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Eyes more infrastructure contracts in Africa, Asia

MUMBAI (NewsRise) -- Larsen & Toubro, India's largest engineering and construction company, is seeking to enter new markets in Africa and Asia as it grapples with lackluster demand at home and slowing orders in the Middle East.

   L&T is striving for "geographical diversification as a bulwark against single-country dependency," Chairman A.M. Naik told shareholders at the company's annual meeting on Wednesday. "We are looking at a few other countries in Africa." The company's first-quarter profit plunged a worse-than-expected 37%, as spending on infrastructure suffered in India where economic growth is yet to show a sustained pick up. L&T, which has won a string of metro rail and road projects in Qatar and Saudi Arabia in recent years, now faces a slowdown in orders in the Middle East amid plunging crude oil prices.

   Several Indian companies, including the nation's largest mobile services provider Bharti Airtel, top two-wheeler maker Hero MotoCorp, and Godrej Consumer Products, are expanding in other emerging markets such as Africa to boost growth. Africa is seen as one of the top investment destinations for Indian companies, as several countries across the continent seek to build infrastructure.

   The "untapped'' African market is steadily opening up, such as electricity transmission and distribution in Algeria and Kenya, providing avenues of growth for L&T, according to the company's annual report. Africa and Southeast Asia "have remained largely insulated from the slowdown," L&T said.

   The company, founded in Mumbai in 1938 by two Danish engineers Henning Holck-Larsen and Soren Kristian Toubro, is also eyeing construction contracts in Sri Lanka where orders may start flowing in by the fourth quarter of the current financial year, Naik said. L&T expects to win orders worth 30 billion rupees ($450 million) from 2-3 infrastructure projects in the south Asian country, he said.

   Shares of Larsen rose about 1.8% in Mumbai trading on Thursday, while the benchmark S&P BSE Sensex index was down 0.3%. The stock has gained 8.3% so far in 2015, outperforming the benchmark Sensex, which is down 6.6%. The scenario in India is gradually improving, driven by government spending, Naik told shareholders. In a bid to revive growth, Prime Minister Narendra Modi has pledged to boost spending on infrastructure, and has unveiled a number of initiatives including an ambitious "Smart City" project.

   L&T is also planning to scale up in niche industries such as defense, as Modi's government has increased the cap on foreign direct investment to 49% from 26% as part of a goal to turn Asia's third-largest economy into a global defense manufacturing hub.

   The company, which has businesses spanning from metro trains to gas pipelines to submarine parts, is well positioned to benefit from the decision to open up the defense sector, Naik said. A slew of India's top companies, including Reliance Industries, Tata group and Mahindra & Mahindra, have entered the space in recent years.

   L&T's order book, a key indicator of demand, rose 22% to 2.39 trillion rupees at the end of June. International orders constituted about a third of the total orders as well as revenue in the first quarter ended June 30.   

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