1

Larsen & Toubro LimitedPerformance for FY 2003

May 2003

2

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.

3

Strong performance in a difficult environment

Good growth in order booking in difficult circumstancesRevenue growth reflects the strong order backlog at the beginning of the yearDrop in PBDIT

– lower cement prices– lower margin on exports – higher provisioning requirements– additional provision for retirement

benefits

PBT improves smartly with lower interest cost

– reduction in funds employed– active management of loan portfolio– significant gains from hedging

activities

Good growth in PAT

Rs. Billions

Order Booking 132.11 108.20 22%

Sales 98.70 81.67 21%

Other Income 2.54 2.18 17%

Total Income 101.24 83.85 21%

PBDIT 9.92 10.42 (5%)

PBIDT/Total Inc. 9.8% 12.4%

Depreciation 3.05 3.26

PBIT 6.87 7.16 (4%)

Interest 1.77 3.16 (44%)

PBT 5.10 4.00 28%

Tax Current 0.88 0.24

Tax Deferred (0.11) 0.29

PAT 4.33 3.47 25%

Order Backlog 136.87 111.36 25%

FY 03 FY 02 % Change

4

Balance Sheet

31-Mar-03 31-Mar-02SHAREHOLDERS' FUNDS

Share Capital 2.49 2.49Reserves 33.14 30.95Net Worth 35.63 33.44LOAN FUNDS 31.76 34.63Secured Loans 27.03 27.10Unsecured Loans 4.73 7.53Deferred Tax Liabilities 8.41 8.52TOTAL SOURCES 75.80 76.59

Net Block incl. CWIP 40.49 42.64Investments 11.60 9.18Current Assets 61.60 53.87Less: Current Liab. 38.59 29.74NCA 23.01 24.13Misc. Expenditure 0.70 0.64TOTAL APPLICATION 75.80 76.59

Marginal reduction in total assets despite a 21% increase in sales

– Focus on containing working capital– Capital expenditure contained to Rs.

970 million

Reduction in loans by Rs. 2.87 billion (FY 03 Rs. 7.2 bn.)

Regrouping due to accounting change for integrated JVs

– Net funds employed of Rs. 490 million (FY 03 Rs. 333 million) accounted as investments

Net Debt to Equity (incl. Deferred Tax Liability) goes down to 58% from 76%

Rs. Billions

5

Others5%Elect.

8%

Cement30%

E&C57%

Others4%Elect.

8%

Cement26%

E&C62%

Segment-wise revenues

FY 03 FY 02

6

Segment-wise share of EBITDA

Others1%Elect.

9%

Cement45%

E&C45%

Others3%

Elect.11%

Cement38%

E&C48%

FY 03 FY 02

7

Segment-wise share of EBIT

Others1%Elect.

11%

Cement36% E&C

52%E&C61%

Cement24%

Elect.14%

Others1%

FY 03 FY 02

8

A challenging economic environment

Falling growth rates in IndiaLow level of investments in the economySevere competition for the limited opportunitiesTalent acquisition and retention was a key concern

(3.1)7.3(6.7)(0.7)8.1Agriculture

10.7(3.4)1.77.012.6Capital Goods

5.82.95.47.24.4Manufacturing Sector

5.82.85.16.64.1Industrial Growth

4.45.64.46.16.5GDP

02-03 (E)01-0200-0199-0098-99

Growth %

9

A vision to meet the challenges

….L&T shall be an ….Indian

multinational…

…committed to enhancing shareholder

value…..

…constantly creating value and attaining

global benchmarks…..

10

How we responded

Thrust on “internationalization” of operations to diversify markets– Build “L&T” as an international brand by creating

awareness about L&T and its capabilities– Approved vendor status from owners, contractors,

process licensors and inspection agencies– Formation of consortia with global majors– Expansion of product range and global network

Improve cost competitiveness and enhance skills

Institutionalisation of risk management practices

Initiatives to retain, attract and motivate talent

11

Strong growth in international businessEquipment exports to more than 45 countries including North America, UK, Europe, Middle East..

Success in securing turnkey contracts– Two gas based power plants in Oman and

Sri Lanka– Gas processing and Pipeline project in

Tanzania– Platform in Qatar– Qualified to do turnkey projects in oil &

gas, refinery sectors

International construction business with focus on Middle East, SAARC, ASEAN & CIS

– JV/ Subsidiary in Saudi Arabia, Oman, Malaysia

– Experience of executing large construction jobs in USSR, Middle East, Malaysia

Export margins are improving – Acceptability by customer– Learning from experience– Increasing order sizes

27503840

7200

11240

16330

98-99 99-00 00-01 01-02 02-03

Growth in international business

Rs. million

12

Enhancing capabilitiesFront-end Engineering and Design group at Vadodara

– ISO 9001/ISOm1401 certified– Serves the process engineering requirements of Refinery, Petrochemicals and

Fertilizer industries– Service capabilities include feasibility studies, process licensor selection, basic

engineering packages

Basic and Detailed Engineering centres at Mumbai and VadodaraEngineering, Design and Research Centre at Chennai serving the construction activities

– Several innovation introduced in construction engineering

Engineering JVs with world majors to meet capability gaps– Chiyoda, Sargent & Lundy, Ramboll

R&D centres to support product development and upgradation efforts of Electrical & Electronics segment

– Several new designs and awards– Provides the competitive edge

Thrust on export of engineering services

13

Improving cost competitiveness

Thrust on cost reduction – Global Sourcing– E-procurement– Value Engineering– Efficiency improvement in plant operations

Delivery cycle reduced from 18-25 months to 8-11 months for many critical equipmentSix Sigma processes in manufacturing activities to reduce rejection and rework

Supply Chain Management covering materials, sub-contracts, manpower, plant & machinery

Working Capital Management– All out effort to reduce levels of working capital levels– Inventory levels reduced– Fuller utilisation of vendor credits

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Institutionalizing risk management

Size and complexity of orders are increasing even as delivery periods are becoming longer

Exposure to international business is increasing– Target to increase international business to 25% of sales by

2006

Risk management module being evolved concomitantly as business is scaling up

– Risk management model incorporating state-of-the art tools and techniques has been developed

– Training programs for risk identification and management

Risk management is a key focus area for E&C Business

15

Several HR initiatives for talent acquisition and management

Creating a Performance Driven Culture– Focus on Value Creation

Capability building and enhancement – Training as a conscious strategy and business decision for growing talent– Management Development Centre at Lonavla – a temple of true learning– Capability and Leadership Development/GLOPAT Programmes

Contemporary Program to benchmark Global Management Practices for Top Management

Global Business Strategy program for key employees involved in internationalization of businesses

Management/Technology/Executive Leadership Programs to identify potential business and technology leaders

Sharper differentiation in compensation to reward performance and attract talent

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Tracking the results

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Sector-wise Order Booking

24

7

12

11

46

25

11

18

18

28

98

26

26

31

5

21

17

43

14

24

24

6

31

15

0%

20%

40%

60%

80%

100%

'98-99 '99-00 '00-01 '01-02 '02-03

Process Oil & Gas Power Infrastructure Others

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Sector-wise Order Backlog

10

16

16

29

29

17

10

19

17

37

88

25

46

13

5

17

21

48

9

17

21

10

35

17

0%

20%

40%

60%

80%

100%

'98-99 '99-00 '00-01 '01-02 '02-03

Process Oil & Gas Power Infrastructure Others

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Cash Flow StatementRs. Billion

1998-99 1999-00 2000-01 2001-02 2002-03

Operating Profit 8.06 9.34 9.44 9.76 9.02

Changes in Working Capital (3.64) (5.42) (3.14) 2.65 3.06

Operating Cash Flow 4.42 3.92 6.30 12.41 12.08

Direct Taxes Paid (1.49) (0.69) (0.68) 0.70 (0.41)

Investments in Fixed Assets (6.28) (3.45) (3.82) 0.33 (0.80)

Interest (Net) (1.51) (3.17) (3.71) (3.69) (1.94)

Investments in Subs./JVs (2.08) (3.58) (0.75) (0.05) (0.29)

Dividends from Subs./JVs 0.43 0.24 0.12 0.52 0.39

Net Free Cash Flow (6.51) (6.73) (2.54) 10.22 9.03

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Snapshot of historical performance

0

20

40

60

80

100

120

140

1998-99 1999-00 2000-01 2001-02 2002-03

Rs Billion

0

2

4

6

8

10

12Rs. Billion

Order Booking Total Income Total Assets PBDIT

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Segmental review

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Engineering & Construction

23

Engineering & ConstructionGood order booking in a slack investment climate

– Strong growth in export order booking

A few path breaking orders– PTA project for IOC– Platform order for Qatar

Petroleum– Gas pipeline project - Tanzania

Received 4 industrial licenses in defence sector

Margin drops due– Retirement provisions– Lease charges for Plant &

Machinery– Additional provisioning

FY 03 FY 02 Change

Order Booking 95.02 73.54 29.2%

Domestic 75.65 64.68 17.0%

Export 19.37 8.86 118.6%

Sales (1) 61.48 45.98 33.7%

Domestic 48.72 37.50 29.9%

Exports 12.76 8.48 50.5%

Order Backlog 136.87 110.63

EBITDA 5.00 4.78 4.6%

EBITDA/ External Sales 8.1% 10.4%

EBIT 4.45 4.03 10.4%

Net Segment Assets 21.02 20.64

(1)Excl. inter-segment sales 0.07 1.16

Rs. Billion

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E&C - Major orders received - Domestic

1250PTA Project/Elec.Work for Panipat Refinery, Petrochem

1370Road Project-J&K State Power Corporation Ltd.

1700Sulphur Block and associated facilities, BPCL, Mumbai

2960Jaipur Kishengarh Expressway

2160Orders for Water/Effluent/Sewerage Treatment Plants

2690Karnataka State Highways-Improvement Project

6120DHDT and Hydrogen Package for IOCL, Panipat

3360Water Distribution System at Vizag

12420IOCL PTA Project

1200LPG Cavern construction for South Asia LPG.Co.Ltd.

1140Laboratory & Animal House – Noida, U.P.

1980Road Upgradation for PWD, Uttar Pradesh

Rs. Mio

25

E&C- Major orders received - International

Rs. Mio

Songo Songo- Gas processing and pipeline Project, Songas Ltd.Tanzania 5160

Platform for Qatar Petroleum 4700

Equipment for OMIFCO, Oman 1560

400 KV Transmission Line, Fujairah, UAE 1520

Turnkey Services for Sulphur Recovery Unit forKuwait National Petroleum Corporation 1210

Overhead Transmission Line for Abu Dhabi Water & Electricity Authority Limited 1200

Conveyor Belt/detailed engineering forLafarge Surma Cement 1170

26

Electrical & Electronics

27

Electricals and Electronics

Impressive sales growth in the face of competition from MNCs

– Helped by Metering Instruments and Petrol dispensing products

Margins improve – Several cost reduction

measures

Market share maintained at 44% for low tension switchgear New product intensity maintained at a high 35%Continuing efforts to reduce funds employed

Rs. Billion

FY 03 FY 02 Change

Sales (1) 7.81 7.05 10.8%

Domestic 7.45 6.67 11.7%

Exports 0.36 0.38 (5.3)%

EBITDA 1.14 0.93 22.6%

EBITDA/ External Sale 14.6% 13.2%

EBIT 1.04 0.81 28.4%

Net Segment Assets 4.45 4.36(1)Excl. inter-segment sales 0.84 0.31

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Cement

29

Cement

Strong consumption growth of 9.5%

– Industry capacity utilisationat 85%

– Large supply overhang

L&T volume grows by 11.7%

Domestic prices remained low for most part of the year

– Some improvement during Q4– Average sales realisation for

the year dropped by 10%

Ongoing cost improvement efforts

– Efforts on logistics beginning to show results

FY 03 FY 02 % change

Sales-Mio Tonnes 13.32 11.93 11.7%

Domestic 10.56 9.52 10.9%

Exports 2.76 2.41 14.5%

Segment Sales (1) 25.83 24.86

External Sales 22.99 22.50

Exports 2.84 2.36 20.3%

Net realisation * 1276 1420 (10.1)% (Domestic)

EBITDA 3.92 4.79 (18.2)%

EBITDA /Sales 15.2% 19.3%

EBIT 1.78 2.71 (34.3)%

Segment Assets(Net) 33.16 35.37Excl. Inter-segment Sales 1.32 1.25

Rs. Billion

30

Continuous improvement in Operations

699701708

714

726

690

700

710

720

730

740

98-99 99-00 00-01 01-02 02-03

Lowest in the Industry

Coal Cost (Rs/T of Cement)

Heat Consumption (Kcal/Kg Clinker)

L&T Group 235 709

ACC 242 782

Ambuja 261 747

Grasim 258 714

Madras Cement 282 776

India Cement 376 850

L&T Heat Consumption –K.Cal/ Kg.Clinker

Industry Comparison – FY 2002

Comparable with industry

FY 2002

Power Cost (Rs/T of Cement)

Power Consumption

(kwh/t of cement)

L&T Group 240 91

ACC 262 92

Ambuja Group 203 89

Grasim Group NA 91

Madras Cement 238 78

ICL Group 291 92

Source - Director's report, CMA report

L&T Power consumption –KWh/Tonne of Cement

Industry Comparison – FY 2002

99

9491 91

88

80

100

98-99 99-00 00-01 01-02 02-03

31

The “ICBM” Initiative

Initiative launched in January 2002 to “Increase Cement Business Margins”

Covered the following elements:– Network Optimisation: Analysis of Price / Demand /

Constraints/ Cost of Constraints – Total Delivered Cost : Plant-Market Link ; How to serve at

lowest possible cost– Sales & Distribution: Market analysis ; Focus on increasing

market share – Consumer Research: Understand Consumer Behaviour ;

Increase “L&T” Brand pull

Benefit Tracking & Monitoring– “What gets measured gets done”

Addressing multiple facets of the supply chain

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The “ICBM” Initiative : Gains so far

Entire Cement Division aligned towards objective – Achievement of agreed tangible targets– Motivation to achieve ongoing improvements

Some results:– Consistently improving jetty performance : Utilisation % projected to

increase to 96% in FY04 vs. 87% in FY02– Distribution cost reduced by Rs. 350 mn. over FY 02– Freight cost level maintained in spite of steep increase in diesel

prices

Making ICBM a way of life

33

Outlook FY 2003 – 04

34

E&C – Outlook

Healthy order backlog at Rs. 136.87 billion– Good visibility of revenue and margins– Growing international presence

Order prospects in the refinery, oil & gas and infrastructure sectors

– Large investments in Oil & Gas in public and private sector– Investments in pipelines by GAIL/IOC – more than 2500 kms– Large investments by government bodies in water/water related

projects– Passing of Electricity Bill and reform related central assistance to

accelerate reforms in the power sector and catalyse investment– Prospects of more than Rs. 150 billion in the infrastructure sector– Heightened investment activity in the Middle East and Africa– Rebuilding of Iraq and Afghanistan

35

Cement - Outlook

Consumption growth expected at 8 – 10% with large investments in infrastructure and strong demand from housing sector

Improving demand-supply situation– No major addition to capacity in the next two years– Artificial incentives for new capacity addition are withdrawn– Most new capacity creation by larger players aiding consolidation

Cement prices to stabilise and improve in the current year

Continuing effort to reduce costs and improve efficiencies– “Parivartan” (“Change”) – an initiative to involve all levels of employees in

improvement– Six sigma and Total Productive Maintenance Programme for enhanced plant

performance, availability and reduced maintenance costs– Further benefits expected from logistics optimisation

Margin improvement to be better than the industry as volumes grow– Lowest variable cost– Domestic despatches are only 70% of capacity, allowing volume growth without

further investment/commitment to fixed costs

36

Electricals & Electronics - Outlook

Growth opportunities in transmission and distribution resulting from the ongoing reform process

– New Electricity Bill– Accelerated Power Development Programme

New opportunities in Metering-demand for intelligent meters

Petrol Pumps business will see growth from new products and strengthening of the distribution network by oil majors

37

Thank you