L&T defers shipbuilding expansion

Larsen & Toubro Ltd. | Engineering - Construction | Construction & Infrastructure | BSE: 500510 | NSE: LT

05 Dec 2008 Evaluate

Larsen and Toubro Ltd (L&T), the country’s largest private sector engineering and construction firm, has deferred its entry into the commercial shipbuilding business and has also decided to scale back its investment for a new shipyard at Kattupalli near Chennai, according to sources.

The company has made its decision in line with “cyclical downturn in the commercial shipbuilding business”. L&T, which is also building the port at Kattupalli, had initially planned to build large cargo ships at the facility. It is yet to close the financing for the project.

Under its scaled-down plans, the firm will continue to build and repair ships at its Hazira facility in Gujarat, where it has orders worth $350 million (Rs1,750 crore) to build 10 ships. The facility is used to build specialized vessels such as RoRoLoLo (roll on, roll off, load on, load off) ships, heavy handling vessels and naval vessels, including submarines, in addition to repairing ships, a business that is immune to business cycles.

The move made sense in the current environment. A company will curtail capital expenditure, especially in an industry where freight rates are close to historic lows, and when buyers of ships are postponing purchases. Earlier this week, the Baltic Dry Index, a global measure of shipping costs, fell to its lowest level since it was created in 1987. It has fallen 94% since its peak in May. crack crack