Sarma said the company is also looking at gas-to-power opportunities in the Middle East. They have a little bit of a favorable position there as one of the main developers that we’ve been working with, so something could happen. Overall, its business looks much stronger. He sees good momentum continuing for at least the next two to three years.
I was just talking to KEC management and he pointed out to me how transmission orders and other EPC orders seem to be picking up in the region, so how things are picking up. Is it? Are you also seeing an increase in spending on public infrastructure as well as across the energy space in the Middle East?
Subramanian Sarma: Yes, that is very much in line with what KEC management said. We are also seeing good levels of activity across the region. Of course it varies by country. So I can’t say that all countries have the same level of activity, but I definitely think the Kingdom of Saudi Arabia, the United Arab Emirates and Qatar have more potential. Kuwait and Oman follow closely.
So overall, we’re seeing a good level of activity and the prospect opportunity and pipeline remains very strong at this time.
Things are very good for L&T, especially in the hydrocarbon segment, as it had significant order wins in this segment last year. Can you help us understand how fills are progressing on specific segments of these orders? Are the margin and pipeline expectations for these orders on track?
Subramanian Sarma: Yes, it’s been a little over a year. It’s been a little over a year since most orders were placed in the second quarter of last year, and so far so good. Employment is trending steadily. We are slightly ahead of plan, with engineering substantially complete, procurement and manufacturing underway, construction work on all sites well underway and things looking good again at the moment. Masu. We are on track and on track on all parameters.
What about the nature of the investment and the types of orders that you’re looking at bagging? Is it a little bit more competitive or what is the overall scenario in terms of pipeline and competitive intensity in this region? mosquito?
Subramanian Sarma: I’ve said this before. Two or three themes run simultaneously. One is, of course, the development of conventional fossil fuels, oil and gas, in the region.
Secondly, in addition to this, all countries are looking for ways to expand their green footprint, in other words to reduce their carbon footprint, and therefore blue ammonia, green ammonia and many renewable projects There is an outlook regarding. Gas power projects, that’s the second theme. And third, we are also looking at ways to monetize and create more value through the installation of petrochemical facilities. We participate in all three of these themes, and the prospects that we’re working on right now are about $10 billion to $12 billion, so all three of these themes present significant opportunities for us. We’ll have to see how this plays out in the coming quarters.
We cannot take our eyes off what is happening in West Asia, especially the geopolitical uncertainties. How do you assess the risks associated with project execution and supply chain continuity? Are there any risks you have witnessed behind the scenes or is it business as usual?
Subramanian Sarma: That’s a good point. It’s not exactly business as usual, but it’s essentially so. The Red Sea issue affected logistics, and now the situation is quite calm, so there are no big problems in terms of execution, except for logistics, but the risk perception of logistics service providers is still high, so they will take a slightly longer route. , there were some delays in terms of obtaining materials, which mainly came from Europe.
Those coming from Asia or Asia-Pacific will be less affected, but those coming from the US or Europe will have to take a longer route. Other than that, we don’t see any significant geopolitical influence on the ground and it’s much more benign. I hope that a peace agreement will be signed next year and the situation will calm down.
What about these implementation issues?I remember talking with one of my colleagues at one point about how labor issues were getting pretty serious. There is also the issue of inflation surrounding labor costs. Has the situation eased? And is execution still a challenge or is it more of the same?
Subramanian Sarma: No, labor issues have been an issue for a long time. So it’s nothing new. So, we are facing this problem both in the domestic market and in the international market. Labor conditions have certainly become even tighter since COVID-19, and attracting a skilled workforce to the industry is a challenge for all of us. But so far nothing important and no major changes. I mean, it only got better, if at all. Having said that, I think the situation in Bangladesh did have a bit of an impact in that we were not able to access Bangladesh’s resources for a while, but that too is becoming normalized now.
If we talk about West Asia and the Middle East, they actually account for about 34% of the total orders, but what is the competitive environment like in this region as a whole and in the hydrocarbon business in particular?What is the competitive scenario? ?And how well positioned is L&T there?
Subramanian Sarma: Well, I think through our strong performance, we have built a good brand and a good reputation. So the good news is that at least you’re invited to every bid that opens the funnel. This is very important. And of course, there’s competition. I think customers want competition. This is because you can keep costs down. However, most of the competitors come from Europe and South Korea. So there’s a kind of peer competition, rational, rational bidding going on, so it doesn’t hurt us. I mean, we always love to compete. Because it keeps us nervous.
In terms of green opportunities, we saw a large Aramco order postponed in Saudi Arabia, and several other orders as well. Will the order decline that is happening in the traditional hydrocarbon segment be offset by hydrogen and ammonia or new things coming in between, purely because the industry as a whole is going through this paradigm shift? , is there a scenario where a low-order inflow occurs?
Subramanian Sarma: They all coexist, and oil and gas exploration requires significant amounts of capital in perpetuity, as reservoirs are depleted and maintaining current production itself requires huge amounts of capital. I don’t think it’s a conflict because it’s not. So it continues. And there may be more new projects, new developments, and some allocation of capital between green and fossil.
But for now, there’s a big focus on building fossils. There is little focus on green ammonia and blue ammonia. But for the country as a whole, not necessarily Saudi Aramco, but also other investors and governments, are building a lot of infrastructure related to renewable energy, solar, wind, and even gas power generation.
Therefore, as long as prices are in their current range, or even slightly higher or lower, such capital investments will continue. It is unclear what kind of impact it will have if President-elect Trump takes office in January, and whether oil prices will soften. In the short term, there may be some fluctuations, so we’ll have to wait and see, but in the medium and long term, all these policies will continue. Because that’s what all these countries need. They need it to create jobs, regional development, and alternative sources of income other than oil.
How is the Carbon Light Solutions segment performing? What about the order pipeline and margin growth prospects? What should we be watching for in this segment?
Subramanian Sarma: Carbon Light has made a breakthrough. We declared and announced that we had won two major contracts. That means, of course, there will be limited notice to proceed, but it should be published by the end of December. These are very important awards for that business and I think we’ll be more profitable than before because we’ve done very thorough planning where informed decisions are being made about bidding and in the domestic market. There are many more prospects.
We are also looking at gas-to-power opportunities in the Middle East. We’re in a bit of a good position there with one of the key developers we’ve worked with, so maybe we can figure something out. So, overall, its business looks much stronger. We expect good momentum for at least the next two to three years.
