INTRODUCTION

Larsen & Toubro Limited (L&T) is a technology, engineering, construction and

manufacturing company. It is one of the largest and most respected companies in India's
private sector. Seven decades of a strong, customer-focused approach and the continuous
quest for world-class quality have enabled it to attain and sustain leadership in all its major
lines of business. L&T has an international presence, with a global spread of offices. It
continues to grow its overseas manufacturing footprint, with facilities in China and the Gulf
region. The company's businesses are supported by a wide marketing and distribution
network, and have established a reputation for strong customer support. L&T believes that
progress must be achieved in harmony with the environment. A commitment to community
welfare and environmental protection are an integral part of the corporate vision.

PESTEL Analysis
1. Political Factors:
(i)

SEZ Act to Boost infrastructural Development

SEZ is the new destination for real investor. Currently 150 SEZs are approved out
of 85 SEZs are in the IT/ITES area and the 10-15 SEZs in the electronics area.
130 SEZs are developed by real estate developers which constitute of about 50%
of the total SEZ area. IT SEZ should be developed and made operational within
the period of six months from the date of notification. Thus, 130 approved SEZ
would result in investment of US$ 12bn immediately.

(ii)

Cement Prices Reduced for State Infrastructure Projects:

The continued thrust on the infrastructure development will provide impetus to the
healthy growth in demand, protecting the bottom-line of cement companies to an
extent. The reduction in the CST and in Freight rates on diesel and limestone will
be marginally positive for some companies.

(iii)

FDI Liberalization to Augment Industry Growth:

Recent amendments by the government have made accessibility to the required
capital much easier. Opening of FDI in construction and allowing developers to
raise capital in international market has led to development of larger projects
benchmarked against international standard.

(iv)

REITs(Real Estate investment trusts) to Positively affect real Estate Business

The proposed introduction of REMF(Real Estate Mutual Fund) and REIT will
boost real estate investment from the small investors point of view. This will
allow small investors to enter real estate market with the contribution as less than
Rs 10,000. The concept of REIT is on the verge of entering India and would be
structured as company dedicated to owing and in most cases operating income
producing real estate such apartments, shopping centres, offices & warehouses.

2. ECONOMIC FACTORS:
(i)

Growth in Construction Activity Stimulating GDP Growth:

India is witnessing tremendous growth & expansion of construction activities and
construction is largest component of GDP. It has been growing at a rate over 10%
in the past few years when GDP growth is around 8%. Within construction; sector
such as roads, railways, housing and power have been keen drivers.

(ii)

Rate Hikes Unlikely to Slow down Growth:

It has been analysed that the residential prices has been increased by about 1520% on average in the last one year. There has been strong growth in demand
supported by rising disposable incomes, low interest rates, and fiscal incentives on
both interest and principal payment and increasing urbanization.

3. SOCIAL FACTORS :
(i)

Shifting Consumption Pattern to Fuel industry Growth

The consumption pattern of Indian households is undergoing a gradual, but steady
change. The share of food and beverages, which used to constitute almost 50% of
household spend until 2003 is fall to 45% by FY08. We expect the share of
discretionary items to consistently rise given the rising affordability and changing
aspiration levels. Increased exposure to western lifestyle has altered the
consumption pattern of Indian people.

(ii)

Rising Urbanization to Boost Industrial Growth:

Urban infrastructure consist of drinking water, sanitation, sewage systems,
electricity and gas distribution, urban transport, primary health services, and
environmental regulation. Many of these services are in the nature of local public
goods with the benefits from improved urban infrastructure. The urban population
in India will grow by 85 million over the next 10years.

(iii)

Green Building in India:

The green building movement has gained tremendous momentum during 3 to 4
years, ever since the Green Business centre embarked on achieving the prestigious
LEED rating for their own centre at Hyderabad. The Platinum rating for green
building has sensitized the stakeholders of construction industry. There is

tremendous potential for construction of green building in India. The estimated

market potential for green building will be about $ 400 million in 2010.
4. TECHNOLOGICAL FACTORS:
(i)

Low Technology Adoption to Hinder Growth:

The poor state of technology adopted by the construction sector adversely affects
its performance. Upgrading of technology is required both in the manufacturing of
construction material and in construction activities. As a large number of
construction materials are manufactured in the unorganised sector, effective
monitoring and regulation of the production of these material to ensure proper
quality become difficult. Use of low grade technology in the construction sector
lead to low value addition and low productivity, apart from poor or substandard
quality of construction and time overruns in projects.

(ii)

Construction As Per Indian Requirements:

The construction needs to be done as per Indian standards and requirements which
will demand considerable changes from the international requirements. The
Infrastructure requirements of India are much different as the population spread,
increasing urbanization, increasing slums, the small space for roads, the water
problems are more.

(iii)

Ready-Mix-Concrete being Experienced With:

The Ready mix concrete business in India is in its infancy. For example, 70% of
cement produced in a developed country like Japan is used ready mix concrete
business there. Here in India, Ready Mix concrete business uses around 2% of
total cement production. The increasing use of ready mix not only saves time but
also improves quality.

5. ENVIORMENTAL FACTORS:
Technological solutions helps in integrating the supply chain, hence reduce
losses and increase profitability
With the entry of global companies into the Indian market, advanced
technologies, are used in engineering & Construction.

 With the development or evolution of infrastructure sector, many of the MNC

enter into Indian market
Environmental situation affect the infrastructure sector.
Infrastructure such as roads and bridges affect the many sector such as
automobile sector etc.
LEGAL FACTORS
Ensure a balanced transition to open trade at minimal risk to the Indian economy and
local industry.
Indian government infrastructure policy aimed at promoting an integrated, phased and
conductive growth of the Indian infrastructure sector.
Confirms the governments intention on harmonizing the regulatory standards with
the rest of the world
Establish an international hub for engineering & construction companies so that new
technology can be used.
Legal provisions relating to safety measures

SWOT ANALYSIS:
Strengths
Larsen and Toubro (L&T) is India's largest engineering and construction company.
It has created international presence by operating supply network offices in 10
locations worldwide, including Houston, London, Milan, Shanghai and Seoul.
L&T has created a strong brand name by building worlds largest Tubular Reactor for
a petrochemical plant and has also built world's longest Product Splitter and longest
LPG pipeline.
Larsen and Toubro's order book has reported continuous growth. The company has a
strong pipeline of projects in domestic as well as international markets, which is
likely to ensure a steady revenue growth
Weaknesses
In spite of having a diversified expertise, the revenues of the company are highly
concentrated

Opportunities
The company has acquired the switchgear business of TAMCO Corporate Holdings
of Malaysia in April 2008
With TAMCO the company will be able to offer a comprehensive range of MV
switchgear and become a significant player in the MV segment in India
L&T has also entered into various joint ventures in the recent past. L&T has joint
venture agreement with Tamil Nadu Industrial Development Corporation Limited,
Mitsubishi Heavy Industries and A.A. Turki Contracting & Trading Corporation
(ATCO) of the Kingdom of Saudi Arabia.

 These joint ventures boost and strengthen the operational efficiency of the company,
as well as provide it with avenues to generate additional revenues and also leverage
its strong presence in order to exploit the growing capital goods and infrastructure
industry
Growing Indian capital goods and infrastructure industry as the government has
planned a series of measures to encourage private sector participation and increase
spending on infrastructure. Capacities are being ramped up in Railways, Roads,
Ports, Airports and Urban infrastructure to sustain the momentum of double digit
growth in the industrial sector.
Threats
Larsen & Toubro faces stiff competition in the international market with construction
majors in the Middle East including ABB of Sweden and Bechtel of the US. Stiff
competition could erode the company's market share and reduce its profitability.
Engineering and construction companies such as Larsen & Toubro (L&T) are facing
pressure on their earnings due to the high interest rates on working capital. L&T's
interest costs increased more than three-fold in the first six months of FY2009, which
would impact its profit before tax (PBT). Rising interest rates would put pressure on
the margins of the company