48 crore). All the product lineshave grown over previous year. ‘Material Planning’ &‘Material Yield Improvement’ initiatives helped in

controlling material cost despite the cost of inputs likeNickel, Copper, Zinc and Aluminum going up significantlyduring the year. EWAC’s Powai & Ankleshwar plants are

ISO 9001- 2000 & OHSAS-18001 certified.

Outlook: Initiatives such as (i) increased thrust on R&Defforts so as to improve the product performance and

product life (ii) new product development and (iii)capacity enhancement have started yielding benefits.

88

The Company expects a shift in the market demandfrom current welding electrodes to wear plates and

welding wires in the years to come and is gearing up toface the challenge. With the general economy andprocess based industries such as steel, cement, power,

sugar on a growth path, EWAC is expected to continueits sound performance in the coming years.

F. L&T-DEMAG PLASTICS MACHINERY LIMITED (L&T-Demag): Associate Company

L&T-Demag, formed in June 2000 as a 50:50 Joint

Venture between L&T and Demag Ergotech GmbH,Germany, manufactures Injection Moulding Machinesfor the plastics industry. L&T-Demag has advanced

facilities for design, manufacture and testing of injectionmoulding machines. Its products find applications indiverse industries like automobiles, electrical goods,

packaging, personal care products, writing instrumentsand white goods.

Performance: Progressive lowering of import duties isleading to increased competition from manufacturers inthe Asian region. Rupee appreciation has led to imported

machines becoming cheaper, while reducing thecompetitiveness of our exports. Customers, bothdomestic and international, are demanding lower lead

times for machine deliveries. With injection mouldingshifting to low cost countries globally, customers areexpecting machines with improved features at lower

prices. The Company secured good orders for itsproducts from key players in various segments of theplastics industry in India and abroad. During the year,

the revenues were Rs. 140.15 crore (previous year:Rs. 112.36 crore) and profit after tax was Rs. 3.24crore (previous year: Rs. 2.90 crore). L&T-Demag

continues to have a position of leadership in thedomestic market, has expanded its geographical reachin the export market and has several repeat customers.

L&T-Demag has been certified under ISO 9001:2000and under ISO 14001:1996.

Outlook: Plastic is now finding increased usage indiverse industries like Automotive, Electrical &

Electronics, Medical Disposables, Packaging, Personalcare, Writing Instruments, Household, etc. Also, due tothe expansion of telecom industry and plans to

manufacture mobile handsets in India, there will be anincrease in demand for higher precision machines with

electric drives. Association with Demag and its ownestablished R&D base has enabled L&T-Demag to

customise its offerings. The business for the Company’sproducts is expected to show continued growth duringthe coming years. While input costs continue to rise

due to increase in the prices of steel and transportationas well as employee costs, the Company is confident ofmaintaining its business growth through global sourcing,

increased volume of production and re-engineering ofits products.

INTERNATIONAL COMPANIES

A. LARSEN & TOUBRO INTERNATIONAL FZE(L&TIFZE): Wholly owned Subsidiary of L&T and aholding company for international ventures

L&T has identified The Middle East countries as one ofthe core growth zones and L&TIFZE, a wholly ownedsubsidiary with limited liability formed in September,

2001 at the Hamriyah Free Zone, Sharjah, United ArabEmirates, is an integral part of L&T’s plans for the region.

With the Middle East economies witnessing a healthyincrease in construction & hydrocarbon business, L&T

and group companies have considerable opportunitiesin this sector. L&TIFZE has committed a sizeableinvestment in building up a pool of strategic equipments

to support the project activities of L&T Group. L&TIFZEis the investment arm of L&T for all overseas venturesand also hedges the commodity price risk of group

companies by transacting in commodity derivativeproducts.

Performance: L&TIFZE has so far invested Rs. 40.75crore as well as committed a further amount of

Rs. 46.80 crore for strategic equipments requiredfor executing projects in the construction andhydrocarbon sector. During the year 2006, L&TIFZE

has recorded a total income of Rs. 142.85 crore(previous year: Rs. 56.49 crore) mainly from commodityhedging activities, hire charges and dividends from its

subsidiary companies. The profit for the yearhas increased to Rs. 132.91 crore (previous year:Rs. 53.43 crore).

Outlook: Going ahead, L&TIFZE will continue to play a

crucial role in meeting strategic plan (Project Lakshya)objectives with respect to international businessesof L&T.

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The investment portfolio of L&TIFZE comprises L&T’s international joint venture companies set up overseas as depictedbelow.

L&T InternationalFZE

ChinaMiddle East

Larsen & Toubro(Qingdao ) Rubber

Machinery Co. (95%)

Larsen & Toubro(Jiangsu ) Valve

Co. (70%)

Larsen & Toubro(Wuxi ) Electric

Co. (100%)

Saudi Arabia Oman Qatar Kuwait

Larsen & Toubro(Oman) (65%)

Larsen &Toubro Qatar

(49%)

Larsen & T oubro Electromech (65%)

L&T Modular Fabrication Yard

(65%)

Larsen & ToubroKuwait

Construction General Co. WLL

(49%)

Larsen & Toubro ReadymixConcrete

Industries LLC (49%)

Malaysia

L&T ECC Construction (M) SDN (30%)

L&T ElectricalsSaudi Arabia

(75%)

Larsen &Toubro (Saudi Arabia) (95%)

Larsen & ToubroInternational FZE

ChinaMiddle East

Larsen & Toubro (Qingdao) Rubber

Machinery Company Limited

(95%)

Larsen & Toubro (Jiangsu) Valve

Company Limited(70%)

Larsen & Toubro (Wuxi) Electric

Company Limited (100%)

Saudi Arabia Oman Oman UAEQatar Kuwait

Larsen & Toubro (Oman) LLC (65%)

Larsen & Toubro Qatar LLC

(49%)

Larsen & Toubro Electromech LLC (65%)

L&T Modular Fabrication Yard LLC

(65%)

Larsen & Toubro Kuwait Construction General Contracting

Company WLL (49%)

Larsen & Toubro ReadymixConcrete

Industries LLC (49%)

Malaysia

L&T ECC Construction (M) SDN.BHD (30%)

L&T Electricals Saudi Arabia Company

Limited (75%)

Larsen & Toubro Saudi Arabia LLC

(95%)

I. ENGINEERING CONSTRUCTION & CONTRACTS

A) LARSEN & TOUBRO (OMAN) LLC (L&T Oman) :Subsidiary Company

L&T Oman, formed in January 1994, is a joint venturebetween L&TIFZE and The Zubair Corporation. L&TOman undertakes turnkey contracts in Civil, Mechanical

and Electrical Engineering. L&T Oman has executedseveral prestigious projects in the Sultanate of Omanand has taken appropriate steps to register itself with

various Ministries and Government Agencies andnurtures long term business relationships with largecustomers.

Performance: Enhanced contribution of non-oil activitiesto the overall economy and prudent fiscal and monitorypolicies adopted by the Oman Government enabled

Oman to grow at a faster pace. L&T Oman has recorded

good growth in revenues and profitability in 2006 due to

continuous focus and efforts for improving the projectvolumes and efficiency at all levels. During the year,L&T Oman has registered a 56% growth with recorded

revenues of Rs. 607.22 crore (previous year: Rs. 389.17crore) and profit after tax of Rs. 25.38 crore (previousyear: Rs. 13.96 crore).

Major orders secured or under execution are;

i. Construction and maintenance of Palm Garden

Township at Sohar

ii. Construction of Main Receiving Step down Sub atSohar

iii. Construction of Water Treatment Plant atMukhaizana

iv. Construction of Sewage Network System and

Sewage Treatment Plant at Nizwa

*Equity stake of L&TIFZE is given in brackets

90

Outlook: In addition to the increased spending plannedin the Oil and Gas Sector, there is enhanced focus on

infrastructure projects, gas based industries and tourismwhich is expected to further spur economic growth inthe Sultanate. Due to this overall buoyancy, the

Company expects to continue to grow profitably in thecoming years.

B. LARSEN & TOUBRO QATAR LLC (L&T Qatar):Subsidiary Company

L&T Qatar, a subsidiary of L&TIFZE, by virtue of

Management control, is a Joint Venture betweenL&TIFZE, Sharjah and a local company,Al-Jazeera International Trading Co. WLL. L&T Qatar

provides turnkey solutions backed by modern methodsof engineering, construction and project managementtechniques in civil, mechanical and electrical engineering

projects in petrochemicals, infrastructure, buildings,factories and power and gas sectors.

Performance: L&T Qatar started its operations in theyear 2004. During the year, L&T Qatar recorded

revenues of Rs. 102.63 crore (previous year: Rs. 64.54crore) and loss of Rs. 10.69 (previous year: loss ofRs. 2.16 crore). Loss was mainly on account of cost

escalations as Qatar witnessed an inflation level of 11.83% during the year 2006. L&T Qatar completed onestrategically important project viz. Doha 2006 Asian

Games village / Hamad Medical City in association witha local company, HBK Contracting Co WLL. L&T Qataralso completed a major portion of the following projects:

1.) A high rise Office Complex namely Al-JazeeraTowers funded by Mashreq Bank and 2.) Civil work inRas Laffan ‘B’ CCPP for Siemens.

Outlook: Qatar has adopted a sound economic policy

aimed at achieving sustainable economic development,by increasing private sector participation andencouraging inflows of foreign direct investment. Qatar’s

GDP is expected to double in the next five years. Thecountry has proposed an ambitious investment plan ofover USD 130 billion by 2015 to develop the economy

under energy, tourism, roads and other infrastructurefacilities including developing a Special Economic Zone.The Government has also relaxed visa restrictions on

Indians. There is a considerable shortage of qualitycontractors in the country. Overall, the outlook for L&T

Qatar appears to be encouraging.

C. LARSEN & TOUBRO ELECTROMECH LLC (L&TElectromech): Subsidiary Company

L&T Electromech was formed in January 2005 by takingover Zubair Kilpatrick LLC. L&TIFZE holds 65% equity

in the Company and balance 35% is with ZubairCorporation through their wholly owned Company, TheMuscat Trading Company. L&T Electromech’s business

portfolio comprises Hydrocarbon and Industrial Projects,MEP Works (Building services), Electrical &Instrumentation works for Oil and Gas Sector,

Maintenance of Electrical and Instrumentation Worksand Facilities Management of large assets.

Performance: During the year, L&T Electromech

recorded revenues of Rs. 199.35 crore (previous year:Rs. 82.79 crore) registering a growth of 141% andprofit after tax of Rs. 7.43 crore (previous year:

Rs. 7.40 crore). Some of the new projects underexecution are yet to reach threshold margin recognitionthereby resulting in flatter profit after tax during

the year.

Outlook: The Government of Oman is focusing oninvestments in tourism, industrialisation and oil and gas

sectors. With expected average yearly growth rate of10%, low inflation and healthy current account surplus,the scenario for development in Oman looks bright.

D. LARSEN & TOUBRO SAUDI ARABIA LLC (LTSA) :Subsidiary Company

LTSA is engaged in the business of providing turnkey

solutions in civil, mechanical and electrical engineeringprojects in oil & gas, petrochemicals, fertilisers,infrastructure, buildings, factories, power transmission

& distribution and telecommunication sectors. Duringthe year, LTSA became a subsidiary in which L&TIFZEholds 95% of the equity stake and balance 5% is held

by TENGL.

Performance: During the year, revenues were lower atRs. 26.27 crore (previous year: Rs. 180.35 crore) arising

out of closed orders and incurred a loss of Rs. 19.42crore (previous year: loss of Rs. 9.45 crore). LTSA’sperformance was impacted by high input costs and time

overruns. During the period, LTSA did not bag any newproject mainly due to the onset of Chinese players inthe Saudi market with their cut throat pricing. LTSA has

undertaken initiatives for strengthening capabilities such

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as (i) registering with ARAMCO & SABIC (ii) submittingdocumentation for classification to Ministry of Works &

Housing and (iii) creating a base of vendors.

Outlook: Various investment programs are planned by

Saudi Government and Private players in oil and gas,petrochemicals, health and education, water and powersectors. However, the policy of the Government is

continually inclined towards increasing employmentopportunities for its local citizens. In view of the largeIndian population in Saudi Arabia, the Government is

not liberal in issuing work visas for Indians, resulting inincreased labour cost and also mobilization delays.While there are several opportunities in sectors as

diverse as buildings, urban infrastructure, powertransmission & distribution and hydrocarbon, suitabilityof LTSA to fully exploit this potential in the face of

severe operational constraints in Saudi Arabia is beingclosely examined.

E. L&T-ECC CONSTRUCTION (M) SDN. BHD (L&T-ECC (M)):Subsidiary Company

L&T-ECC (M), formed in June 1996, is a joint venturebetween L&TIFZE and local partners in Malaysia. TheCompany undertakes civil, mechanical and electrical

turnkey projects in industrial and infrastructure sectorsas well as marketing of L&T products like switch gears,valves etc. Although L&TIFZE holds 30% equity stake

in L&T-ECC (M), it is a subsidiary of L&TIFZE by virtueof management control. It enjoys the status of a localMalaysian Company.

L&T-ECC (M) is being developed as a hub for carryingout business development activities in South East Asia

covering Malaysia, Thailand, Vietnam, Singapore,Indonesia, Brunei, Philippines, Cambodia, etc. which isseeing a spurt of investments in Oil & Gas and Power

projects.

Performance: L&T in consortium with Lurgi, Germany

and KQKS, Malaysia has been awarded a lumpsumturnkey order for a lube based oil project by PETRONASPenapisan (Melaka) Sdn. Bhd., a PETRONAS refinery

in Malaysia. The share of L&T-ECC (M) in this projectis Malaysian Ringitt 271.93 million (Rs. 325 Crores).With this order, the revenues and profitability of the

Company are expected to improve. During the year,revenues were Rs. 42.79 (previous year: Rs. 1.06) andloss was Rs. 0.07 crore (previous year: profit after tax

of Rs. 0.43 crore)

Outlook: The economy of the region is moving towards

exploiting gas-based energy due to encouragingreserves leading to a spurt in investment in gas basedprojects. With India highly inclined to signing the Indo-

ASEAN Free Trade Agreement in 2007, the region willsee a big spurt in trade and other business activitiesand accordingly the outlook for L&T-ECC (M) looks

positive.

II. ELECTRICAL & ELECTRONICS BUSINESS

A) L&T ELECTRICALS SAUDI ARABIA COMPANYLIMITED (LTESA): Subsidiary Company

LTESA, a joint venture between L&TIFZE and KanooGroup, was formed during the year for manufacture of

Switchboards and related solutions in Saudi Arabia.LTESA is operational since September 2006 with itshead quarters at Dammam in the eastern province of

Saudi Arabia. LTESA has been allotted land forconstruction of the factory in Dammam and theconstruction is expected to be completed by 2008. Brand

building, Marketing, Customer service and Facilitycreation activities are progressing ahead.

LTESA is receiving encouraging response from majorcustomers and EPC organizations in Saudi Arabia. Saudi

Arabia is the largest market in the Middle East and itsgeographical location provides easy access to exportopportunities in the North of Africa. The Saudi

government is giving impetus to local manufacturingand infrastructure development and this trend isexpected to continue in future to attract huge

investments. LTESA will aim to harness such prospectsleveraging on local presence. Cost competitive solutionsprovided by LTESA are gaining acceptance with major

customers for value added growth. Major investmentsin Refinery, Petrochemicals and Infrastructure projectsoffer good prospects for Company’s products and

services.

B) LARSEN & TOUBRO (WUXI) ELECTRIC COMPANYLIMITED (L&T Wuxi): Subsidiary Company

L&T Wuxi is a 100% subsidiary of L&TIFZE located atWuxi in the Jiangsu province of People’s Republic of

China for manufacture and sale of switchgear products,especially high-end air circuit breakers in China andInternational market. L&T Wuxi got business license in

92

September 2005. L&T Wuxi has set up a factory inWuxi in October 2006 having an area of 8,200 sq. metres

on a plot of 25,000 sq. metres. The factory is equippedwith state-of-the-art testing facility, assembly flow lines,quality control equipments, machineries and

warehouses. It has been successful in receiving ISO9000 and China Compulsory Certification (CCC). Apartfrom a few top management officials relocated from

L&T, all staff and operators in L&T Wuxi are localChinese people, who have been trained to handle criticalmanufacturing operations.

Performance: L&T Wuxi recorded revenues of Rs. 2.93

crore by assembling and delivering high-end air circuitbreakers in the last quarter of financial year 2006,when the operations started. It recorded a net loss of

Rs. 1.12 crore due to start up costs.

Outlook: The sheer size of electrical market, recentaddition of more than 100,000 MW power generationcapacities and continuous investment in infrastructure

development in China promises a big market forelectrical products and as such, the prospects for L&TWuxi looks bright.

III. MACHINERY & INDUSTRIAL PRODUCTS

A) LARSEN & TOUBRO (JIANGSU) VALVE COMPANYLIMITED (L&T Jiangsu): Subsidiary Company

L&T Jiangsu is a joint venture between L&TIFZE andYancheng Sunt Valves Company, registered in Jiangsuprovince of People’s Republic of China for manufacture

and sale of industrial valves. Setting up a valvesoperation in China is a strategic imperative for retaininga competitive edge in standard range of valves, e.g.,

Gate Valves. The manufacturing facility, which is beingset-up, is expected to provide a better control on quality

and cost and also ensure dedicated capacity requiredfor our business growth. The designs for all valves

manufactured by L&T Jiangsu are developed, ownedand managed by L&T. These designs address thespecific needs of the major clients and comply with

international emission norms. L&T Jiangsu has receivedthe ISO 9000:2001 and CE certifications in record time.Further, the feedback received from customers such as

Chevron, Shell, Saudi Aramco, Sasol and Dow whovisited the plant has been positive.

B) LARSEN AND TOUBRO (QINGDAO) RUBBERMACHINERY COMPANY LIMITED, CHINA (L&TQingdao): Subsidiary Company

L&T Qingdao was formed by taking over a running unit

of Qingdao Over World Group Company Limited (OWG).L&T Qingdao intends to capitalize on this marketopportunity by developing and supplying presses in line

with the quality of products being presently supplied toGlobal Majors by L&T. L&T Qingdao is building a newstate-of-the-art factory which is expected to be

operational by 2008. Tyre majors have started operatingin China. Some of them have shifted their procurementoperations as well to China in view of the ability of the

Chinese manufacturers to offer low prices.

L&T Qingdao commenced its business operations inDecember 2006. Invoicing up to March 31, 2007 has

been Rs. 7.69 crore. Over the past few months afterthe take-over, changes have been brought about byL&T Qingdao in the areas of manufacturing processes

and product design and at the same time keeping costsunder control.

The competitive position of L&T Qingdao is expected to

improve with increase in manufacturing volumes andas such prospects for L&T Qingdao are encouraging.

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Management Discussion & Analysis - L&T India-Investor …investors.larsentoubro.com/upload/...s_Discussion_and_Analysis07.pdf · has emerged a thrust area for L&T which has ... to