As competition crams into the construction business, around the world, it is vital for our companies to expand into markets and acquire new skills. Luckily, Larsen &Toubro is well positioned to sign a new deal, which will help it beta-test its way into a new market: water. One that may guarantee its industrial future for decades to come.
In a new project which is likely to gain strategic importance, construction company Larsen&Toubro, has partnered with Valoriza, a mid-sized Spanish company specialized in water. Though Valoriza’s cashflow is quite small compared to its Indian partner, it is a full partner as it possesses the water technology which Larsen&Toubro does not. L&T really needed this fresh blood. They have been hit hard with problematic delays on projects, and bad ink, they need a clean slate. Part of the company’s hardships are structural: Indian business paper First Post says (1) “Though L&T is proxy to the India growth story, with capital expenditure and investments slowing down, L&T is bound to suffer from slowing execution and order book. It will also suffer, as 90 percent of its orders are domestic. The company has guided for a 15-20 percent order book growth this financial year. But such a task might get almost impossible with the slow down.” Another part is specific to undergoing projects, which are not going as well as planned. In 2011, L&T was bogged down in a large railway project, because it had been unable to carry out the land acquisition indispensable to the project. (2)
Qatar launched Ashghal (3) in 2004, in order to monitor, coordinate and promote industrial development projects on a national level. His Excellency Engineer Nasser bin Ali Al Mawlawi, is in charge of running the agency, selecting suppliers and monitoring projects. Currently, Ashghal is simultaneously running 4 large-scale programs: the Expressway program (4), the Local Roads & Drainage program (5), Inner Doha Re-sewerage Implementation Strategy (IDRIS (6)) Program, and the Sharq (7) Crossing Program. The project for which L&T is favorably shortlisted is the IDRIS project: upgrading once more the wastewater management system in South Doha, in order to guarantee steady supplies in fresh water and reliable wastewater evacuation in decades to come.
This is an amazing opportunity for L&T to try out a new market, away from a national market which is sluggish. By acquiring experience in the water market, they can build an entire business future.
Water is considered by many to be the most stable and profitable market on earth, with the largest potential. According to the USGS (9) water science school “Estimates vary, but each person uses about 80-100 gallons of water per day.” With every new person born in the world, comes the necessity to provide drinking water, but also adjust agricultural and industrial levels, which are both major water consumers.
L&T doesn’t wish to invest in training and bear the risk. Training is long and expensive, for two reasons: training programs must be designed, trainers must be paid, and facilities made available, but also, employees who are in training are not producing billable hours.
Instead, with this new contract, L&T will be able to beta-test its methods and acquire the skills necessary to obtain further contracts in the water sector. Water network engineering is not very different from general engineering, and if mistakes are made, due to the firm’s inexperience in the matter, they can always be corrected later. Within a few contracts, it is likely that L&T will be up to speed, and just as capable as any other engineering firm to produce quality wastewater management networks.
It is very likely that L&T is working very energetically to get out of its tight spot, which explains that they have been running for contracts left and right. The IDRIS project will not be remembered as one of many contracts, but as the one that enabled L&T to launch into a completely new, and enormous market. If this deal comes through for the Indian firm, then now would be the time for investors to turn their attention towards it.