Will re-bid for NTPC boiler tender: L&T CMD A.M.Naik in a detailed Interview

Q: Your order inflow guidance was very strong at 25% growth year-on-year. Does that still hold given the disqualification of the large NTPC order?

A: It really very much holds and we continue to be bullish on 25% new order intake positioning and the order book to grow to Rs 125,000 crore. Let me clarify on NTPC tender, it is not really not disqualification it is re-invitation. Therefore, the tenders have been refloated and L&T will equally participate in it. There is an issue on turbines but there were already four qualified bidders and that is an issue we are arguing whether it should be rebid or not. But for your information, the turbines were relatively lower impacting in the overall order booking. In fact, I am almost confident that issue will also be sorted out. So market and people at large who did not know details of what is going on have overreacted to the situation.

I just want to tell you it was not a disqualification. It was a very trivial issue of L&T having invested through subsidiary on one side and still continued to remain the promoter as well as a stakeholder.

After BHEL, there is no one more ready to deliver the power plants. For your information the first two turbines order we have got two years back we are delivering ahead of time end of the year. We are the only company which produces power equipment today. The other bidders, possibly, have just taken land but unfortunately the qualification criteria was too lenient and therefore it appears as though L&T will be impacted.

Believe me or not, we continue to enjoy huge confidence when there are customers who want to find very high quality equipment other than the Chinese import. Invariably therefore we will be I would say more than makeup for whatever may have happen. Relatively, I want to tell you nothing much has happened. We are back on the track. We are going to bid the same tenders again and hopefully win again.

Q: One quick clarification on that are you saying that it is the boiler part of the deal which you will rebid for because that was the expectation for a lot of people or is it the turbine part as well which means that the entire order that is open for rebidding for L&T again?

A: The boiler has already been rebid. The turbine is an opportunity even if we get three out of 11 because it is to be distributed to three is around Rs 3,000-3,500 crore while the boiler is Rs 7,000 crore. That Rs 3,000 crore is in question but we have many other opportunities which possibly we will activate such that we have than more for makeup for it. But at the same time I do not want to say that we are out of turbine.

We are arguing our case that it is a very trivial technical ground, not technological ground. L&;T is more in readiness than any one else. Our boiler shop has gone into production. Turbines are being delivered already and nine new factories for all the auxiliaries of the power plants are all going into production. Compared to that, us at BHEL, nobody else is even ready with a new factory. So bulk of it will be imported and the penalty is very little. Some of these things, which are possible to be settled across the table with many other government agencies as well as the private companies, NTPC found a very trivial reason to do this now.

There is a new tender which has come out, which we have not expected to happen so fast, and within two months they are floating a tender for nine more boilers and turbines of higher capacity which is 800 megawatts.

We are now not talking 11 we are talking 20 and in all 20 we are in for boilers. We are certainly in for a bigger turbine and we are arguing our case and we continue to hope that we will get a response which is just and right even for the turbine of 11.

Q: Both for the turbine segment and the boiler segment when does retendering open and because it is a higher capacity, does the retendering now happen at a higher price or expected to be at a higher bid price for any eventual winners?

A: No, there are two separate programme. There were 660 megawatt, 11 of them, and the one which had to come out for 800 megawatt in addition to that for nine more. That is moving now and originally what was floated, 11 of them, boilers have already been rebid and the bid will be closed on August 25. That has already happened.

The only piece, which is not yet rebidded for which L&T is arguing, is the 11 turbines for which they have qualified four to five companies and therefore maximum any one company could have got this four and more or less not more than three.

We are talking about one-fourth of the piece now or less, which is where the discussions are on. Nine turbines are open again for everybody. It is a new tender. Nine boilers of 800 megawatts are open, 11 boilers of 660 megawatts are rebidded about 660 megawatts of 11 turbines are under discussions—that is the correct position.

Q: For both the boiler and turbine order, was this included in the order inflow guidance that was set out at FY11 and in terms of pure numbers as in rupees crore how much did it constitute to your total order book?

A: We had thought about around 20% as our overall power order booking in the whole company, which is around Rs 18,000 crore to Rs 20,000 crore. We will exceed that not withstanding whatever may have been stated in the press and otherwise understood and somewhat misunderstood. I can tell you one thing for sure we will exceed that by quite a percentage.

Q: That is encouraging to hear and also encouraging to hear that there are so many new boiler and turbine contracts are coming up to you to bid. The only other issue that some people or your investors might have some apprehension on is the level of comparative intensity, which is now building up in the new tenders, which will be opened up because there is no longer L&T, BHEL other players like Thermax, BGR etc—they have got into global technical collaboration. Would you concede the comparative intensity is higher and that might led you to bid a bit more aggressively which might require some margin sacrifices?

A: It is a very good observation you made. I think the only point you should realize is that we have far more indigenous content and boiler it has grown to as much as 80%. The turbine we have come to 60% plus. By the time this bid comes out and the new tenders are submitted we would have reached to indigenization on turbine to 75%.

It is going to take a quite a long time for so called new comers to get to that. The moment you indigenous more you become more competitive. In other words L&T will be more aggressively in indigenizing but not sacrifice the margins.

Q: So you are saying that you are confident of exceeding your order flow guidance and at least holding the margins that you had in fiscal year 2010 despite higher competition?

A: You are very right. Also, while we may hold the margin we will exceed the target so far as the order booking is concerned—not maintain, exceed. It is not withstanding that there are two more companies who may come in and so on and so forth because there are still issues of a very loose collaboration among the companies some of which you mention. I do not want to go into it.

It is not a strong joint venture- 51:49 L&T and MMHI it is more one of the companies only doing their association with another companies going to take a long time before they can build any new facilities. Over the next two-four year what you say maybe right. But I do not think in the next two years there is going to be much impact. We will obviously get an advantage of early start.

Also, you must realize that the reliability of the delivery is paramount in the private sector. We will have a sizable part of the private sector.