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Larsen & Toubro LimitedPerformance for FY 2002

June 2002

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Disclaimer

This presentation contains certain forward looking statements concerning L&T’s future business prospects and business profitability, which are subject to a number of risks and uncertainties and the actual results could materially differ from those in such forward looking statements. The risks and uncertainties relating to these statements include, but not limited to, risks and uncertainties, regarding fluctuations in earnings, our ability to manage growth, competition ( both domestic and international), economic growth in India and the target countries for exports, ability to attract and retain highly skilled professionals, time and cost over runs on contracts, our ability to manage our international operations, government policies and actions with respect to investments, fiscal deficits, regulations, etc., interest and other fiscal costs generally prevailing in the economy. The company does not undertake to make any announcement in case any of these forward looking statements become materially incorrect in future or update any forward looking statements made from time to time by or on behalf of the company.

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Highlights of FY 2002 performance

Order book grew by 4.7% to Rs.109.22 billion

Sales and service income at Rs.83.59 billion registered a 6.8% increase

Profit before taxes of Rs.4.01 billion higher by 18.3%– Reduction in interest cost by Rs.0.45 billion

Profit after taxes increased by 10% to Rs.3.47 billion– Deferred tax provision of Rs.0.29 billion

Funds employed reduced by Rs.5.23 billion

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Economic scenario

Industrial sector registers a marginal growth of 2.7%– Capital goods sector had a negative growth of 4.1%

Overall GDP growth of 5.4% on the back of a higher agricultural growth and services sector

Fiscal situation affected by shortfall in tax collections and disinvestment receipts

Global economic slowdown aggravated by the impact of 09/11 event and its aftermath

– Wide geographical and sectoral impact – Fresh investment decisions postponed

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Business Scenario

Lackluster growth in investments– Many projects either shelved or delayed– Overcapacity in many industries stifle new investments

Activity in infrastructure sector subdued as yet– Spending on road projects yet to take off– Housing continued to show robust growth

No significant recovery of other economies in the region

Intense competition for fewer opportunities

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Initiatives to meet the challenges of today and tomorrow

Major thrust on exports– Almost trebled over the last three years – Exports grow by 56% to Rs. 11.1 billion over the last year

Manpower rationalization– Over 1500 people opt for Voluntary Retirement Schemes over 3 years– Management Leadership Programmes to identify to business leaders– Several talent search initiatives

Use of IT to improve business processes and facilitate real time business decisions

– ERP implementation in almost all ODs

Cost reduction initiatives across the divisions– Value engineering, Global sourcing, efficiency improvements– Total Productive Maintenance, Six σ iniatives

ROCE and FCF based performance measurement and employee rewards for alignment of interest and sustained improvements

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Segmental review

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Engineering and Construction

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The year that was

Order book and sales grow by 2% and 6% respectively– Longer gestation orders resulting in significant increase in

average execution cycle– “Zero dates” delayed in certain large value projects

Margins dropped to 10.1% from 11.7%– Change in project mix– Under utilization of resources and certain specialized

equipment– Pricing pressures

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Highlights Landmark jobs completed

– Khandala-Lonavala bypass – “Most Outstanding Structure” awards for Narmada,Yamuna,Kune bridges– Country’s largest coal handling plant at Paradip Port– 500 MW First End Shields for TAPP delivered to NPCIL– Heaviest DHDS Reactor ( 295 MT) delivered on time– India’s first Gas Compressor Module for ONGC ( Mumbai High)– Total re-construction of TISCO Blast Furnace in a record 105 days

Orders from across continents for critical equipment and turnkey projects– Acceptability of “Made in India”; “L&T” brand established– Global quality and delivery norms

Compliance with International Quality Rating Systems– Path of continuous improvement towards total quality– Hazira Engineering Workshop targeting Level 6

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Major orders executed FY 02

HRC Compressor Module For ONGC (785 Mt)

First Time Fabricated In IndiaCompleted 20 Days Ahead Of Schedule

•

Clamp-on Structures For ONGC (1900 MT), 12 Platforms

First Time Executed By L&TCompleted 69 Days Ahead Of

Schedule

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Reels (840 Mt) For Wellstream, UK

Completed 22 Days Ahead Of Schedule

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Indian School of Business, Hyderabad

Jack Welch R&D Center for GE – ITC, Bangalore

PARADIP COAL TERMINAL:BELT CONV. SYSTEM & YARD MACHINES

FIRST FULLY MECHANISED COAL TERMINAL IN INDIA

Pre Heater Building, Chettinad Cements, Karikkali, TN

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S.S. Desalination Eqpt. (580 Mt)-70 Nos. For SIDEM, France

First Time Manufactured & ExportedCompleted 30 Days Ahead Of Schedule

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DHDS Reactor for KRL-295 Tonnes

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Recycle Column for Bechtel, USA-610 Tonnes

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Sector-wise order backlog

End Mar '01

Process & Hydro carbon

16%Infrastructure

46%

Others13%

Power25%

End Mar '02

Process & Hydrocarbon

20%

Infrastructure52%

Others9% Power

19%

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Execution cycle analysis

Major orders in backlog

Mar ‘01 Mar ‘02 11% 0-12 months 20% 25% 12-24 months 43% 38% 24-36 months 22% 13% 36-48 months 5% 13% > 48 months 10%

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Projects where “Zero Date” has been delayed

Rs.billion

Tirupur Water Supply 4.85

Konaseema Power Project 4.07

Essar Projects Limited 1.69

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Divisional Performance Summary•Rs.billion

FY 2002 FY 2001 % change

Order BookingDomestic 63.40 55.59 14.0%Export 8.86 16.42 (46.0)%

Total 72.26 70.93 1.9%

SalesDomestic 39.23 40.23 (2.5)%Export 8.47 4.68 81.0%

Total 47.70 44.91 6.2%

Order Backlog 118.05 92.22 28.0%PBDIT/Sales 10.1% 11.7%PBIT 3.95 -Segmental Assets ( Net) 21.44 -

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Efforts on cost reduction

Extensive global sourcing

In-house efforts on design optimisation– Cost advantage

Major IT initiatives– Efficiency improvements– eProcurement– Knowledge Management– Customer relationship management

All projects to move to the module in a phased manner

Reduction in manpower through optisizing

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Electrical & Electronics

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The year that was

Overall electrical sector registers a marginal growth of 1.7%

– Switchgear market had a negative growth

Divisional Sales grows marginally by 2%

Drop in margins – Predatory pricing by MNCs to gain market share– Efforts on product development and export market development– Right-sizing costs

Several new products introduced– New product intensity of 35% for standard products

L&T maintained its market share– Quality and contemporary products

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Efforts on export market development

Deeper penetration into overseas markets– Major countries being UK, France, China, Qatar, Oman, Kuwait,

Myanmar, Bangladesh, Africa– Order booking grew from Rs.250 mio to Rs.460 mio– Sales from Rs.226 mio to Rs.380 mio

International accreditation for products– Certification by Association of Short Circuit Testing Authority (ASTA)

C Power Range MCCBsDH Range of ACBs

– Canadian Standards AssociationMN Range of Contactors

– CE marking ( European Exports)C Power range of ACBsMN Range of ContactorsFN range of Switch Disconnector Fuses

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Technology edge facilitated by a strong R&D

Life cycle management of products

State-of-the-art R&D facilities– ProE workstation networked with Tool Room– Balanced design skills in electronics, electrical and mechanical

streams– EmSyS for high end Electronics, Embedded Software and

Systems

U Power Air Circuit Breakers– Overall best product award at ELECRAMA 2002– Hookable on electronic communication network– Can receive and give commands from cell phones, PCs

D-sine MCCBs– Certificate of appreciation at ELECRAMA 2002

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Divisional Performance Summary

•Rs.billion

FY 2002 FY 2001 % change

SalesDomestic 6.67 6.79 (1.8)%Export 0.38 0.22 72.7%

Total 7.05 7.01 0.6%PBDIT/Sales 12.8% 16.5%PBIT 0.79 -Segmental Assets(Net) 4.36 -

2% drop in PBDIT for FY 02 due to change in expense allocation basis

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Several initiatives to mitigate dropping margins

Efficiency improvements and cost cutting– Value engineering

Savings in materials cost by around 1% for standard products during FY 02

– Use of Six Sigma, First-time-right approach, Kanban

90% of vendors and 7% of stockists do business thru’ internet

Actual cost increase over the last 5 years contained to 2.2% against an increase of 6% in cost index

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Cement

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Market Scenario

Demand growth of 9.6% during the fiscal year– Demand from infrastructure sector subdued as yet– Housing remained the main driver for demand– Gujarat reconstruction also helped

Over capacity still persists– New capacities aggravated the situation

Prices were volatile since June 2001– Average prices better than previous year in most markets

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Divisional Performance

Domestic sales volume grows by 6.5%

Margins improves from 16.9% to 18.5% – Ex-factory realisation up by 4%– Several Cost reduction initiatives

Higher exports of cement –better value addition– 1.01 mt against 0.7 mt

Continued efforts to improve operating efficiencies

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Volatile cement pricesMumbai

100

120

140

160

180

Apr Jul

Oct Jan

Apr Jul

Oct Jan

Apr

RS. p

er b

ag

Ahmedabad

100

120

140

160

180

Apr Jul

Oct Jan

Apr Jul

Oct Jan

Apr

Rs p

er b

ag

Kolkota

120

140

160

180

200

Apr Jul

Oct Jan

Apr Jul

Oct Jan

Apr

Rs. p

er b

ag

Average ex-factory realisation at Rs.1303 per tonne (Rs.1251 for FY 01)

Chennai

120

140

160

180

200

Apr Jul

Oct Jan

Apr Jul

Oct Jan

Apr

Rs. p

er b

ag

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Towards a fully optimised business

L&T’s cement is among the most preferred– Consistent Quality– Commands a premium price in all markets

L&T is already among the lowest cost producer, if not the lowest

– Continuing efforts to reduce cost further

A strong and well spread distribution net work

IT has emerged as a strong tool facilitating further improvement in the business processes

– First in India to implement SAP in all its modules

Major efforts on to offset the distance to the market– Several initiatives to bring down distribution costs

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Consistent quality is our strength

State of art Control & Automation systems with computer controlled operations.

Systems at Awarpur and Hirmi upgraded

On-line quality control to manage quality of the product.

X-Ray Fluorescence analyzers to enable rapid and accurate quality control.

Use of Mines Quality Optimization Software to ensure quality of limestone feed

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Consistent improvement in operating efficiencies

Power Consumption

8790

92

9698

80

85

90

95

100

FY 98 FY 99 FY 00 FY 01 FY 02

Heat Consumption

701708714726734

650

675

700

725

750

FY 98 FY 99 FY 00 FY 01 FY 02

Units per tonne of cementKcal per tonne of cement

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Cost increases well below inflation

Variable cost index

888783

91

100

75

80

85

90

95

100

FY 98 FY 99 FY 00 FY 01 FY 02

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Further reduction in costs

Opportunistic purchases to manage costs– Switch from imported coal to indigenous coal– Purchase from smaller coal miners

“Total Productive Maintenance” practiced in Gujarat and Andhra plants for “Comprehensive Asset Care Regime”

– Employee ownership of plant, ensures minimal breakdown and reduces cost

– “TPM with Six σ” project launched in Gujarat Plant for process improvement, optimisation & control

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Further reduction in costs

Packaging costs reduced through value engineering– Specifications optimised– Use of laminated bags in place of pure paper bags

Fixed costs reduced by Rs. 320 million during FY 02

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Minimize the Total Delivered Cost

Reduce the number of stocking points and increase direct despatches

– Reduce secondary freight– Reduce handling cost– Reduce backtracking– Reduce operating cost of dumps

Maximize backhauling

Optimisation software in place to manage the net work to minimise total delivered cost

– 10 production centres, 12000 destinations, 22000 stockists/retailers

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Divisional Performance Summary

FY 2002 FY 2001 % change

Sales-Mio TonnesDomestic 9.53 8.95 6.5%Exports 2.40 2.36 1.7%

11.93 11.31 5.5%

Sales - Rs. Billion 24.59 22.77 8.0%

Ex-factory realistion * 1303 1251 4.2%

PBDIT/Sales 18.5% 16.9%PBDIT/Sales ( Incl.Fiscal benefits) 19.8% 19.0%PBIT 2.48 -Segmental Assets(Net) 35.37 -

* Net of transportation, taxes and duties, discounts, commission

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Summary Financial Performance

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Profit & Loss Account

FY02 FY01 %ChangeOrder Booking 109.22 104.27 5%Sales 83.58 78.25 7%Other Income 2.20 2.07 6%Total Revenue 85.78 80.32Cost of sales 75.25 70.19Operating Margin 10.53 10.13% to total revenue 12.3% 12.6%Interest 3.16 3.61 (12)%Depreciation 3.36 3.13PBT 4.01 3.39 18%Tax - Current 0.24 0.24

Deferred 0.29 -PAT 3.47 3.15 10%

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Savings in financing costs

Refinancing and pre-payment of various high cost borrowings

– More than Rs.7 billion refinanced– Prepayment of Rs.3.4 billion

Judicious use of derivatives to hedge costs

Effective monitoring of capital employed

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Balance Sheet

31-Mar-02 31-Mar-01SHAREHOLDERS' FUNDSShare Capital 2.49 2.49Reserves 30.95 37.51Net Worth* 33.44 40.00LOAN FUNDSSecured Loans 27.91 30.02Unsecured Loans 7.53 12.61Deferred Tax Liabilities (net) 8.52TOTAL SOURCES 77.40 82.63Net Block incl. CWIP 43.06 46.71Investments 8.85 8.13Current Assets 55.44 52.06Less: Current Liab. 30.59 24.72NCA 24.85 27.34Misc. Expenditure 0.64 0.45TOTAL APPLICATION 77.40 82.63

Rs. Billion

•* after adjusting deferred tax provision of Rs. 8.23 billion

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Cash Flow Statement

Rs.billionFY 02 FY 01

Net Profit before tax and extraordinary item 4.01 3.39Operating Profit before working capital changes 9.76 9.44Change in working Capital 2.65 (3.14)Operating Cash Flow 12.41 6.30Direct Taxes Paid 0.70 (0.68)Investment in Fixed Assets (2.86) (3.89)Free Cash Flow 9.55 2.41

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Outlook FY 2003

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E&C

Strong backlog of over Rs.110 billion

Revenue growth of 15% in FY 03

Following sectors will offer new opportunities – Refineries & Petrochemicals

Postponed expansion plans expected to take off– Power– Infrastructure – Roads, Bridges, Airports, Water– International Project Business

Selective order booking

Current shoploading levels are at around 90%

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Order prospects

Likely value prospects in various sectors– Infrastructure Rs.35 billion– Refineries & Petrochemicals Rs. 36 billion – Power Rs.20 billion– International Rs. 15 billion

L&T well positioned to exploit these opportunities

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Electricals

Price cuts seem to have abated– Margins could improve if competitive pressures ease

Two new products to be introduced– Both these products won award for “Good Design” in the recent

Elecrama Exhibition

Ongoing cost cutting measures

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Cement

Continued strong demand growth of 8-10%– Low interest rates would encourage investments in housing– Investments in roads and other infrastructure projects

Capacity addition slowing down– No major greenfield/brownfield capacity planned– Most upgradation efforts completed– Blended cement potential exists in the West

East is at saturation level and South is nearing saturation

Demand growth would help price stability

Continue cost saving measures to improve margins– Further savings expected in distribution costs– Continue with optimisation of operating costs

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