Mumbai, March 22 Engineering, procurement and construction major Larsen & Toubro has not seen any major business impact due to the ongoing Middle East conflict, as nearly 95 per cent of the projects are continuing to function, a top official has said.
The company, which gets over 35 per cent of its revenue from the region experiencing conflict after the US and Israel's attack on Iran and the subsequent retaliations, has, however, flagged logistics and supply chain as key challenges and noted revenue risks if the situation remains unchanged.
L&T does not see any immediate impact on revenues as the 5 per cent of projects where work has been stalled do not contribute significantly to the topline, Subramanian Sarma, its deputy managing director, told reporters over the weekend.
However, if the logistical issues do not get resolved in three months, there can be an impact through revenue deferment, he added.
The top company official, who directly oversees the energy portfolio, declined to directly answer queries on profit margins impact but hoped that it will be able to pass on the increase in costs to the customers.
Stating that none of its sites have faced any attack, and all its staff and workers in the Middle East are safe, Sarma said work at 5 of the 100 projects in the region has ceased either because the company took a decision to that effect by itself or because a customer suggested to do so due to risk factors such as proximity to a military base, etc.
"There has been no disruption in 95 per cent of the sites. It is business as usual," Sarma said, adding that work is suspended or disrupted in 5 per cent of the projects.
The company has 8,000 staffers and 2,000 of their family members, and an additional 20,000 contractual workers at its sites in the Middle East, Sarma said, adding that none of the staff has evinced any interest to return.
It has, however, stopped sending any new workers into the Middle East since the conflict started, he said.
Sarma said the Middle East has been a "second home" to the homegrown company, where it has expanded over the last three decades.
Elaborating on the supply chain challenges, he said the company generally keeps supplies that can last up to three months at a project site itself, and added that the last two weeks have seen disruptions in the supply lines.
Getting material from other regions, including China and Europe, is a challenge as shipping lines are shut, but any sourcing from within the Gulf countries is not impacted, Sarma said.
Everybody is looking at alternatives to the problems created in the Strait of Hormuz and utilising ports in Oman is among the possible alternatives for evacuation of cargos, Sarma said, exuding confidence that a solution will be found soon.
On the margins front, he said it is a "mixed bag" when it comes to projects in the Middle East, with some being fixed price ones and some having price variations built in.
Citing the experience during Covid, he said many customers paid higher to adjust for higher prices, hoping for a similar outcome in the present situation as well.
The insurance costs have remained the same for older projects, but premiums on newer projects will go up in future and costs will have to be baked-in in project pricing.
The company is continuously assessing developments, and has formed a situation management committee comprising top executives and continues to be in touch with key officials, including Indian missions in the region, he said.
Sarma said the company had always thought over the geopolitics in the region and plans made then are helping it now.
Once the conflict is over, it sees business opportunities in reconstruction, faster ordering of new projects, shift to alternative sources of energy like renewables and newer evacuation routes for oil and gas, which may involve laying pipelines, he said.
If Iran integrates better with the world and there are no sanctions, it will provide a lucrative business opportunity, Sarma said, specifying that at present, it has no exposure to the country.
The presence in the Middle East has been a "very rewarding" one for L&T, Sarma said, adding that it believes that it will continue. The conflict is a short-term "aberration", and the geography continues to hold business promise over the long-term, he said.