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Management’s Discussion & AnalysisThe management of Larsen & Toubro Limited presents the analysis ofdivision-wise performance of the Company for the year 2004-2005 and itsoutlook for the future. This outlook is based on assessment of the currentbusiness environment. It may vary due to future economic and otherdevelopments, both in India and abroad.

REVIEW OF ECONOMY

During the year 2004-2005, the Indian economy continued its high growthperformance, with GDP increasing by 6.9% over 8.5% in the previous year.As the world economy expanded by an unprecedented 5.1%, India alongwith China played a predominant role. A broad-based recovery was evidentfrom all the economic indicators.

• Despite unfavourable monsoon, real GDP originating in agriculturaland allied activities rose by 1.1 per cent with food-grains productionat over 210 mio tonnes.

• Industrial recovery firmed up and broadened, driven mainly bymanufacturing sector.

• The services sector remained the main engine of growth at 8% over9.1% in the previous year.

• Exports at about $80 bn exceeded the target while forex reserveswere at a record $ 141 bn.

• Stock markets were buoyant with the Indian bourses outperformingmany international stock indices.

• With moderate inflation, interest rates continued to remain relativelylow.

• The rupee was volatile against the USD during the year although withan appreciation bias.

The year was witness to large scale volatility in the commodity markets.The price of crude touched new highs creating uncertainties of sustainingthe global growth momentum. Rising input costs were a cause for concernfor most manufacturing businesses. Despite these developments, industry

in India and particularly the manufacturing sector grew by 8.8% from 7.4%in the previous year. The construction industry which is one of the majordrivers to an economy has been maintaining a growth rate of about 6% inthe last few years. The capital goods segment grew by 12.6%. The mostnoteworthy growth was witnessed in the case of machinery and equipmentat 19.2%. The buoyancy was aided by productivity gains, cost cutting bycorporates, trade expansion and financial stability. Commodity sectors likesteel and oil and gas attracted large investments. World trade grew by astrong 9% in 2004 on top of an increase of 5% in 2003. The global economicexpansion was a synchronized recovery across regions.

Note :- Figures quoted above have been referenced from Governmentsources.

COMPANY PERFORMANCE

The Company performed well during 2004-2005. All the major businessesreported growth in their revenues. The performance of the various businesssegments and the overall performance of the Company during 2004-2005are detailed in the report. The brief details of the performance of majorsubsidiary and associate companies are also enclosed.

Segment performance

The Company’s businesses are classified into the following major segments:

Name of segment % of Segmentrevenue to Total

Engineering & Construction (E&C) 85%(Construction, E&C Projects & HeavyEngineering)

Electrical & Electronics 9%

Others 6%

Following are the performance highlights of the major operating divisionsof the Company.

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Section of a hydel project executed by L&T.

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K. V. Rangaswami

CONSTRUCTION

AN OVERVIEW

L&T undertakes engineering, design andconstruction of infrastructure and industrial projectscovering civil, mechanical, electrical andinstrumentation disciplines through its ECC(Engineering, Construction and Contracts)Division. The Division is India’s largest constructionorganization having many of the country’s prizedlandmark constructions to its credit.

The Division offers complete turnkey solutions withengineering backed by modern methods ofconstruction and project management techniques.In-house engineering skills available at theEngineering Design and Research Centre (EDRC)enable the Division to secure contracts atcompetitive prices with single point responsibilityfor quality delivery. The Division has an excellentrecord of delivering projects on time and to thecomplete satisfaction of the customers, many atime setting benchmarks.

BUSINESS ENVIRONMENT

The construction market today is worth aboutRs.3,20,000 crore and employs over 30 millionpeople. The Indian construction industry by andlarge still remains fragmented and dominated bytraditional methods with excessive labourdeployment. The strengths of the ECC Divisionhowever are in contrast to this scenario. TheDivision has a very large plant & machinery baseconsisting of the most modern equipments. Latestproject execution techniques are deployed towardsimproved efficiency & quality.

Sales from International operations are steadilyincreasing in line with the company’s vision tobecome an Indian MNC. International salesaccount for approximately 12% of the totalrevenues of the Division. The Division has apresence both directly and through its joint venturecompanies in the Middle East region, Africa and inpockets of Asia.

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The Division has five business sectors that are formed based on theprominent technology content and the nature of clientele. Apart from theseveral site offices, project execution is through zonal & regional officesboth in India and abroad.

BUILDINGS & FACTORIES SECTOR

There were various factors that contributed to the prospects for this sectorin the year 2004-2005:

• The growth in the information technology (IT) sector

• The demand for specialty hospitals, academic centres, sportscomplexes etc.

• Investments in large townships and increased manufacturing activity /expansion plans

The sector benefited by the ventures into new markets like the North Eaststates of India and in neighbouring countries such as Sri Lanka, Mauritius,etc. This sector succeeded in focusing on medium to large projects, thusimproving operational efficiency and returns.

L&T Concrete has maintained its market leadership in the Ready MixConcrete (RMC) market in India. Road connectivity projects across thecountry, flyovers, conversion to concrete roads, Metro Rail Projects etc,contribute to growth in RMC. Acceptance of cement substitutes has alsohelped popularizing RMC. The company plans to expand the RMC operationsrapidly in the country by investing in additional RMC plants.

OUTLOOK FOR THE SECTOR

With the IT sector boom continuing, the office space requirement in the next4-5 years is expected to be about 120 million sq. ft. Many specialty hospitals,academic centres, sports complexes etc. are expected due to increasingdemand and continued incentives for development of urban infrastructure.Private participation is poised to go up further, adding more pace to thegrowth in this sector. With the liberalisation in FDI norms (100% FDI inhousing projects) a large number of mega township projects are expectedto come up in the next few years, especially in view of the shortfall in theIndian housing sector which is pegged at around 40-60 million homes by2010. The increase in capacity utilisation, global economic expansion andthe continuity in reforms offer scope for the manufacturing industry, especiallyautomobile, cement and glass, to invest in new plants and in expansions.

TRANSPORTATION INFRASTRUCTURE SECTOR

The year 2004-2005 saw lesser number of projects coming up in the roads,bridges and ports sectors. The North-South-East-West (NS-EW) corridorpackages (National Highway Development Project (NHDP) - Phase II) yieldedsome opportunities. Progress was achieved in obtaining Governmentclearances for the Bangalore Airport project which is scheduled to achievefinancial closure shortly.

Having successfully completed the breakwater construction for the Seabirdproject for Indian Navy and the Causeway/Spur project for Shell’s LNGTerminal at Hazira, the Company has established itself as a key player inthe ports business and will consolidate further in this line of business. Ajoint venture agreement was executed with TISCO for the port project atDhamra, Orissa.

The Division has been making significant inroads in bagging and executingorders through the BOT (Build-Own-Transfer) /PPP (Public PrivatePartnership) routes. The Jaipur-Kishengarh road project was successfullycompleted during 2004-2005 through this developmental route. This business

involves considerable financial engineering and forecasting of traffic volumesand involves complex legal and regulatory procedures, requiring intervention/ clearance of multiple authorities. Long gestation periods also continue toweigh down PPP projects.

However the outlook for BOT projects is good. The Government hasemphasized that majority of the infrastructure projects will be executed viaBOT / PPP route. Moreover the BOT / PPP projects in India are reaching astage of maturity in terms of public and polity perceptions. This has hencebeen identified as a high potential growth engine for the Division.

OUTLOOK FOR THE SECTOR

The Government is expected to provide thrust to infrastructure projects inview of the current state of infrastructure in India and the future needs. Therenewed & increased focus in the Indian Union Budget 2005-2006 oninfrastructure is expected to encourage investments in roads, airports,bridges and ports. The outlook for the sector is quite encouraging. Some ofthe proposed policy drivers like the establishment of a SPV for infrastructure,viability gap funding and the awarding of large road packages in NHDP(Phase III) are expected to benefit the industry.

HYDEL & NUCLEAR SECTOR

The Hydel & Nuclear power business sector is establishing a firm footinghaving performed well during 2004-2005 in Tala, Khopoli, Subansiri, Purulia,Kuttiyadi and other hydroelectric power projects secured earlier. Unit 4 ofTarapur Atomic Power Project recently executed for Nuclear PowerCorporation of India Limited (NPCIL) went critical within 60 months from thedate of first pour of concrete. This is a record in nuclear power plantconstruction. The sector has secured significant orders for mechanicalengineering works from NPCIL for their Kudankulam project. The sector isalso pursuing developmental projects in the hydro sector and has securedlarge orders in the irrigation arena in Andhra Pradesh and will look forwardto consolidating on the same.

OUTLOOK FOR THE SECTOR

The recent emphasis by Government of India on hydro power, especially inview of Ministry of Power’s objective of “Power for all by 2012”, providesample opportunities:

• Apart from NHPC, NTPC has also proposed several hydroelectricpower projects

• State governments such as Uttaranchal, Sikkim, etc. are evaluatingmany Independent Power Projects (IPPs) in the hydro sector.

• Irrigation projects are being pursued in Andhra Pradesh, Gujarat andin many other states.

In view of NPCIL’s target of 20,000 MW of installed power generation by2020 from the current level of 2700 MW, the sector can look forward tosome good opportunities for nuclear power plant construction.

INDUSTRIAL PROJECTS AND UTILITIES

During the year 2004-2005, the steel, power and manufacturing segmentscontinued to be on the upswing receiving significant investments. With thebusiness environment being conducive and continued efforts towards makingIndia a manufacturing hub, this sector has performed well in the last fewyears:

• Major steel plants have continued expanding their capacities

• In the non-ferrous business, companies like Balco, Sterlite, HindustanZinc etc., have continued their expansions.

• Many green field petro-chemical projects were set up to cater to theincreased demand of LNG, facilitating the growth of the HydrocarbonConstruction and Pipeline (HCP) projects business.

• With water supply projects increasingly becoming a priority for mostStates, the Division secured some prestigious projects in Karnataka,

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Gujarat, Andhra Pradesh and other states. Having successfullycompleted a Public Private Partnership (PPP) project in water forAndhra Pradesh, the Sector looks forward to similar opportunities inother states.

• The capacity enhancement in the power sector resulted in some highvalue orders in Bulk Material Handling (BMH) and Thermal &Non-conventional Power (T&NP) business units.

• The Division secured a high value order for Windmill Towers andexpanded their product range to tailor made equipment for steel,fertilizer and material handling plants.

OUTLOOK FOR THE SECTOR

The large capacity enhancement plans of all the Indian steel and aluminiummajors will continue to drive the Minerals & Metals business.

Expansion plans by major refineries and the petro-chemical industry,combined with the environment improvement norms throw up goodopportunities for the Hydrocarbon business unit, especially in setting-up ofpipelines.

In view of rapid urbanisation and increasing per capita water demand, waterprojects will see increased fund allocation by the State Governments. Theseprojects are also being funded by the World Bank and ADB, which improvesthe viability of such projects. Many innovative projects for achieving reductionof “Unaccounted for Water” on the lines of the Chennai and Bangaloreprojects are likely to come up.

With continued thrust in Power, Port and Mining Sector the Division’s Thermal& Nuclear Power and Bulk Material Handling businesses will haveconsiderable business opportunities.

POWER TRANSMISSION AND DISTRIBUTION

Accelerated Power Development and Reforms Programme (APDRP), AG& SP (Accelerated Generation & Supply Program) and AREP (AcceleratedRural Electrification Program) yielded attractive business opportunities forthis sector. During 2004-2005, the Division entered into the 765KV classarena by securing a transmission line (TL) substation package that hasbroadened the prospects for the sector. On the whole, the sector continuedwith the growth trend of the previous year.

OUTLOOK FOR THE SECTOR

The investment in the Power Sector is improving. The recently enactedElectricity Act throws up new business opportunities. With growth in othersegments i.e. manufacturing, infrastructure, IT, the Power business willautomatically have multifold opportunities. As power and electricity are theprime requirements of any growing economy, good industrial growth augurswell for the sector.

The Public Private Partnership route has favourably influenced thevolume of investments in power transmission in India. Large opportunitiesexist in Africa and the Middle East countries for Transmission Line (TL)projects. Having already established itself well in the TL businessinternationally,the Division looks forward to consolidate further in thesecountries.

Water treatment plant built by L&T.

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Corporate office of Indian Oil Corporation in Delhi built by L&T.

MAJOR ORDERS BOOKED /EXECUTED

Some of the major orders booked during the year 2004-2005 include:

Domestic Rs. crore

• Construction of new International Airport for BangaloreInternational Airport Limited at Bangalore,Karnataka 550

• Veligonda project comprising jobs relating to Gottipadiacanal works and distribution for Government of AndhraPradesh 380

• Mora-Vapi pipeline for Gujarat State PetronetLimited 352

• Storage, unloading, testing, conducting guarantee testfor 3 numbers of 660 MW boilers, Electrical &Instrumentation package at NTPC Sipat at Bilaspur,Chattisgarh 314

• Material handling plant for Neyveli LigniteCorporation Limited 283

• Providing & laying of MS pipeline from Modhera toDharoi Lift Irrigation project at Mehsana,

Gujarat for Gujarat Water Resources DevelopmentCorporation Limited 253

• Supply, erection , commissioning of Coal Handling plant,lighting & cabling, supply of 33/11 kv TL for superthermal power project at Kahalgaon, Orissa for NTPC 225

• Electrical system, steam supply, Auxiliary system andcommon service system for 2 x 1000 MW Project forNuclear Power Corporation of India Limited atKudankulam, Tamil Nadu 190

• Polavaram right main canal from 156.5km to 174 km inWest Godavari district at Vijayawada for Governmentof Andhra Pradesh 181

• Construction of housing complex for WhitefieldShelters Housing Pvt Ltd at Bangalore 180

• Providing water supply system to Bangalore underGreater Bangalore Water Supply Project for BangaloreWater Supply and Sewage Board 166

• Alisagar Lift Irrigation scheme for Irrigation & CADDepartment, Government of Andhra Pradesh 164

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International Rs. crore

• 33/11 KV package substation with associated 33 KVoverhead line and cable at Al Ain in Abu Dhabifor Abu Dhabi Water & Electricity Authority 134

• Gas insulated substation including civil works for SaudiElectric Company, Saudi Arabia 92

The Division has executed the following major projects during theyear 2004-2005:

Domestic

• Construction of 2 x 540 MW nuclear power project at Tarapur for NPCIL

• Vizag Industrial Water Supply project

• Widening/strengthening of NH-5 in Orissa from Chandikhol to Bhadrak

• Design and construction of four laning of Jaipur-Kishengarh RoadProject

• Sinter Plant no. 3 for TISCO, Jamshedpur

• Widening and upgrading of NH-5 in Tamil Nadu from Chennai to TamilNadu/Andhra Pradesh border

• Construction of North Spur & South Spur for Shell’s LNG Terminal atHazira

• Four laning of Satara-Kolhapur upto Maharashtra State border sectionof NH4

• Treated effluent disposal works at Vilayat and Dahej for GIDC

• Leaching, Purification & Cadmium Plant, Zinc Melting & Casting Plantfor Hindustan Zinc Limited, Chanderiya

• Construction of North Causeway & Foreshore Protection for Shell’sLNG terminal at Hazira

• Widening and rehabilitation of Kanchipuram - Walajahpet Section ofNH-4

International

• Head Race Tunnel works for 1020 MW Tala Hydroelectric PowerProject, Bhutan

• Ebene Cyber City in Mauritius

• Songo-Songo Pipeline Project in Tanzania for Songas Limited

• Fujairah Al Dhaid 400 KV Overhead TL Project

• Les Pailles Exhibition Centre in Mauritius

• 33KV Submarine Cabling connecting Sir Baniyas Island to Abu Dhabi

COMPETITION AND CHALLENGES

The competition from domestic small/medium players has increasedconsiderably in certain businesses. Notwithstanding the benefits of single-point responsibility contracts and larger packages, many constructionpackages are tendered in split form thereby making small players eligible.The purchase preference to PSUs continues to be a big dampener.Competition from MNCs in league with small/medium domestic companieshas shown an increasing trend.

The growing demand from customers with respect to time and quality canonly be matched with corresponding skill improvement of workmen. Theconstruction industry is today facing acute shortage of skilled workmen andfrontline supervisors. The focus on Industrial Training Institutes (ITIs) in the

Union Budget has been a redeeming factor and will require focussedimplementation.

SIGNIFICANT INITIATIVES

To improve its competitive positioning, the Division has launched severalinitiatives aimed at cost reduction, productivity enhancement, quality/safetyimprovement and lower time to market. Some of the initiatives launchedduring 2004-2005 are:

• Focus on large /mega projects.

• Recruiting, nurturing and retaining talent

• Augmenting specialised skills in design and engineering

• Improvements in the tendering process

• Global Sourcing

• Supply chain management

• Institutionalizing Risk Management tools and techniques

• Strengthening long-term business relationships with reputed customers

OUTLOOK

The Division is confident of growing its leadership position in the constructionbusiness. Leveraging on its established brand name and recognizing itsstrengths, the Division expects to improve its share in the transportationand infrastructure sector. The fructification of Dhamra Port Project in whichthe Company is involved as a developer, is expected to boost the businessfortunes in the port sector. The Division is well positioned to take advantageof the opportunities in the various sectors as detailed above.

The Division is expecting to improve its profitability through stringent costcontrol / reduction measures whilst launching initiatives to improveoperational efficiency. The Division will sharpen its focus and draw optimumbenefits from Resources & Supply Chain Management. Strategic tie-upswith manufacturers and equipment suppliers of input material will be pursuedrigorously.

The Division will further improve its processes and systems in a bid to achievebusiness excellence. The Division continues to retain its ISO 9001certification. On the back of a safety, health and environment policy drivenfrom top management, the safety statistics of the Division have been showingconsistent improvement over the years and the Division expects to furtherimprove on it to reach global benchmarks in construction projects.

The systems and procedures of risk management will be fine-tuned andimplemented. Key Account Management will be given the right thrust andcoupled with proactive marketing, the Division expects to achieve a betterproject strike rate.

Global Engineering Solutions (GES), recently established as an armof Engineering Design Research Centre will make its foray into theinternational markets and expects to emulate the success of Indian softwarecompanies in engineering & design consultancy. Ambitious plans have beendrawn up for the GES business, requiring focussed attention for achievinggrowth.

Construction opportunities overseas, particularly in the Middle East and someAfrican countries are encouraging. Joint Venture companies in Middle Eastcountries are expected to increase the company’s global reach. Selectivegeographical expansion will be the driving factor for growth of the Divisionin the international arena. The international order booking is expected tocross Rs.1000 crore, making it probably the largest project exporterfrom India.

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Sections of IOCL’s refinery at Panipat being executed by L&T.

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E & C PROJECTS

AN OVERVIEW

The E&C Projects Division undertakes design,supply, installation and commissioning of projectson turnkey basis in sectors like Hydrocarbon,Power and Minerals for customers located in Indiaand overseas. The Division has identifiedHydrocarbon and Power as the two mostpromising sectors while formulating its businessstrategies for the immediate future.

BUSINESS ENVIRONMENT

The year 2004-05 was a period of intense activityand growth in revenues for the Division with manymega projects under execution, viz. PTA plantfor IOCL, 9 Well Offshore Platforms for ONGC,DHDT & Hydrogen Plants for IOCL, 388.5 MWGas Turbine based power plant for VemagiriPower Generation Limited, Cement plant forLafarge Surma, Bangladesh and Living Quarters& Power Upgrade platforms for Qatar Petroleum,attaining significant milestones and nearingcompletion.

Though general buoyancy was evident in theeconomy during the year, large capital investmentdecisions which were expected were notannounced. Despite this, the Division succeededin achieving a satisfactory order book positionagainst stiff international competition.

The prevalence of price preference for publicsector undertakings continues to hurt EPC playersin the private sector. Steep upward movement insteel prices has resulted in increase in the inputcost, thereby causing pressure on projectmargins.

K. Venkataramanan

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MAJOR ORDERS BOOKED / EXECUTED

A few of the other major orders booked bythe Division during 2004-2005 were:

Domestic Rs. crore

• Laying of submarine pipelines andassociated modifications on 78existing Well and ProcessPlatforms for ONGC 930

• Isomerisation Unit at Mangalore forMangalore Refinery andPetrochemicals Limited 265

• SH process complex reconstructionproject for ONGC 186

• Modification of Primary ReformerPackage for Ammonia Technologyupgradation project for RashtriyaChemical & Fertilisers Limited 57

• Replacement of Main Oil Line(MOL) pump and associated repairwork at BHN complex of ONGC forThe Great Eastern ShippingCompany Limited 29

• Heater works for MSQ upgradationproject at Vadodara (Gujarat) forIOCL 27

International Rs. crore

• Gas Reinjection platform at AbuDhabi (UAE) for Bunduq CompanyLimited 242

• Components for Reformer packagefor Dalian Petrochemical Company,China, A/c Haldor Topsoe,Denmark 42

Some of the major orders executed/ underexecution during 2004-2005 were:

Domestic

• Purified Terephthalic Acid plant for IOCL ,Panipat

• 9 Well Platforms project for ONGC

• Diesel Hydrotreater and HydrogenPackage for IOCL

• Coke Drum system package of DelayedCoker Unit for IOCL, Panipat

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Motor spirit quality upgradation project at a refinery in Mathura.

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• N9 & N10 Well Platforms project at Mumbai High for ONGC

• Motor Spirit Quality upgradation project for IOCL, Mathura

• 388.5 MW Gas Turbine based Combined Cycle Power plant nearRajamundry, Andhra Pradesh for Vemagiri Power Generation Limited

• Renovation and Modernisation works for Kutch Lignite Thermal PowerStation of Gujarat Electricity Board

• Primary Piping Package for TAPP 3 & 4 for Nuclear Power Corporationof India Limited

• 445 MW Gas Turbine based Combined Cycle Power plant forKonaseema EPS Oakwell Power Limited, Andhra Pradesh

International

• Living Quarters and Power Upgrade Platforms project for QatarPetroleum

• Gas Processing facilities & offshore pipelines at Songo-Songo Island,for Songas Limited Tanzania

• 1.2 million tonnes per annum Cement plant for Lafarge Surma,Bangladesh

• Sulphur Recovery Unit Replacement project for Abu Dhabi Oil RefiningCompany (Takreer), Abu Dhabi

• Gas gathering plant at BuHasa for Abu Dhabi Gas Industries Limited(GASCO)

SIGNIFICANT INITIATIVES

The Division has taken numerous initiatives during the year, principal amongwhich are enhancing its engineering capabilities and augmenting its HRdevelopment efforts. Some of the important initiatives implemented duringthe year were:

Strengthening of Engineering Capabilities

Engineering being the nucleus of the EPC business, the Division continuallyupgrades its engineering capabilities to keep pace with the changingenvironment and technology. The Division has built state of art engineeringfacilities for designing and executing projects for Process Plants and Unitsystems. This apart, the Division has developed engineering capabilitiesthrough joint venture companies viz. L&T-Chiyoda Limited and L&T-Sargent& Lundy Limited in the spheres of Hydrocarbon (Midstream) and PowerSector engineering respectively. An acquisition has recently been made inan upstream engineering company of repute, now known as L&T ValdelEngineering Pvt. Ltd. to supplement the skills in the hydrocarbon sector.

India and the Middle East continue to be attractive markets for the nextcouple of years and the Division will continue to resolutely focus on them.The Division is strengthening its presence in Delhi and Abu Dhabi by settingup engineering centres there. The operations at the Delhi Engineering Centerhave started and the center at Abu Dhabi will be set up in 2005-2006. Theseestablishments will additionally help the Division to enhance attraction/retention of high quality talent and also facilitate engineering and executionof global projects.

Enhancement of Installation Capabilities in Hydrocarbon UpstreamSegment

The present market conditions are conducive to the growth of Oil & Gasprojects in Hydrocarbon Upstream segment in India and GCC countries.The following actions have been initiated for encashing the growthopportunities:

• Augment installation capabilities

• Increased capacities for modular fabrication through development ofyard facilities in India and in the Middle East.

• Expansion of existing Modular Fabrication Facilities at Hazira andinstallation of new equipment.

Cost Reduction

Following measures are being adopted to reduce cost and achieve costleadership:

• Development of Standard Operating Procedures (SOPs) to simplifywork procedures to save on time, efforts and costs by identifying andminimizing / eliminating non-value added activities.

• Innovative procurement, including development of global sourcinginitiative.

• Project Risk Management, implementation of mitigation proceduresand planning contingency measures wherever required.

• Contract management and cost control techniques.

• Capturing learnings of on-going projects and upgrading knowledgemanagement activity.

• Implementing efficient systems for Proposal Engineering & Contracting.

OUTLOOK

Looking ahead, the Division perceives promising opportunities in its focusareas:

• With the introduction of New Exploration Licensing Policy (NELP V)for new blocks and upsurge in crude prices, the Division expects a

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boost in exploration activity and creation of new production facilitiesleading to improved offshore oil & gas prospects.

• In the upstream segment significant opportunities are seen in Greenfieldinstallations and in revamp/refurbishment of existing platforms in thehydrocarbon upstream segment. Emergence of new gas processingfacilities in the Middle East is expected to generate prospects both inupstream and in downstream.

• In the Hydrocarbon Midstream segment opportunities are perceivedin fuel quality upgrade projects, fired heaters and CCR regenerationunits with implementation of Euro III / IV norms. Large investmentsare also expected in refinery expansions especially in the Middle East.

• In the Hydrocarbon Downstream segment, several large value projectsare expected to be set up in areas like crackers, polymer plants, LNGterminals and Ethylene/propylene recovery projects.

• Power sector is expected to pick up momentum with recentdevelopments like the declaration of the National Electricity Policy and

Nuclear Power Corporation India Limited’s Vision 2020. Opportunitieswill emerge for IPPs due to recent gas finds, commissioningof LNG terminal at Dahej, Gujarat as well as the policy of Open Accessand creation of a power trading market facilitated by Electricity Act2003. A large number of gas-based projects are likely to be set upwithin the current 10th plan period. Opportunities are also expected inrefurbishment of old power plants due to the continued focus onrenovation, modernisation & modification projects for enhancingproductivity & efficiency in the Power Sector.

• The Company has entered into an understanding withDubai Aluminium Company Limited to set up a Rs.5000 croreintegrated Bauxite mining-cum-alumina refinery project inOrissa. This will provide the Division an opportunity to execute anEPC project valued at over Rs. 3000 crore, likely to be commissionedby 2009.

Based on the emerging opportunities the Division anticipates a promisingyear full of high value potential.

Process platform built by L&T.

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Reactors supplied by L&T being despatched overseas.

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HEAVY ENGINEERINGDIVISION

AN OVERVIEW

The Heavy Engineering Division with its strongengineering capabilities and technologicallysophisticated manufacturing facilities is wellpositioned to become a significant global playerin the fabricated process plant equipment market.The Division manufactures and supplies customengineered critical Equipment and Systems tocore sector industries like Fertilizer, Refinery,Petrochemical, Chemical, Oil & Gas, Thermal &Nuclear Power, Aerospace and Equipment &Systems for Defence applications. The Divisionalso supplies Rubber processing machinery forthe Tyre industry and undertakes marketing ofIndustrial valves and Plastic processingmachinery manufactured by the Company’s jointventures.

The Division’s manufacturing facilities are locatedat Mumbai in Maharashtra, Hazira & Baroda inGujarat, Visakhapatnam in Andhra Pradesh,Kansbahal in Orissa and Chennai in Tamil Nadu.

The Division has implemented a structuredcontinuous improvement program forimprovements in quality, delivery performanceand manufacturing technology.

BUSINESS ENVIRONMENT

The domestic process plant segment had limitedopportunities during the year 2004-2005.Expansion and de-bottlenecking of refineriespresented a few business opportunities. Energysaving initiatives and expansion in the fertilizersector provided some prospects.

Purchase preference to PSUs continued to be adeterrent, especially in the Nuclear power sector.Reduction of custom duty on capital goodsimpacted pricing flexibility. The Defence business

M. V. Kotwal

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as a whole was impacted by the change of Government at the center. Theoperationalisation of the privatization of defence production has not yet takenplace.

The Division is one of the few select suppliers of valves to global oil majorsand has been performing well in terms of export revenues. The year2004-2005 witnessed enhanced investments in Oil and Gas sector resultingin increased demand for valves. The investments in emerging segmentslike LNG and GTL (Gas to Liquid) were also significantly favorable to thisbusiness.

The Division has become an approved supplier of mechanical presses tosome tyre majors and is currently pursuing efforts to gain a similar status forhydraulic presses and other tyre machinery. Securing business for hydraulicpresses from Pirelli for their new project in Brazil, Bridgestone Europe, ApolloTyres and JK Industries has been a significant breakthrough during 2004-05. Kansbahal Works has developed, with entirely indigenous efforts, SurfaceMiner for simultaneous extraction and crushing of minerals like coal &limestone. The Division has been successful in securing orders for theseminers against competition with global players. Two of these will be exportedto Togo, West Africa. Industrial Valves and Industrial Machinery haveestablished themselves in select overseas markets.

The Division’s continued thrust on exports led to an increase of over 140%in international revenues during 2004-2005, representing 44% of the totalcustomer sales for the year. The Division’s strategy of associating with majorEPC contractors and Process Licensors to gain “preferred supplier /

fabricator” status brought significant advantage to the Division. The Divisionprocured major orders from China like Coal Gasification Equipment and T-Star Reactor. The Division also bagged the largest order for a TubularReactor, weighing about 1450 MT for supply to Kuwait. The Division hasplaced its representatives in key foreign markets. During the year, the Divisionopened up a new representative office in China for focused attention to theChinese market.

SIGNIFICANT INITIATIVES

The Division has taken a number of initiatives for becoming a significantglobal player in the world process plant equipment market and for gainingan early competitive advantage in the production of defence equipment thatis being opened up to the private sector.

CAPABILITY BUILDING

During the year, the “Technology Development Centres” set up for theProcess Plant Equipment sector and for other strategic sectors becameoperational. The Technology Development Centers work on new productdevelopment and for development of new manufacturing technology.

As the Division moves up the value chain by focussing on heavier and highunit value products, the Division is focusing on adapting appropriatemanufacturing technology and improved project planning and monitoringskills.

Multibarrel rocket launching system for Pinaka rockets.

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During 2004-2005, the Division executed several orders for criticalequipment such as:

• Fertilizer Plant equipment for Galaxy Projects FZCO

• Reactors for KBR / Exxon Mobil

• Fertilizer Plant equipment for OMIFCO

• Reactors for Fluor Canada Ltd / Imperial Oil for ULSD project

• A N Reactor for China Jinshan Associated Trading Co.

• E O Reactor for UTE Technicas Reunidas S.A.-CTCI Corpn.

OUTLOOK

The Division is optimistic on the business prospects for process plantequipment in the export markets. Globally, major capacity addition is plannedin the fertilizer and petrochemical sector. High crude prices are leading toenhanced interest in Coal, Gas and Gas based projects. Middle East andChina will be the focus areas for this business. World-wide the plant sizesare getting larger, leading to increased demand for heavy and high unitvalue Process Plant equipment. The Division is geared up to exploit thispotential with a number of initiatives to increase its fabrication capacity andcapability.

The domestic process plant equipment market shows limited potential forgrowth in the short to medium term. The demand is largely expected fromenergy saving projects in the fertilizer industry and modernization / de-bottlenecking projects of existing refineries.

The Division expects good business prospects from the power sector in themedium term, given the large planned increases in nuclear power capacities.

The domestic tyre industry is showing improved prospects following thegeneral trend of recovery in the economy. However, the Government’s policyof permitting imports of second hand tyre machinery is adding pressure onmargins. With tyre majors closing unviable plants in Europe and USA, thesesecond hand presses are available at attractive prices. Moreover, costcompetition from major tyre machinery manufacturers has steepened.Globally, investments in the tyre industry are shifting to low cost countrieslike China, Russia, South East Asia and the Middle East. The Division hasproactively initiated various measures to reduce the cost of products whilemaintaining high quality standards.

Sustained global investment in Oil & Gas, GTL & LNG in low cost locationsprovide wider scope for exports, aided by alliances with major EPCcontractors.

The Government is expected to move ahead in line with therecommendations of the Kelkar committee which has suggested somelandmark changes in the Defence production and procurement process.The Division remains optimistic about business potential in the Defencesector in the medium to long term.

The Division is investing in addition and upgradation of manufacturingfacilities. Additional investments in more productive plant and equipment tofacilitate increased throughput and quality output are also in process. TheDivision is also concentrating on acquiring skilled technical manpowernecessary for achieving its growth plans.

PROCESS IMPROVEMENTS

The Division has implemented a number of improvement initiatives like TPM,Six Sigma and Critical Chain Project Management. The Quality Systemsare covered under ISO 9001, ISO 14001 and OHSAS 18001 certification.The workshops are ASME certified and are authorized to use U, U2 and Sstamps. The Division has MLO registration for exports to China and is alsoauthorized to use CE (Conformite Europeenne) marking for exports toEuropean countries. The Division’s world class manufacturing facilities atHazira were recently awarded the “Indian Manufacturing Excellence PlatinumAward” by M/s Frost & Sullivan.

MAJOR ORDERS BOOKED / EXECUTED

The Division booked several interesting orders during 2004-2005, someof which are:

Domestic Rs. crore

• Ammonia Converter Shells, Synthesis Loop Boiler andinstallation of internals for Ammonia Converter Shellfor IFFCO 87

• Wind Tunnel System for Vikram Sarabhai SpaceCentre 80

• Roof Slab for Nuclear Power Corporation of India Limited(NPCIL) 35

Large orders were also booked from customers such as BharatiyaNabhikiya Vidyut Nigam Limited (BHAVINI), HPCL, RCF etc.

International Rs. crore

• Gasifier Internals & Pressure Vessels for ShenhuaInternational Ltd, China 188

• Large Tubular Reactor for Kuwait Olefins Company 128

• Gasifier Internals & Pressure Vessels for ZhongauanDahua Group Company Limited 96

• T Star Reactor for Shenhua International Limited, China 57

• Large Tubular Heat Exchanger for Equate

Petrochemical Company, Kuwait 45

18

L&T is India’s largest manufacturer of low-tension switchgear.

19

R. N. Mukhija

ELECTRICAL ANDELECTRONICS DIVISION

AN OVERVIEW

The Electrical & Electronics Division (EBG),during the year 2004-2005, was organised intoeight Strategic Business Units (SBUs) under threesectors:

Electrical Sector - Electrical Standard Products(ESP)

- Electrical Systems &Equipment (ESE)

Electronics Sector I - Metering & ProtectionSystems (MPS)

- Medical Equipment &Systems (MED)

- Embedded Systems &Software* (EmSyS)

Electronics Sector II - Control & Automation (C&A)

- Petroleum DispensingPumps & Systems (PDP)

- Enterprise NetworkingBusiness (ENB)

EBG enjoys a dominant position in the domesticmarket in most of the businesses it operates in.

*From April 1, 2005, the Embedded Systems &Software business has moved out of EBG to thenewly formed “Information Technology &Technology Services” Division.

BUSINESS ENVIRONMENT

EBG continues to maintain and consolidate itsleadership position in almost all its businesses in

20

L&T’s range of medical equipment.

India despite ever increasing competition from multinational companies.The Division achieved revenue growth at rates above industry averagefor 2004-2005.

The Electrical Sector of the Division that manufactures and markets productsused in the distribution of power was a beneficiary of power sector reformsand upswing in manufacturing and construction activities. It clocked a growthof 22% in revenues over the previous year while maintaining its leadershipposition.

Control & Automation business benefited significantly from the revival ofmetal and cement industries coupled with large investments in the oil sectorand exhibited an impressive growth. PDP business registered increase inthe market share of dispensing pumps and Auto LPG. MPS and MEDbusinesses also fared well and grew during the period.

To expand the presence in select international markets, the Division got therequired approvals from various international bodies across the world formany of its contemporary products like MCCBs, Air Circuit Breakers,Contactors etc. Besides, CE (Conformite Europeenne) approval for allMedical products and US FDA (Food & Drug Association) approval for three

models of patient monitoring system and one model of ultrasound scannerwere received during the year.

ESE made big inroads into the international market with acceptance fromOil and Gas majors like ENOC, AGIP-ENI and Qatar Gas, global EPC majorssuch as Technip, Snam, Petrofac, Aker Kvaerner and Japanese EPC majorslike Chiyoda, JGC and HMI.

Electrical products were exported to the Middle East, South East Asia, Africaand neighbouring countries while medical equipment were shipped to theUS and Europe.

During the year, the exports of the Division grew by 55% over 2003-2004.

SIGNIFICANT INITIATIVES

Many initiatives have enabled the Division to improve its performance.Continuous innovation in business processes, prompt service andintroduction of new products and product variants to meet customers’requirements helped the Division in enhancing business. These initiatives

21

L&T’s switchboards installed at a power plant in Oman.

have favourably impacted cost and quality. The steps towards achievinglean manufacturing helped in strengthening team culture, process ownershipand improving ergonomics at workstations.

Development of New Products / Technology

In a market ruled by fast changing technology, the Division kept pace byintroducing many new products. ESP introduced a complete range of F-lineSwitch Disconnector Fuse units from 32A to 800A, D-Sine range of MCCBsextended to 1250A with microprocessor based communicable releases,ACBs & MCCBs for Naval application, mini family of Contactors, MR familyof single pole Contactors and Submersible Pump Controllers. An electricaloperating mechanism for MCCBs was developed as contract design for anMNC.

MED expanded its product range by adding Anaesthesia machines andDefibrillators. PDP launched SPRINT series of elegant and advanced fueldispensing pumps and MPS introduced single-phase meters with LCDdisplay.

Cost Leadership

The initiative towards Lean Manufacturing helped in releasing substantialspace in the warehouses and reducing manufacturing lead-time of productswhile improving response to customers’ demand for faster deliveries. Theadoption of smarter sourcing methods and refinement of the supply chainprocess led to reduction in input cost.

To spread the culture of quality and cost competitiveness, Six Sigma andValue Engineering have been institutionalised. During the period a significantnumber of Six Sigma projects were completed and 33 new Black Belts added.At the national level competition organized by Indian Statistical Institute,four teams from the Division won prizes in various categories. Like in thepast, Value Engineering projects resulted in significant cost savings.

Total Quality Management

TQM at L&T was launched in 1993 and it has taken roots in the Division’sculture. A programme re-christened ‘TQM for Excellence’ was conductedfor the new entrants to focus on waste elimination, employee involvementand structured ways of solving problems.

EVA Implementation

The Division had adopted the EVA programme to enhance value creation.This has led to an increased awareness about value maximisation potentialacross all levels resulting in a significant reduction in Net Working Capital,increased margins and higher EVA.

Intellectual Property Rights

Intellectual Property Rights has remained a focus area for the Division forprotecting the Company’s innovations. During 2004-2005, a total of 64 IPRapplications were filed. The Division has secured 8 Design registrationsfrom China.

OUTLOOK

India is on the move and this is most evident in the Power Sector. TheGovernment’s National Electricity Policy, the thrust on rural electrification &the Electricity Act 2003 will spur growth in the electrical sector and benefitthe businesses of ESP, ESE and MPS.

The growth expected to occur in the infrastructure sector, with large-scaleconstruction of residential and commercial complexes, hospitals, malls,stadium etc. will consume a high volume of building electrical products.

Indian industry has proposed significant investments in the Oil and Metalssegments. Increase in oil prices / energy costs is expected to further boostthe demand for energy saving control products and solutions offered byC&A. Pipeline automation is expected to emerge as a new businessopportunity that will help transfer of petroleum products in the country anddrive the automation business. The rise in raw material costs, however,could pressurise the margins.

Government’s focus on Highway Development (NHDP and others) willincrease vehicular traffic and generate big demand for petroleum fillingstations. This will boost the prospects for PDP business.

India is now becoming a health care destination and health tourism is growingat a rate of 30% annually. Privatisation of the Insurance sector & StateGovernments’ focus on improving facilities at district and rural health centershas led to a spurt in healthcare business that will drive the demand forMedical products.

Policy changes leading to an increase in economic activities and socialdevelopment in India, the improving perception about Indian products andlarge investments in construction as well as manufacturing in the MiddleEast countries and China hold promise for the Division’s business in theyears ahead.

Meters and relays manufactured by L&T.

22

L&T-Komatsu’s PC 300 LC in action at a site.

23

J. P. Nayak

DIVERSIFIED BUSINESSDIVISION

AN OVERVIEW

The Diversified Business Division markets and

provides service support for Hydraulic Excavators

manufactured by L&T-Komatsu Limited, a joint

venture between Larsen & Toubro Limited and

Komatsu Asia & Pacific Pte. Limited, Singapore.

It also distributes and provides after sales support

to a wide range of construction equipment from

Komatsu and high-pressure hydraulic products

manufactured by Poclain Hydraulics Industries,

France.

The Division deals in Welding products and

consumables for repairs & maintenance and

carbide cutting tools for high productivity

applications and for usage on CNC. The business

involves application development and supplying

suitable consumables. It also includes marketing

inverter based equipment from Fronius of Austria

and Arc Spray / HVOF / Plasma Systems and

consumables from Tafa-Praxair, U.S.A.

The Division enjoys a leading position in the

domestic market in most of the businesses it

operates in.

24

A range of application-engineered Eutectic welding alloys.

BUSINESS ENVIRONMENT

The Hydraulic Excavator market in India grew at an impressive 27% during

2004-2005 on the back of the spurt in infrastructure investments, including

the irrigation and mining industries.

During the year 2004-2005, Eutectic Welding Alloys were exported to Sri

Lanka and Bangladesh. The Division has been moving up in the value chain

by undertaking to provide a total solution. It continues to enjoy leadership

position in the domestic market in the Maintenance and Repair segment.

The Division is the sole distributor of cutting tools in India for Iscar, Israel

and enjoys a healthy market share. This product is primarily aimed at the

high end of the cutting tool market segment, with the automobile, engineering

and Defence sectors being the major customers.

COMPETITION AND CHALLENGES

The Division does not expect any change in the competition structure

in the domestic market. However with the reduction in customs duty, the

domestic equipment manufacturing industry faces competition

from overseas manufacturers. In the face of stiff competition,

the Division has been restrained from passing on cost increases to end

customers.

25

L&T-CASE 851 loader-backhoe at a worksite.

OUTLOOK

Continued thrust on infrastructure development especially in sectors like

cement, power, mining etc., the focus on rural economy and financial reforms

are expected to improve the business environment. The positive trend in

the Automotive and Steel sectors is expected to continue. The total market

for hydraulic excavators is expected to grow at an average of 15% p.a. over

the next 5 years.

Most of the businesses under the Division are expected to witness growth

during the near to medium term. The Division has undertaken initiatives to

bring about operational excellence in business and HR processes to attain

global competitiveness in all the operations and make the best of emerging

opportunities. The Division effectively leverages IT and has introduced Pro/

E Windchill platform for creating drawings and QA documents to enhance

customer satisfaction. With the initiatives for improving customer satisfaction

and introduction of new products, the outlook for 2005-2006 and beyond is

very encouraging.

26

Y. M. Deosthalee

FINANCIAL REVIEWThe Company’s performance during 2004-2005 reflects improved businessenvironment. The growth in the manufacturing sector was led by thebuoyancy in the capital goods industry. The industrial revival this time havingspread into basic and capital goods implies addition to production capacitiesover the next few years. Competition was intense, with many multinationalcompanies evincing keen interest in most of the available opportunities.

COMPANY PERFORMANCE

The Company’s order book, revenues and profits recorded impressive growthduring the year. Overall the Company has performed well with a Return ofover 14% on average Capital Employed and a Return on Net Worth of 21%for the year 2004-2005. This is without considering the impact of the capitalgains on sale by the Company of a portion of the equity shares held inUltraTech Cement Limited.

REVENUES

Sales & service income of the Company for 2004-2005 was at Rs.13269crore. This represents a growth of 35% over the Company’s revenues for2003-2004. Among the business segments, the E&C segment registeredthe largest increase in revenues, of 39% during the year. Sales from Electricaland Electronics business also grew by a significant 20%. The Companyearned Other income of Rs.696 crore which includes profit of Rs.353 crorefrom the sale of shares in UltraTech Cement Limited. Operational/recurringother income accounts for Rs.283 crore. This comprises mainly of dividendincome of Rs.73 crore received from Subsidiaries & Associate Companiesand other business related income.

EXPORTS

The Company’s export order booking at Rs.1804 crore during 2004-2005was marginally lower than the previous year. The E&C segment bookedexport orders worth Rs.1690 crore during 2004-2005.

Export revenues during the year were at Rs.2461 crore, representing 18%of the Company’s total turnover, as against 14% in 2003-2004. Exportrevenues from the E&C segment were 80% higher at Rs.2355 crore.

MANUFACTURING & OTHER COST

The Company incurred Rs.10516 crore during 2004-2005 towardsmanufacturing, construction and operating expenses. Given the large numberof orders under execution by the E&C segment, the activity relatedexpenditure such as outlay on raw materials, construction materials andsub-contracts increased during the year. Operationalisation of the new RMCplants, rise in input costs, higher costs associated with rising exports, repairsand modernisation at Powai, Hazira and other facilities, etc. have contributedto the increase in the operating cost.

To mitigate the impact of rising input costs, the Company is pursuing variouscost reduction initiatives in all its major establishments. Improving sub-contractor productivity, efficient procurement processes, logistics review andredesign and the initiatives on value engineering are some of the steps inthis direction. The Company is continuing with programmes such as SixSigma, Total Productivity Management, Theory of Constraints, etc. toeliminate waste, optimise cost and maximize productivity.

Staff expenses for the year 2004-2005 was higher at Rs.765 crore Theincrease is due to the long term wage settlement for the workmen, annualincrements and additional staff welfare expenses such as medical, leavetravel etc. The increase also reflects the impact of separation of 245 personsunder the Voluntary Retirement Schemes during the year.

The Company incurred Rs.1096 crore towards sales, administration andother expenses for the year 2004-2005. Increase in the number of overseas

sites, new RMC sites and leasing of technology based equipment duringthe year have led to higher rental expense. Higher business activitiesincluding growing number of overseas projects have resulted in increasedtravel cost. The growth in project business and substantial marine insurancecoverage for imports on certain new jobs have contributed to the increasein insurance cost. The Company has also made additional provisions forforeseeable losses on construction contracts wherever necessary incompliance with the relevant Accounting Standard.

There was an increase in net interest outgo for the year 2004-2005 due tolower interest income. The gross interest for the year however was lower atRs.84 crore and amounted to 4.63% of average borrowings as against 6.26%during 2003-2004. The reduction in the interest cost was achieved by efficienttreasury operations, refinancing / repayment of debt and close monitoringof funds employed by the various business units. The Company has alsomade judicious use of hedging tools such as interest rate swaps and usedan efficient mix of foreign currency loans and varying debt tenors.

PROFITABILITY

The operating profit of Rs.1081 crore for 2004-2005 excluding profit on saleof shares held in UltraTech Cement Limited was 21% higher than the previousyear. Without considering the exceptional gain, the profit before tax of Rs.933crore and profit after tax of Rs.631 crore were higher than that of 2003-2004by 21% and 18% respectively. The operating profit for the year were impactedby lower margins in the E&C business during 2004-2005. The Companyhas made a provision of Rs.321 crore towards current tax and has writtenback Rs.19 crore on account of deferred tax. The increase in tax provisionis largely due to phasing out of tax credits and the non-availability of carriedforward MAT credit.

SEGMENT-WISE PERFORMANCE

ENGINEERING & CONSTRUCTION (E&C)

During 2004-2005, the segment booked orders aggregating to Rs.13004crore (excluding Rs.34 crore being L&T’s share of orders booked throughIntegrated Joint Ventures) registering an increase of 13% over the previousyear. The order booking of Rs.1690 crore for project exports and suppliesconstituted 13% of total orders booked. The total revenues of the segmentincreased 39% to Rs.11430 crore during 2004-2005, with export revenuesof Rs.2355 crore surging by 80% over the previous year.

The operating margins for 2004-2005 dropped to 7.2% as against 8.1% in2003-2004. The drop is mainly attributable to significant/unprecedented costoverruns in an international job. The Company has further strengthened itsinternal systems & processes for improved planning, forecasting andmonitoring of projects to avoid recurrence of such overruns.

27

The financial highlights for the segment in brief are:

Figures in Rs. Crore

2004-2005 2003-2004

Order Booking 13,004 11,504

Order Backlog 17,604 16,500

Gross Revenues 11,430 8,246

EBITDA / Revenue (%) 7.2 8.1

Export Earnings 2,355 1,307

The above includes inter-segment revenues but excludes the Company’sshare in performance of IJVs

ELECTRICAL & ELECTRONICS

The revenues (including inter-segment revenue) of the segment at Rs.1220crore grew by over 20% during 2004-2005, well ahead of the growth ratereported by the electrical industry as a whole. The segment’s exportperformance for 2004-2005 has been noteworthy, with revenues at Rs.97crore having increased by 56% over the previous year. Sustained efforts toreduce cost through value engineering covering material cost, improvedmanufacturing processes, workforce optimization and retention / accretionto market share through introduction of contemporary products have allcontributed to the segment’s improved performance. Despite the increasein input cost and intense competitive pressures, the segment has been ableto by and large maintain its operating margin at the targeted levels.

The financial highlights for the segment in brief are:

Figures in Rs. Crore

2004-2005 2003-2004

Gross Revenues * 1220 1019

EBITDA / Revenue * (%) 12.7 12.9

Export Earnings 97 62

* Includes inter-segment revenue

DIVERSIFIED BUSINESSES

The revenues for the segment (including inter segment revenues) increasedby 14% to Rs.837 crore. The Company has been moving up the value chainin providing welding solutions, the revenues from which increased by 23%during 2004-2005.

The construction equipment business fared well, following the spurt ininfrastructure investments. The revenues from the Company’s industrialproducts business also grew and recorded a 67% increase during2004-2005.

The results of the segment include that of the Ready mix concrete (RMC)business of the Company, which was classified under the Cement segmentin the accounts for 2003-2004. The ready mix concrete business reportedtotal revenues (including inter-segment revenue) of Rs.368 crore during2004-2005. With rapid expansion underway, the RMC business is expectedto report growth in revenues and profits in the years to come.

The financial highlights for the segment are :

Figures in Rs. Crore

2004-2005 2003-2004

Gross Revenues * 837 732

EBITDA / Revenue * (%) 11.8 8.9

* Includes inter-segment revenue

FIXED ASSETSThe gross fixed assets and intangibles as at March 31, 2005 were at Rs.2172crore as against Rs.2064 crore in the previous year. As the capitalexpenditure was mostly routine in nature, the net additions to tangible fixedassets, including leased asset, was restricted to Rs.94 crore during2004-2005. The additions were essentially towards upgradation andacquisition of plant & machinery at various project sites and at the Hariza.

WORKING CAPITALThe net working capital for the Company at Rs.3239 crore as of March 31,2005 reflects an increase over the previous year. For the year ended31st March 2005, the net working capital represents 23% of total revenue asagainst 22% in the previous year. The increase is mainly on account of theunutilized FCCB proceeds held overseas. Barring this, the working capitalemployed in operations has shown improvement during the year.

The Company continued to pursue its efforts in optimizing the working capitalrequirements during the year. Process improvements relating to cashmanagement systems and leveraging liquidity in the banking system todeliver vendor credit arrangements have all contributed to deliver workingcapital efficiencies during the year.

FINANCIAL CONDITION AND LIQUIDITYThe Fixed Deposit Schemes, long term debt and the Commercial Papersissued by the Company continue to enjoy the highest credit rating of AAAand P1+, respectively. During the year, the Company issued 5-year 1.25%US$ denominated Foreign Currency Convertible Bonds (FCCB) aggregating$150 mio to finance capital expenditure and acquisitions. This is line withthe Company’s vision for growth and expansion and the strategic plan drawnfor achieving it. The net debt equity ratio as on March 31, 2005 was 0.22:1.The unutilized FCCB balances in the overseas accounts and investmentsin bonds have been considered as cash/cash equivalents. The Companymanages its liquidity efficiently through its treasury management systemwhich includes profitable investment of short term surpluses in the financialmarkets.

The Company’s principal sources of liquidity are:

1. Existing cash and cash equivalents

2. Cash generated from operations

3. Unutilised funded limits with banks

4. Incremental borrowings

Figures in Rs. Crore

Liquidity & Capital Resources 2004-2005 2003-2004

Cash & cash equivalents at beginning

of the period 375.27 320.53

Less: Transfer pursuant to Cement

demerger - 0.09

Add: Net cash provided / (used) by :

Operating activities 111.60 330.41

Investing activities 236.28 200.21

Financing activities 104.87 (475.79)

Cash & cash equivalents at endof the period 828.02 375.27

While the operations generated higher cash flows during 2004-2005 ascompared to the previous year, increase in direct taxes paid in 2004-2005and increase in working capital have led to an overall reduction in the cashflows from operating activities.

Cash flows from investing activities increased during 2004-2005. The saleof a portion of the shares held by the Company in UltraTech Cement Limitedyielded a capital gain of Rs.353 crore. The Company invested Rs.280 crore

28

in specified securities under Section 54EC of the Income Tax Act, 1961 inrespect of these profits.

Higher dividends from subsidiaries and reduction in loans to Subsidiaries /Associates have also contributed to the increase in cash flow from investmentactivities during 2004-2005. This has partially been offset by an increase incapex towards the Company’s expansion plans.

As mentioned earlier in the report, the Company during 2004-2005successfully completed a FCCB issue raising US$150 mio. While the issueproceeds have partially been invested in operations, the balance has beenparked overseas and will be used to finance capital expenditure andacquisitions during the current year. This has contributed to the increase intotal cash and cash equivalents as on March 31, 2005 to Rs.828 crorenotwithstanding payment of one-time special dividend of Rs.147 crore oncompletion of the Cement demerger.

CONSOLIDATED FINANCIAL STATEMENTS

The Company has presented elsewhere in this annual report theConsolidated Financial Statements for 2004-2005 prepared in compliancewith Accounting Standards 21 and 23 issued by the Institute of CharteredAccountants of India. The consolidated financial statements include thefinancials of the Company, 28 Subsidiary companies, 27 Associatecompanies and 8 Joint ventures. The Subsidiary and Associate companieshave been grouped under five broad categories viz.,

• Services – Information technology, finance and marketing

• Engineering solutions

• Engineering and project management

• Infrastructure development projects

• Manufacturing

The consolidated sales and service income for 2004-2005 was higher atRs.14613 crore as compared to the previous year. The profit before tax andprofit after tax at consolidated level for 2004-2005 were substantially higherat Rs.1405 crore and Rs.1128 crore, respectively. The improved performanceof the parent company and the subsidiaries, especially the infotech andpower subsidiaries have contributed to the higher profit for 2004-2005. Theseprofits include the gain of Rs.353 crore on sale of shares in UltraTech CementLimited. The consolidated net debt to equity as on March 31, 2005 computedin the same manner as that of the Company, was lower at 0.61:1 against0.64:1 during the previous year, reflecting improved financial position.

RISK MANAGEMENT

The Company’s Engineering & Construction business which accounted for85% of turnover for 2004-2005 is, by the very nature of its activities, exposedto risks which could emanate right from project bidding & estimation tocommissioning and even thereafter. The other business segments of thecompany run relatively low risks both in terms of severity and magnitude.Besides the business risks, the Company is also exposed to financial risks

from changes in foreign currency exchange rates, interest rates andcommodity prices.

The Company has taken steps in progressively institutionalizing riskidentification and management / mitigation processses. A position ofCorporate Risk Officer (CRO) has been created to steer the process ofdeveloping an effective risk monitoring system. To support the CRO in thisorganisation-wide initiative, risk officers have been appointed at eachoperating division.

A pre-bid risk assessment modality is followed by the Company for largevalue project business. Business, operational, environmental, legal andregulatory risks are identified and evaluated. Bids for such projects aresubmitted only after they are cleared by a duly constituted tender committee.The Company manages its financial risks through selective use of derivativeinstruments. The objective of the Company’s financial risk managementprogram is to protect the underlying cash flows related to revenues,procurement of goods or services and servicing of foreign currency debtsfrom market fluctuations. The Company continues to invest in strengtheningits advanced treasury management system and the various applicationsunder ERP environment.

INTERNAL CONTROL SYSTEM

The Company has an internal control system commensurate with its sizeand nature of business, which covers the following areas:

• Optimum utilization of resources

• Accurate & prompt recording of transactions

• Safeguarding of assets

• Compliance with prevalent statutes, listing agreement provisions,management policies & procedures

• Efficient management information system

• Adherence to applicable accounting standards and policies

• Review of IT and other systems

The internal control system provides for well-documented policies, guidelines,authorizations and approval procedures. The Corporate Audit ServicesDepartment conducts periodic audits across the company throughout theyear and through observations in its audit report brings out deviations if anyfrom internal control and compliance procedures. The audit observationsare subject to periodic review and compliance monitoring. The significantaudit observations along with the status of implementation thereon arereviewed by Corporate and Unit Management and the Audit Committee ofthe Board on a regular basis.

29

Subsidiaries & Associates portfolio

As a part of its business strategy and vision, the Company has invested in

various supplementary and complementary areas of operation through

subsidiary and associate companies.

Rs. crore

Business Investments as on

March 31, March 31,

2005 2004

Services 108.55 108.55

Engineering solutions 8.91 8.91

Engineering & project management 36.67 3.94

Infrastructure development projects 290.60 304.48

Manufacturing 164.65 184.68

Total 609.38 610.56

I) SERVICES

A) Information Technology (IT) services

The Company has identified information technology and related

services as a thrust business and accordingly intends to strengthen

its existing presence in the industry. To address the requirements of a

large anticipated growth, the Company has planned significant

investments in infrastructure in various centres at Chennai, Bangalore

and Mumbai. These state-of-the-art facilities are likely to be operational

in the next 12 to 18 months. The Company is also exploring possible

acquisitions in India and abroad to accelerate the growth in this

segment.

LARSEN & TOUBRO INFOTECH LIMITED

Larsen & Toubro Infotech Limited (L&T Infotech), a wholly-owned

subsidiary of the Company, provides customized software solutions

for varied applications and industries.

L&T Infotech achieved a total income of Rs.563.77 crore during the

year 2004-2005 (Previous year: Rs.366.03 crore) registering a growth

of 54%. Exports accounted for over 95% of the total income and USA

continues to be the leading destination contributing 63% to the total

software exports, Europe and Asia Pacific contributing 20% and 12%

respectively.

L&T Infotech reported a net profit after tax of Rs.45.90 crore (Previous

year: Rs.12.24 crore) in 2004-2005, reflecting a substantial

improvement in the profitability.

During the past year, L&T Infotech acquired some key clients in ERP

practices and financial services and further consolidated its presence

in the Manufacturing, Communications and Embedded Systems space.

L&T Infotech continues to focus and consolidate in these sectors by

leveraging its parentage in the manufacturing IT space and providing

niche solutions.

During the year, L&T Infotech received the IT Security Certification

(BS7799). It has also launched CMMi initiative across some SBUs

and has increased its employee strength to 3750 at the end of 2004-

2005 from 2450 at the end of 2003-2004.

These milestones and growth plans underscore the confidence that

L&T Infotech is at an accelerated growth path in the chosen lines of

business.

B) Financial services

L&T FINANCE LIMITED

L&T Finance Limited (LTF), a wholly-owned subsidiary of the Company,

is a RBI registered Non Banking Finance Company (NBFC) engaged

in the business of providing lease, hire purchase, term loans and short

term financing.

LTF has identified corporate products, construction equipment and

tractors as main focus segments. The growth in each of these segments

has thrown up more financing opportunities which directly helped LTF

to improve the performance. The financial services industry has seen

major changes in the last decade with focus segments blurring for

almost all players. With the entry of banks in all forms of retail and

wholesale lending operations there exists very little scope by way of

exclusive business segments for the NBFCs. The overall size of the

market has grown significantly during this period providing

opportunities for growth for all focussed players.

The financial year 2004-2005 has seen significant growth of assets in

the retail tractor financing, construction equipment and in corporate

finance. LTF made a start in retail commercial vehicle financing. There

has been considerable growth in earnings in all these segments. During

the financial year 2004-2005, LTF reported higher total income of

Rs.110.05 crore (Previous year: Rs.78.18 crore) and profit after tax of

Rs.24.03 crore (Previous year: Rs.13.44 crore).

30

The growth driver for the industry is the overall growth in the economy

which will spur industrial production and thereby increase credit off-

take. Demand for corporate products will continue to expand with the

strengthening of the economy and growth in the infrastructure sector.

The construction equipment segment could see significant growth with

the increased investment in development of roads, privatization of

ports and the mining sector.

L&T CAPITAL COMPANY LIMITED

L&T Capital Company Limited (LTCL), a wholly-owned subsidiary of

L&T Finance Limited, is a SEBI-registered merchant banker engaged

in fee-based intermediation in Corporate and Project advisory services,

Money Market operations and Debt Syndication.

During the year 2004-2005, LTCL reported a total income of Rs.3.22

crore (Previous year: Rs.3.34 crore). and profit after tax of Rs.0.55

crore (Previous year: Rs.0.81 crore).

NAC INFRASTRUCTURE EQUIPMENT LIMITED

This equipment hire company, set up in joint venture with National

Academy of Construction, Nagarjuna Construction Company Ltd. and

Indian Infrastructure Equipment Ltd. saw the first complete year of

operations. Gross revenues for the period was Rs.3.96 crore, with

profit after tax of Rs.0.03 crore. The market for equipment hire is

expected to show considerable growth in the years to come.

C) Marketing services

LARSEN & TOUBRO LLC

Larsen & Toubro LLC (L&T-LLC), a wholly-owned subsidiary of the

Company, is based in USA and markets industrial valves manufactured

by Audco India Limited, an associate company, in the American market.

L&T-LLC’s initiatives like focussing on supplies to Canada and Latin

America, setting up new distribution channels and securing approvals

from players in Oil & Gas and Power sectors are likely to yield strong

growth in the coming years. Propelled by the need to comply with

“clean fuel” requirements, the business is expected to improve

substantially.

For the year ended December 31, 2004, L&T-LLC reported a total

income of US$ 1.80 mio - Rs.7.57 crore (Previous year US$ 0.90 mio

- Rs.3.96 crore) and marginal profits.

II) ALLIANCES WITH GLOBAL LEADERS FOR ENGINEERING

SOLUTIONS

The Company is committed to identifying and targeting opportunities

for undertaking complex turnkey projects on an EPC basis. Considering

various factors such as the need for domestic energy sources, increase

in oil prices, strict global emission norms and saturation of existing oil

wells forcing deep sea explorations, the Company expects business

opportunities in the hydrocarbon sector to increase. Delicensing and

deregulation of the power sector coupled with gas finds are expected

to provide an impetus to investments in the power sector. The

Company’s success in integrating its strengths in engineering, process

technology, project management, fabrication and construction provides

significant competitive advantages with regard to turnkey projects. The

Company has successfully collaborated in the past and has established

joint ventures with various international engineering companies to

provide benchmark engineering solutions to the focus sectors

identified.

L&T-CHIYODA LIMITED

L&T-Chiyoda Limited (LTC), a joint venture with Chiyoda Corporation

of Japan, is an engineering consultancy service firm that offers a

complete range of IT-enabled design and engineering services of

international quality to the hydrocarbon sector in India and abroad.

LTC has expertise in providing end-to-end solutions which include

basic and detailed engineering, Front End Engineering & Design

(FEED), procurement services, construction supervision, assistance

during pre-commissioning and commissioning. LTC is also entering

into advanced engineering services like intelligent P&ID development,

hazop study, stress analysis, etc.

Subsequent to launch of New Exploration Licensing Policy (NELP)

which opened the exploration sector to independent private

investments, many domestic players like Reliance and international

players like Cairn Energy, Hardy Oil, Niko Resources are contributing

in a big way to oil & gas exploration. Further, refinery expansion / up-

gradation projects by PSUs are also helping the industry to grow at a

faster pace. Overall the hydrocarbon sector looks promising with

players entering into new projects & investments.

During the year 2004-2005, LTC reported a total income of Rs.31.33

crore (Previous year: Rs.31.29 crore). Due to effective cost control

measures, the profit after tax was higher at Rs.3.19 crore (Previous

year Rs.3.07 crore).

31

To ensure the smooth execution of projects, LTC has taken various

quality initiatives like ISO 14001:1996, OHSAS 18001:1999 and BS

7799. LTC received the Golden Valve Award 2005 coordinated by

Intergraph, USA in recognition of the most innovative & well-executed

use of PDS software.

With the overall economy growing at a much faster rate, the market

outlook appears encouraging. New investments are expected in

petroleum refining, petrochemicals, fertilizer and oil & gas projects.

The market for specialized engineering services particularly in the

Middle East countries shall be the focus for the next few years. At the

same time, globalization and the resulting competition from

international players will have a significant impact on the engineering

consultancy business.

L&T-SARGENT & LUNDY LIMITED

L&T-Sargent & Lundy Limited (L&T-S&L), a subsidiary of the Company,

was established as a joint venture with Sargent & Lundy LLC, USA for

providing the entire spectrum of engineering services and solutions

to projects in the power sector. L&T-S&L caters to the captive

requirements of its parent entities and a few niche clients in India and

abroad.

During the year 2004-2005, L&T-S&L reported total income of Rs.15.24

crore (Previous year: Rs.11.92 crore) and profit after tax of Rs.0.73

crore (Previous year: Rs.0.20 crore). L&T-S&L was awarded with

‘Highest Exporter’s Trophy’ for outstanding engineering exports during

2002-2003 in the category ‘Exports with continuous Excellence - Non-

SSI’ by the Engineering Export Promotion Council.

Introduction of the new Electricity Act 2003 will give a boost to capacity

addition in the domestic power sector. L&T-S&L has potential for

enhancing business in the international market by leveraging the

strengths of the JV and its parent companies. In order to leverage the

competitive advantage provided by the JV, Sargent & Lundy LLC has

already inducted L&T-S&L for some of their international jobs. Some

Indian players as well as a few multinational companies have started

outsourcing their in-house engineering work which has also provided

a new avenue for growth to L&T-S&L. The outlook for L&T-S&L in the

medium to long term looks promising.

L&T-RAMBOLL CONSULTING ENGINEERS LIMITED

L&T-Ramboll Consulting Engineers Limited (LTR) is a Joint Venture

Company formed by the Company and RAMBØLL A/S of Denmark

(Ramboll). LTR offers engineering and project consultancy services

for transportation infrastructure projects in the civil engineering domain.

The market for these types of services is influenced by the Government

priorities and policies.

All the sectors LTR operates in have a high potential for growth due to

the rapid growth of the Indian economy. Absence of entry level

qualifications for consultants however has led to severe price

competition. During the year 2004-2005, there was a decline in the

revenues of LTR due to deferment of some of the major projects by

newly elected state governments.

During the year 2004-2005, LTR reported total income of Rs.8.39 crore

(Previous year: Rs.9.17 crore) and loss of Rs.0.74 crore (Previous

year: profit after tax Rs.0.09 crore).

A large number of BOT projects are on the anvil in 2005-2006 and the

Company with LTR as design consultant is planning to bid for these

projects. This will see an upturn in LTR’s business outlook. Further,

LTR with Ramboll’s assistance is seeking to work with European

contractors and these efforts may fructify into large orders over the

next few years.

L&T-NIRO LIMITED

L&T-Niro Limited (LTN) was a joint venture with Niro A/S, Denmark

and an established leader in various technologies offered on EPC

basis from concept to commissioning for Dairy, Food, Chemical,

Pharma, Industrial drying and related sectors. The major activities

involve setting up powder producing and processing plants based on

world-renowned technologies from Niro A/S and its group companies.

During the year 2004-2005, LTN has achieved substantial growth in

sales and profitability, registering a higher total income of Rs.55.60

crore (Previous year: Rs.16.75 crore) and higher profit after tax of

Rs.2.63 crore (Previous year: Rs.1.79 crore).

The Company has on May 26, 2005 sold its entire equity shareholding

in L&T-Niro Limited and also transferred the related Dairy equipment

business, to Niro A/S, Denmark as a part of its business portfolio

restructuring initiatives.

VOITH PAPER TECHNOLOGY (INDIA) LIMITED

Voith Paper Technology (India) Limited is a Joint Venture with Voith

Paper, Germany. It has established itself as reliable business partner

32

providing comprehensive technology solutions to the Paper Industry

covering the entire production process from fibre to paper. With

seamless integration of products, systems and services, this joint

venture company remains the preferred process supplier for the Indian

Paper Industry.

During the year, Voith Paper Technology (India) Limited executed orders

in setting up, upgrading and re-building Paper Machines along with

building strong references in de-inking technology plants.

During the year 2004-2005, Voith Paper Technology (India) Limited

recorded a total income of Rs.17.14 crore (Previous year:

Rs.19.85 crore) and profit after tax of Rs.3.20 crore (Previous year:

Rs.1.80 crore).

With a healthy order backlog and most of the major paper mills planning

expansions through new machines, rebuilds and modernizations, the

outlook for Voith Paper Technology (India) Limited for the year ahead

is promising.

III) INTERNATIONAL VENTURES IN ENGINEERING AND PROJECT

MANAGEMENT

The Company has successfully executed various EPC contracts across

industries in international markets, in particular, the Middle East, Africa

and Asia, and is pre-qualified with technology companies like

Halliburton, Haldor Topsoe A/S, Stone & Webster and Uhde. The

Company’s engineering, project management, fabrication and

construction capabilities contribute to its leading position in the Indian

market. The Company is pre-qualified with several oil companies,

international engineering, procurement and construction contractors

and process licensees for the supply of equipment and providing

engineering and construction services.

With a view to leveraging these capabilities in international markets,

the Company has over the years entered into joint ventures with local

partners in various focus countries. These companies provide

engineering services and undertake turnkey projects, thereby

facilitating access to these markets.

LARSEN & TOUBRO (OMAN) LLC

Larsen & Toubro (Oman) LLC (L&T-Oman) is a subsidiary of the

Company wherein Larsen & Toubro International FZE, Sharjah, a

wholly-owned subsidiary of the Company holds 65% stake with Zubair

Corporation, Oman holding a 35% stake. L&T-Oman is one of the

largest engineering and construction organizations in the Sultanate

of Oman and offers comprehensive civil, mechanical and electrical

engineering services.

During the year ended December 31, 2004, L&T-Oman has

successfully completed the Royal Flight Hangar and Al Khoudh Flyover

Projects and has bagged the prestigious order for construction of Villa

for His Majesty for a value of Omani Riyal 16 Mio. During the year

ended December 31, 2004, L&T-Oman has reported total income of

Omani Riyal 20.50 mio - Rs.237.01 crore (Previous year: Omani Riyal

12.00 mio - Rs.145.95 crore) and profit after tax at Omani Riyal

0.82 mio - Rs.9.46 crore (Previous year: Omani Riyal 0.49 mio -

Rs.6.05 crore).

The Oman Government’s budget for the year 2005 with a GDP growth

rate of 12.5% reveals the prospects for increased spending on

infrastructure and capital equipment. Increased expenditure in

infrastructure and tourism development projects is aimed to augment

the economic growth and L&T-Oman is well positioned to utilize these

opportunities.

LARSEN & TOUBRO QATAR LLC

Larsen & Toubro Qatar LLC (L&T-Qatar), a Joint Venture between the

Company and a local company, Al-Jazeera International Trading Co.

WLL, undertakes turnkey solutions in civil, mechanical and electrical

engineering in projects in the petrochemicals, infrastructure, buildings,

factories, power and gas sectors. Presently, Larsen & Toubro

International FZE, Sharjah, holds 49% in L&T-Qatar and the balance

51% is held by Al-Jazeera International Trading Co. WLL.

L&T-Qatar is executing “Doha 2006 Asian Games Village / Hamad

Medical City” one of the prestigious projects in Qatar worth QR 147

mio, in equal partnership with a local company, HBK Contracting

Co. WLL.

For the period ended December 31, 2004, i.e. in the first nine months

of its operations, L&T-Qatar has earned a total income of QR 0.50

mio - Rs.0.61 crore and reported a net loss of QR 0.06 mio - Rs.0.07

crore. The construction profits are expected to accrue from 2005

onwards.

The Qatar Government has proposed an ambitious investment plan

of over US$ 100 billion by 2012 to develop the economy under energy,

tourism, roads, and other infrastructure facilities. Since the Government

33

is committed to comprehensive economic and social development,

there is large business potential in the oil & gas sector as well as for

industrial construction in the petrochemicals & steel sectors.

LARSEN & TOUBRO (SAUDI ARABIA) LLC

Larsen & Toubro (Saudi Arabia) LLC (L&T-Saudi), a joint venture

between the Company and a Saudi entrepreneur Mr. Khalid Al-Nabet,

is engaged in the business of providing turnkey solutions in civil,

mechanical and electrical engineering in projects in the petrochemicals,

infrastructure, buildings, factories, power transmission & distribution

and telecommunication sectors in Saudi Arabia. Presently, Larsen &

Toubro International FZE, Sharjah, holds 49% in L&T-Saudi.

The Saudi Government has embarked on a plan to increase their oil

production from 9 mio bpd to 12.5 mio bpd in the next four years,

thereby creating opportunities in the oil & gas and petrochemical

sectors. Large investments are expected in the health and education

sectors as well. The Saudi Government is encouraging private sector

investments and FDI in the power and water sector. These opportunities

come at a time when the Saudi and Indian Governments are cementing

their relationship for trade co-operation through the Joint Indo-Saudi

Commission. The cement industry has embarked upon a drive to

enhance capacity by 100 per cent in the next 3 years from an existing

level of 22 mio TPA to 44 mio TPA. Opportunities also exist in Water

Transmission Projects in the Kingdom.

During the year ended December 31, 2004, L&T-Saudi earned a total

income of SAR 171.51 mio - Rs.199.29 crore (Previous year SAR

56.00 mio - Rs.68.10 crore) and made a loss of SAR 48.21 mio -

Rs.56.03 crore (Previous year SAR 17.28 mio - Rs.21.01 crore). The

loss is attributable to cost overruns in some projects and adverse

currency fluctuation with respect to imports. A turnaround plan is being

pursued and L&T-Saudi is expected to report improved performance

in the years ahead.

LARSEN & TOUBRO INTERNATIONAL FZE

Larsen & Toubro International FZE (L&T-FZE), a wholly owned

subsidiary with limited liability, was incorporated in the Hamriyah Free

Zone, Sharjah to carry on the business of import and hire of plant &

machinery and other equipment and project consultancy.

During the year ended December 31, 2004, L&T-FZE has reported a

total income of US$ 1.52 mio - Rs.0.20 crore (Previous year: US$

0.02 mio - Rs.0.11 crore) and a profit of US$ 1.49 mio - Rs.0.08 crore

(Previous year: US$ 0.01 mio - Rs.0.04 crore). L&T-FZE’s authorized

share capital has been increased to US$ 10 mio from US$ 2 mio to

facilitate the growth plans. It has been proposed to make L&T-FZE a

resource base for plant & equipment in the Middle East for assistance

in speedy and world-class execution of projects.

L&T-ECC CONSTRUCTION (M) SDN. BHD.

L&T-ECC Construction (M) SDN. BHD. (L&T-ECC), which is a joint

venture between the Company and local partners in Malaysia,

undertakes civil, mechanical and electrical contracts and turnkey

projects. Larsen & Toubro International FZE, Sharjah, holds 30% equity

stake with management control in L&T-ECC. L&T-ECC enjoys the status

of a local Malaysian company.

During the year ended December 31, 2004, L&T-ECC reported a total

income of Malaysian Ringitt (RM) 0.13 mio - Rs.0.15 crore (Previous

year: RM 0.31 mio - Rs.0.39 crore) and a loss of RM 0.30 mio -

Rs. 0.35 crore (Previous year: RM 0.40 mio - Rs.0.50 crore)

The Malaysian Government’s plan for enhancing efficiency as well as

improving the quality of infrastructure (roads, ports and railways) and

utilities has been the main focus for the construction industry. L&T-

ECC is actively pursuing for projects in the construction sector and

strategic initiatives have been taken during the year to bid for projects

in consortium / joint venture with other local Malaysian companies.

ZUBAIR KILPATRICK LLC

Zubair Kilpatrick LLC (Zubair Kilpatrick), which is a subsidiary of the

Company, is a Joint Venture with Zubair Corporation. Larsen & Toubro

International FZE, Sharjah, holds 65% stake with Zubair Corporation

holding 35% stake in Zubair Kilpatrick. Zubair Kilpatrick focuses on

MEP services, electrical & instrumentation works in oil & gas sectors

and Facilities Management.

During the year ended December 31, 2004, Zubair Kilpatrick has

successfully completed Suwaihat Sub-station upgrade-Petroleum

Development Oman (PDO) and Saih Nihayda & Amal Transformer.

Zubair Kilpatrick has bagged orders from Oil & Gas Sector for Electrical

& Instrumentation works and Facilities Management during the year.

During the year ended December 31, 2004, Zubair Kilpatrick has

reported total income of Omani Riyal (OR) 4.24 mio - Rs.49.16 crore

34

(Previous year: OR 3.46 mio - Rs.42.11 crore) and profit after tax of

OR 0.07 mio - Rs.0.83 crore (Previous year: OR 0.27 mio -

Rs.3.30 crore).

The Oman Government, with the momentum coming in from rising oil

prices, is actively looking at diversification of the economy. Major

Investments are envisaged in industrial and infrastructure projects with

emphasis on tourism, offering ample opportunities for Zubair Kilpatrick

to grow.

IV) INFRASTRUCTURE DEVELOPMENTAL PROJECTS

The Company engages in the development and construction of

infrastructure projects both in power and non-power sectors such as

roads, highways, bridges, ports, harbours, airports, information

technology and industrial parks, water supply, and other facilities under

BOT contracts, Build-Own-Lease-Transfer contracts, Maintain-

Operate-Share-Transfer and Build-Own-Operate-Share-Transfer

contracts in India. These projects are typically undertaken by consortia

comprising private and public sector companies, financial institutions

and multinationals on an EPC basis. The Company’s strategy is to

leverage its experience in the engineering and construction business

to execute these projects through special purpose vehicles and joint

ventures. The Company, through a wholly owned subsidiary, L&T

Infrastructure Development Projects Limited (formerly known as ‘L&T

Holdings Limited’), invests in development of non-power infrastructure

projects. It invests in power projects through another wholly owned

subsidiary, L&T Power Investments Private Limited.

A) Non-Power sectors

L&T INFRASTRUCTURE DEVELOPMENT PROJECTS LIMITED

L&T Infrastructure Development Projects Limited (formerly L&T

Holdings Limited) (L&TIDPL) a wholly owned subsidiary has over a

period of time built up capabilities in identifying and developing

infrastructure projects, operation and maintenance of these projects

and providing advisory services on financing and engineering. Thus,

L&TIDPL is an infrastructure project development company that covers

the entire framework of infrastructure activities in the non-power sector.

During the year 2004-2005, L&TIDPL has reported a total income of

Rs.4.53 crore (Previous year: Rs.2.21crore) and a loss of Rs.3.36

crore (Previous year: Rs.2.38 crore). The loss is mainly on account of

interest cost for the funds raised for investing into various projects

which are yet to yield dividends.

With the increased thrust on infrastructure development, prospects in

the coming years appear to be good. The companies in which

investments have been made are reporting improved performance

leading to higher valuations apart from improved dividend yield in the

years ahead.

Some of the projects that L&TIDPL has invested in are:

• Bangalore International Airport Limited

• Ahmedabad Mehsana Toll Road Company Limited

• International Seaports (Haldia) Private Limited

• GVK Jaipur Kishengarh Expressway Limited

• Second Vivekanand Bridge Tollway Company Private Limited

• Visakhapatnam Industrial Water Supply Company Limited

• Ennore Tank Terminal (Private) Limited

• Cyberpark Development & Construction Limited

• Narmada Infrastructure Construction Enterprise Limited

• L&T Transportation Infrastructure Limited

• L&T Western India Tollbridge Limited

While some of these projects are at various levels of completion and

are expected to generate revenues in the subsequent years, the others

are currently revenue generating.

L&T TRANSPORTATION INFRASTRUCTURE LIMITED

L&T Transportation Infrastructure Limited (L&TTIL), a wholly-owned

subsidiary, is a special purpose company with the ownership / tolling

rights of the 28km Coimbatore Bypass Road for 30 years and that of

a 2 lane bridge at Athupalam across River Noyyal for 20 years under

BOT arrangement with Government of India and Government of Tamil

Nadu.

During the year 2004-2005, L&TTIL reported a total income of Rs.15.69

crore (Previous year: Rs.13.33 crore) and profit after tax of Rs.5.03

crore (Previous year: Rs.1.42 crore)

L&TTIL has witnessed a strong improvement in collections on account

of increased traffic and tariff revision. L&TTIL carried out debt

35

restructuring which helped in improving the profitability. Going forward,

L&TTIL expects sustained growth in traffic and periodic upward tariff

revisions.

NARMADA INFRASTRUCTURE CONSTRUCTION ENTERPRISE

LIMITED

Narmada Infrastructure Construction Enterprise Limited (NICE), in

which the Company holds 80% stake by itself and through some of its

wholly-owned subsidiaries, is a special purpose company with a

15 year ownership / tolling rights in respect of 2 bridges at

Zadeshwar across the river Narmada in Gujarat on National

Highway-8.

During the year 2004-2005, NICE reported a total income of Rs.27.56

crore (Previous year: Rs.22.95 crore) and a profit after tax of Rs.2.16

crore (Previous year: Loss of Rs.0.34 crore). Toll collection has

increased during the year mainly due to growth in traffic and increase

in tariff rates.

NICE expects consistent growth in traffic and an increase in toll rates,

both of which are expected to contribute to an improved performance

by NICE in the future years.

L&T WESTERN INDIA TOLLBRIDGE LIMITED

L&T Western India Tollbridge Limited (L&TWITL), a wholly-owned

subsidiary, is a special purpose company with a 10 year ownership/

tolling rights in respect of a two-lane bridge across river Watrak on the

Ahmedabad-Vadodara section of National Highway-8 under BOT

scheme on an agreement entered into with Government of India and

Government of Gujarat.

This is the fourth full year of operations of L&TWITL. Traffic, especially

of cars, on the bridge was lower due to the diversion of traffic to the

new expressway from Ahmedabad to Vadodara. The collection was

also affected due to the week long truckers’ strike in August 2004.

L&TWITL, however, took certain initiatives like opening of check plazas,

increasing advertisement, etc. for augmenting revenue.

L&TWITL reported a total income of Rs.10.24 crore in the year

2004-2005 (Previous year: Rs.10.46 crore) with profit after tax of

Rs.1.36 crore (Previous year: Rs.1.07 crore)

INTERNATIONAL SEAPORTS PTE. LIMITED

International Seaports Pte. Limited (ISPL), a joint venture with Precious

Shipping Public Company Limited, Bangkok and SSA Inc., USA, was

formed to provide integrated services in design, development, building

and operating seaport terminals in Asia and the Middle East.

ISPL, through its project management subsidiary in India, International

Seaports (India) Private Limited, has successfully bid for various port

projects in Orissa, Andhra Pradesh and West Bengal. They are being

developed under separate project companies. The status of these

projects is as under:

The Dhamra Port Company Limited (DPCL) has been awarded the

project for developing the existing minor port at Dhamra into a

deepwater all-weather port under Build-Own-Operate-Share-Transfer

(BOOST) basis for a period of 34 years (including 4 years of

construction). The Project after the initial delay was revived during the

year with the signing of a shareholders’ agreement between the

Company and Tata Steel has 50:50 partnership for development of

the Port. DPCL has all the clearances required for commencement of

construction activity. In view of the change in the cargo mix, a few

minor modifications are being made on the layout and design of the

port infrastructure. The Project with a total outlay of around

Rs 1700 crore is expected to achieve financial closure during

July-September 2005.

International Seaports (Haldia) Private Limited is involved in the

construction and operation of Berth No. 4A at Haldia Dock Complex

of Kolkata Port Trust for handling bulk cargo. The licence is for a period

of 30 years on Build-Own-Operate-Transfer (BOOT) basis. The project

construction was completed ahead of schedule and the commercial

operations started in January 2004. During the year 2004-05, the

facilities handled over 3 million tonnes of coking coal for SAIL, reaching

near capacity levels. The income during the full year of operations

amounted to Rs.55.74 crore (Previous year: Rs.7.34 crore) and profit

after tax of Rs.5.64 crore (Previous year: Loss of Rs.1.23 crore). With

stabilization in the handling systems, International Seaports (Haldia)

Private Limited is expected to improve on its profits in the coming

years.

Kakinada Seaports Limited (KSL) is engaged in operation of the

existing deepwater port at Kakinada on Operate, Manage, Share

and Transfer basis with provision for development of further facilities

on BOOT basis. The port is presently performing well with improved

cargo volumes. KSL reported a total income of Rs.57.17 crore during

the year 2004-2005 (Previous year: Rs.26.79 crore) and recorded a

profit after tax of Rs.5.43 crore (Previous year: Loss of Rs.1.74 crore).

The Port is now connected to the rail network and has started receiving

bulk cargos. The Phase I of the project involving a total project cost of

Rs. 175 crore has been financially closed. The final approval from the

36

Government is awaited. The project development work is expected to

be completed during the year 2006-2007 and the Port is expected to

perform thereafter.

L&T INFOCITY LIMITED

L&T Infocity Limited (LTIL), a subsidiary of the Company, is a Joint

Venture with the Andhra Pradesh Industrial Infrastructure Corporation

Limited (APIIC), focused on the design, construction, selling and

maintenance of Information Technology Parks in Andhra Pradesh.

LTIL has successfully completed the development, construction and

sale/ lease of IT commercial space in two phases (Cyber Towers and

Cyber Gateway) in HITEC City, spread over 151 acres of land at

Hyderabad. The aggregate building space of 13.05 lakh sq. feet built

over 14 acres of land has been fully occupied for the last 2 years, by

some of the world’s leading multinationals like Microsoft, Oracle, GE,

HSBC, Keane, Franklin Templeton, Toshiba etc.

During the year 2004-2005, LTIL recorded a total income of Rs.30.40

crore (Previous year: Rs.83.46 crore) with a net profit of Rs.11.90

crore (Previous year: Rs.36.56 crore). The revenues of LTIL consist of

proceeds from sale / lease of floor space in addition to income from

maintenance of IT parks and consultancy income. LTIL sold a larger

portion of floor space during 2003-2004 (3.5 lakh sq.feet), due to which

the previous year’s revenues are higher than the revenues

in 2004-2005.

Having established a track record in IT parks, LTIL commenced

development of new ‘Built-to-Suit’ projects, in India and abroad,

structured as SPVs:

• A Built-to-Suit IT park in Colombo, Sri Lanka, measuring 1,85,000

sq.ft. completed and handed over to HSBC for ITES operations.

• ‘Built-to-Suit’ facilities for HSBC to be completed in the current

year at HITEC City, Hyderabad and Salt Lake City, Kolkata.

• Built-to-Suit facilities to be developed and leased out to Motorola

and Deloitte Consulting at HITEC City, Hyderabad for a long-

term lease of over 9 years.

LTIL is introducing new service offerings like development of residential

projects, O&M Services to other IT Parks, and consultancy services

for design and architecture.

L&T-CROSSROADS PRIVATE LIMITED

L&T-Crossroads Private Limited (L&T-Crossroads), a joint venture

between the Company and Piramal Holdings Limited, has undertaken

the development and operation of a shoppertainment-cum-parking

complex at Nariman Point, South Mumbai’s prime business district.

L&T-Crossroads has entered into a sub-lease with MMRDA for a term

of 80 years.

The project has been completed, with the development of total of 86,125

sq.ft of commercial area. Over 80% of the saleable area has been sold

or leased out.

During the year 2004-2005 L&T-Crossroads earned revenues of Rs.

64.27 crore and incurred a net loss of Rs. 1.27 crore.

B) Power sector

L&T POWER INVESTMENTS PRIVATE LIMITED

L&T Power Investments Private Limited (LTPIPL) is a wholly owned

subsidiary of the Company, set up to invest and undertake projects in

the power sector.

LTPIPL commenced operations during the year through investments

in the 445 MW Konaseema power project, in addition to the “Contracting

& Transportation” line of business. LTPIPL has invested a sum of Rs.21

crore representing 5.97% of the share capital of Konaseema EPS

Oakwell Power Limited. The EPC contract for this project is being

executed by the Company. During 2004-2005, the Company also

secured a contract from Vemagiri Power Generation Limited for its

388.5 MW gas based combined cycle power project, in which LTPIPL

is scheduled to participate.

During the year 2004-2005, LTPIPL reported a total income of Rs.6.00

crore and a profit after tax of Rs.0.04 crore.

HPL COGENERATION LIMITED

HPL Cogeneration Limited (HPLCL), which is a subsidiary of the

Company, is a joint venture with Haldia Petrochemicals Limited, Kolkata

(HPL) for the purpose of owning and operating a 116 MW combined

cycle cogeneration power plant on “Build-Own-Operate” basis for supply

of electric power and steam solely to HPL’s Petrochemical Complex at

Haldia, West Bengal.

During the year 2004-2005, HPLCL reported a total income of

Rs.140.95 crore (Previous year: Rs.135.17 crore). HPLCL being eligible

37

has decided to avail the tax benefit under section 80-IA of the Income

Tax Act, 1961, starting from the year 2004-2005. Consequent to this

decision, deferred tax liability amounting to Rs.57.35 crore has been

reversed, resulting in substantially higher profits after tax of Rs.123.64

crore (Previous year: Rs.39.74 crore).

HPLCL has taken various quality initiatives and obtained ISO 9001

and ISO 14001 certifications during the year under review. HPLCL

has also won the Greentech Safety Gold Award and Greentech

Environment Silver Award for the year 2003-2004.

INDIA INFRASTRUCTURE DEVELOPERS LIMITED

India Infrastructure Developers Limited (IIDL) is a wholly owned

subsidiary of the Company. IIDL is a special purpose vehicle formed

to provide on lease a 2 x 45 MW captive co-generation plant to Indian

Petrochemicals Corporation Limited (IPCL) at Gandhar. It is registered

as a Non-Banking Finance Company with RBI.

During the year 2004-2005, IIDL registered a total income of

Rs.49.54 crore (Previous year: Rs.63.93 crore). The reduction in total

income is partly due to lower lease rentals on account of currency

(USD) and LIBOR linked variations built into the contract. Consequently,

the net profit was lower at Rs.0.61 crore (Previous Year: Rs.4.00 crore).

IIDL’s earnings are expected to follow a consistent pattern during the

period of the lease agreement, subject to exchange rate and interest

rate fluctuations.

V) MANUFACTURING PORTFOLIO – EQUIPMENT AND INDUSTRIAL

PRODUCTS & SOLUTIONS

The Company has a strong portfolio of manufacturing businesses in

areas related to the core businesses of the Company. The Company

through its joint venture companies manufactures a wide variety of

mining and construction equipment and heavy machinery. This portfolio

has been, over the years supplemented by widening the range of

machinery manufactured, through joint ventures with global equipment

majors. The equipment portfolio now includes tractors, a wide range of

high-pressure hydraulic products, loaders, injection moulding machines

and undercarriages for a variety of heavy machinery.

The L&T group’s business portfolio includes industrial products and

solutions like valves & allied products, welding alloys and solutions,

supported by a network of marketing organizations.

L&T-KOMATSU LIMITED

L&T-Komatsu Limited (LTK), a joint venture between the Company

and Komatsu Asia & Pacific Pte. Limited, Singapore, manufactures

hydraulic excavators and high pressure hydraulic systems &

components. LTK has a manufacturing facility at Bangalore.

Due to impressive performance of the manufacturing, mining and

construction sectors, the Hydraulic Excavator market grew by a

phenomenal 27% (on the back of a 25% growth in the previous year)

in quantitative terms during 2004-2005. Despite tough competition from

cheaper imported products, LTK maintained its leadership position.

By taking full advantage of the country’s economic resurgence, LTK

reported, during 2004-2005, higher revenues of Rs.428.00 crore

(Previous year: Rs.303.44 crore) and a profit after tax of Rs.17.03

crore (Previous year: Rs.6.56 crore). Improvement in bottom-line was

possible due to effective cost reduction measures and improved

productivity.

LTK has identified new product development and technological

advancement as key factors in its journey towards achieving business

leadership. As a step towards achieving this goal, considerable

improvements are constantly made in the product models to enhance

their reliability. Various ‘Quality Processes’ are also being initiated. LTK

has been awarded the GreenTech Safety award.

The growth in the market for hydraulic excavators is directly correlated

with the economic growth rates. Major sectors like coal, power, cement

and mining have started displaying a healthy growth trend. Continuing

emphasis on infrastructure combined with financial reforms is expected

to result in a substantial increase in construction activity, directly

resulting in increased demand for LTK’s products. LTK is also

aggressively pursuing various export possibilities. In fact, Komatsu

Limited, Japan has approved LTK as the sole global source for cylinders

of one model of Wheel Loaders which can help LTK to improve revenues

from exports.

L&T-JOHN DEERE PRIVATE LIMITED

L&T-John Deere Private Limited (LTJD), a joint venture with Deere &

Company, USA is engaged in the manufacture and sale of tractors.

LTJD has a manufacturing facility at Sanaswadi, Pune with an installed

capacity of 30,000 tractors per annum.

LTJD has 4 models in the portfolio and all are well established in the

market. LTJD is currently the market leader in the 55 HP segment.

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The tractor industry has shown positive growth during the year under

review owing to a number of factors like increase in rural demand,

availability of cheaper retail finance etc. LTJD introduced two new

models during the year viz. 35 hp & 70 hp tractor. Total industry sales

was at 2,34,000 tractors with LTJD accounting for 7.25% in terms of

volume.

During the year 2004-2005, LTJD reported a total income of Rs.635.67

crore (Previous year: Rs.362.50 crore) and a profit after tax of Rs.3.60

crore (Previous year: Loss of Rs.14.96 crore). Improvement in product

mix, increased volume, higher export realization, cost reduction,

financial restructuring and close monitoring of working capital

contributed for the improvement in the profitability. The marketing

network has been expanded across the country with 240 dealers during

the year under review. LTJD is the largest Indian exporter of tractors to

USA. Exports contributed 57% of total turnover of LTJD and registered

growth of 94% over previous year’s exports. During the year LTJD

received the Export Excellence Award for its performance in financial

year 2002-03.

LTJD has test marketed tractors to North Africa and Australia as a part

of its strategy to explore new export markets. With the improvement in

the economic indicators, LTJD expects enhanced utilization of plant

capacity and improvement in the financial performance in the coming

years.

TRACTOR ENGINEERS LIMITED

Tractor Engineers Limited (TENGL) is a wholly-owned subsidiary of

the Company principally engaged in manufacture of undercarriage

systems for excavators, crawler tractors, bulldozers etc., and material

handling equipment like apron conveyors and spares for oilfield

equipments.

Sales and other income for the year 2004-2005 were at Rs.74.80 crore

(Previous year: Rs.60.44 crore). TENGL reported a higher profit after

tax for the year at Rs.5.54 crore. (Previous year: Rs.3.00 crore)

During 2004-2005, sales of undercarriage systems and apron

conveyors have been the key drivers of growth resulting in 24% growth

in the turnover over the previous year. One set of track module for

Road Pavers was successfully developed and exported to USA.

TENGL plans to consolidate its position in the undercarriage market

by catering to new variants introduced by the Original Equipment

manufacturers, while improving its presence in Apron Feeders by

broadening the product range.

L&T-CASE EQUIPMENT PRIVATE LIMITED

L&T-Case Equipment Private Limited (LTCEL), a joint venture between

Larsen & Toubro Limited and CNH America LLC, is engaged in

manufacturing earthmoving and construction machinery like Loader

backhoes & Vibratory Compactors. LTCEL also manufactures asphalt

and soil compactors, in which it enjoys about 30% of market share.

During the year, the combined effect of cost escalation on account of

rise in steel prices, Euro appreciation, along with intense competition

from international players impacted the profitability of LTCEL. LTCEL

reported a total turnover of Rs.123.02 crore in the year 2004-2005

(Previous year: 113.27 crore) and a net loss of Rs.3.88 crore. (Previous

year: Rs.3.35 crore).

Though the investments in roads had slowed down in 2004, considering

the renewed focus from the Government on Roads & Highways,

significant growth is expected in the Compactors segment. Significant

increase in exports to the SAARC countries is expected in the year

2005-2006. The growth in exports, the market success of the newly

introduced models of Backhoe L&T 580-3 S along with strong macro-

economic factors are likely to lead to significant improvement in the

performance of LTCEL.

L&T-DEMAG PLASTICS MACHINERY PRIVATE LIMITED

L&T-Demag Plastics Machinery Private Limited (L&T-Demag), a joint

venture between the Company and Demag Ergotech GmbH, Germany

(Demag), manufactures Injection Moulding Machines for the plastics

industry. Its products find application in diverse industries like

automobiles, electrical goods, packaging, personal care products,

writing instruments and white goods.

L&T-Demag is facing tough competition both from domestic

manufacturers as well as from cheaper imports due to lowering of

duties and the weakening dollar. This is being compounded by the

increase in input costs, mainly steel. However, L&T-Demag has been

able to maintain leadership position amongst reputed manufacturers

of Injection Moulding Machines in the organised sector and has several

repeat customers.

L&T-Demag has been certified under ISO 9001:2000 Quality Assurance

System by BVQI. It has also obtained CE marking and GOST-R

certification to enable exports to Europe and Russia respectively. L&T-

Demag’s association with Demag and its own established R&D base

has enabled it to customise its offerings to customers in India

and abroad.

39

During the year 2004-2005, L&T-Demag recorded significant increase

in its total income at Rs.101.04 crore (Previous year: Rs.75.41 crore)

and a higher profit after tax of Rs.3.31 crore (Previous year: Rs.1.90

crore). L&T-Demag is constructing its new facilities in the outskirts of

Chennai and would be moving to its own premises from the current

leased premises.

The demand for plastic products is expected to grow in the future,

leading to continued demand for the products of L&T-Demag both in

the domestic and international markets.

AUDCO INDIA LIMITED

Audco India Limited (AIL), a joint venture with the Flowserve Group,

USA is engaged in the manufacture and sale of Industrial Valves, Safety

systems & equipment and Pneumatic actuators & accessories.

Superior product quality, brand name, certifications by internationally

accredited agencies, acceptance and approvals by all major end users,

R&D capabilities and strong distribution network are AIL’s key strengths.

During the year 2004-2005, AIL reported a total income of Rs.491.67

crore (Previous year: Rs.372.24 crore) and profit after tax of Rs.32.04

crore (Previous year: Rs.27.97 crore). Increasing competition from

Korea, China and the unorganized sector coupled with reduction in

export benefits like DEPB and withdrawal of 80HHC are likely to impact

the profitability of Indian companies operating in the industry.

Outlook for 2005-2006 is promising on account of healthy order backlog,

large capital expenditure plans of the oil majors and the impending

plans of Flowserve Group to increase outsourcing from AIL.

EWAC ALLOYS LIMITED

Ewac Alloys Limited (EWAC) is a joint venture with Messer Eutectic +

Castolin Group and is a market leader in the business of maintenance

& repair welding and welding solutions for conservation of global metal

resources. The principal products and services comprise maintenance

& repair (M&R) consumables, specification grade electrodes, flux-cored

welding wires, wear plates/parts, welding equipment, tero coat lab

services, etc. The Company markets EWAC’s products in India.

During the year 2004-2005, EWAC reported a total income of Rs.72.38

crore (Previous year: Rs.67.94 crore) and profit after tax of Rs.9.97

crore (Previous year: Rs.10.49 crore). EWAC enjoys a market share

of 46% in the M&R segment.

The cost of inputs like steel, nickel etc. has gone up significantly over

the last few years. Although EWAC has taken steps to mitigate the

impact of increase in cost of inputs, the present competitive environment

prevents cost pass through.

The economy is on an uptrend and capital expansion is expected to

pick up. The setting up of power plants, revival of steel & construction

industries and increase in demand for cement, sugar etc. have resulted

in a growth in the welding market. In addition to improved R&D

operations, EWAC has taken various initiatives like ‘New Product

Development’, ‘Quality Improvement’, ‘Material Yield Improvement’,

‘Capacity Enhancement’, ‘Energy Conservation’, etc. which have

started yielding benefits.

EWAC is optimistic to post better performance in the years ahead.