Good morning, ladies and gentlemen. A very warm welcome to our Q4 and FY 2020 Earnings Call. The analyst presentation was uploaded on our site last night around by eight o'clock or so. I hope all of you have downloaded it. The format that we will follow is that my colleague, and all of you would have met him or talked to him some time, Mr. Harish Barai, will walk you through the presentation. After that, we'll open the session to questions and answers, which Mr. S.N. Subrahmanyan, our CEO and MD, as well as Mr. Shankar Raman, our Group CFO, will take. Just one small point since Mr. Subrahmanyan and Mr. Shankar Raman will be taking the Q&A. I would just request all of you to kindly concentrate on broader things like strategy and business.
If you have any nitty-gritty questions, you can always ring me up or send me a mail offline subsequently. With that, I'll hand it over to Harish. Harish, you can please go ahead.
Yeah. Thank you, Mr. Mondal. Good morning, ladies and gentlemen. Once again, a very warm welcome to all of you into the Q4 and FY 2020 Earnings Call of Larsen & Toubro Limited. I will move on to the next slide on disclaimer. Essentially, this presentation contains certain forward-looking statements concerning L&T's future business prospects and business profitability, which are subject to a number of risks and uncertainties. The actual results could materially differ from those in such forward-looking statements. The remaining portion of the statement, I will take it as read. Move on to the next slide, which is slide number four. The performance highlights for FY 2020. Our order inflows for FY 2020 at INR 1,864 billion registered a growth of 9% over the previous year.
Our revenues for FY 2020 at INR 1,455 billion registered a growth of 8% over the previous year, and our EBITDA and PAT for FY 2020 grew at 7% each over the previous year. Our order book as on March 2020 is at INR 3,039 billion, up 4% over March 2019. These numbers have to be seen in the context of the current domestic macroeconomic environment. FY 2020 order inflows grew by 9%, even in the face of subdued business environment and economic challenges. Coming to revenues, despite carrying a large order book, we consciously slowed down execution to prevent further working capital buildup. Payments from the public space, as you know, has not been very encouraging during the year. Secondly, as you are aware, 5% of our order book was not moving for most parts of the year. Lastly, COVID-19 also impacted revenues in the March quarter.
Despite all these challenges, our revenues for the year FY 2020 grew 8%. If we were to just summarize, we could say growth achieved in a difficult year. With those comments, I will move on to the next slide on key financial indicators. The quarterly numbers are mentioned on the left portion of the slide, and the full year numbers are on your right. Since we have broadly covered the full year numbers in the previous slide, in this slide, I will mainly focus on the quarterly numbers. Our order inflow in Q4 FY 2020 at INR 578 billion, up 5%, primarily on the back of significant orders received in the infrastructure segment. Our order inflows have grown in Q4 FY 2020 despite a high base in the corresponding quarter of the previous year.
Our revenue for Q4 FY 2020 at INR 442 billion, up 2%, despite challenges faced due to COVID-19 and a work from home or a lockdown kind of environment in the last fortnight of the quarter. Our EBITDA and PAT for Q4 FY 2020 at INR 51 billion and INR 32 billion respectively, has registered a degrowth of 3% and 6% respectively, mainly due to execution challenges that are arising out of not moving jobs and impact of COVID-19. Just to mention here, we lost about INR 17.5 billion of revenues in Q4 due to COVID-19, and around INR 4 billion of PAT, which includes COVID-19 provisions in FS business, and around INR 15 billion of collections due to partial/complete lockdown in the last fortnight of March 2020. Some comments on working capital. Our Net Working Capital at 23.7% in March 2020 is up from 18.1% in March 2019.
As I mentioned in the earlier slide, payments from the public space has not been very encouraging during the year. You would recollect that we had to support our vendor ecosystem in Q1 of FY 2020. At this juncture, I want to just mention that as a company philosophy, we have been doing a balancing act between revenues and working capital for last couple of years now. We would also like to mention here that despite a tough March quarter, there has been no sequential worsening in net working capital levels from Q3 FY 2020 to Q4 FY 2020. Contrary to popular perception, we did receive collections from clients even during the last week of March 2020, and we have enough liquidity buffers on our balance sheet.
Our return on net worth for financial year FY 2020 is at 14.8% from 15.3% in March 2019. As I said, our inability to execute 5% of our order book during large parts of FY 2020, as well as the COVID-19 impact in the last quarter, had an impact not only on the revenue growth, but also impacted PAT and consequently our return on net worth. With those comments, I will move on to the next slide, which is slide number 7: Q4 FY 2020 order inflow order book. Our order inflow numbers again on the left, order book on the right. Our Q4 order inflow at INR 578 billion, up 5% over the corresponding quarter of the previous year, largely on the back of strong domestic order inflows.
In an otherwise subdued March quarter, it is good to note that domestic orders were back in Q4 FY 2020. In FY 2020, we managed to secure almost the same level of domestic orders as last year. Our order inflows for FY 2020 at INR 1,864 billion, up 9% over the previous year, largely on the back of international orders. We had international order wins in power transmission and distribution, metallurgical and material handling business, water effluent, and IT and TS segments. Coming to order book. Yes, a strong order book provides a good hedge against cyclicality. You will observe from the numbers that our international order book as a percentage of total order book has moved from 21% in March 2019 to 25% in March 2020.
Today, we have six business verticals where each of their order book is between 9%-15% of the overall order book. They are Buildings and Factories, Water, Power Transmission and Distribution, Heavy Civil Infra, Transportation Infra, and Hydrocarbon. Diversity of order book helps and future revenue growth is not dependent on the fortunes of any single vertical. With those comments, I will move on to the next slide. Group performance, sales, and costs. Since we have already explained the revenue variance for Q4 FY 2020 and FY 2020, we will move on to other P&L items. If you will observe, NWC as a percentage of sales has declined for Q4 FY 2020 and full year FY 2020, largely explained by two factors. One, due to the higher proportion of IT and TS business, which is largely due to Mindtree consolidation, and secondly, due to cost control initiatives within the group.
Finance charge OPEX largely represents borrowing cost of financial services business. Staff cost increase for Q4 FY 2020 and FY 2020 is largely explained by Mindtree consolidation and resource augmentation in our service businesses. Sales and administration increase for Q4 FY 2020 and FY 2020 is mainly on account of credit provisions in the financial service business and Mindtree consolidation. Consequently, our total OPEX at INR 391.3 billion for Q4 FY 2020 is up 3%. Total OPEX for FY 2020 at INR 1,291 billion is up 8%. With those comments, I will move on to the next slide, which is slide number nine, group performance profit stat.
For reasons explained in the previous slide, our EBITDA for Q4 FY 2020 at INR 51.2 billion has registered a degrowth of 3% and EBITDA for FY 2020 at INR 163.3 billion is up 7%. The finance cost increase for Q4 FY 2020 and full -year FY 2020 is commensurate with group debt levels reflective of the scale of operations and phased commencement of Hyderabad Metro. Our average borrowing cost at a parent level in FY 2019/2020 is around 7.5%, which is one of the lowest amongst corporates. Our parent company, as you know, enjoys the highest credit rating in India. Higher depreciation charge for Q4 FY 2020 and FY 2020 is on account of Mindtree consolidation and right-of-use assets. Other income is reflective of the level of short-term investments at a group level and higher yields earned during the year on those investments.
JV associate PAT share reflects IDPL Assets, Forgings, and Power JV's performance. NCI variation is largely due to Mindtree consolidation, increase in LTI, LTTS share, and moderated by lower financial services profits. E&A business has been classified as discontinued operations. Our Q4 PAT at INR 32 billion has registered a degrowth of 6% over the corresponding quarter of the previous year and our full year PAT at INR 95.5 billion, up 7% over the previous year. With that, I will move on to the next slide, which is slide number 11, segment composition. This slide on segment composition is essentially for reference purposes. E&A segment has already been classified as discontinued operations and consolidated at a PAT level. Information technology mentioned within the IT and TS segment includes Mindtree. Moving on to the next slide, FY 2020 order inflow composition. This slide is again for reference purposes.
As you can see, 55% of our total order inflows in FY 2020 is from the infrastructure segment. If you recollect, up to nine months FY 2020 infrastructure as a percentage of total order inflows was 48%, essentially means that our Q4 FY 2020 order inflows have largely been powered by the infrastructure segment. Moving on to the split between domestic and international. 68% of our total order inflows are domestic and 32% international. Last year in FY 2019, our international order inflows were 26% of the total order inflows. In the current year, 44% of our international order inflows is from GCC, whereas in the previous year FY 2019, 33% of our international orders was from GCC. We'll move on to the next slide, FY 2020 order book composition. As you can see, 89% of our order book of INR 3,039 billion is dominated by infrastructure and hydrocarbons.
Within infrastructure, as I mentioned earlier, the order book is very well diversified across five large verticals. We are predominantly an India-centric company, and therefore 75% of our total order book is India-based. Now, over the last couple of years, we have tried to consciously move away from the Middle East. These efforts have borne fruit, and about 44% of our international order book today is non-Middle East. With those comments, I will move on to the next slide, FY 2020 revenue composition. This slide is again for reference purposes, and there are no major observations in this slide except that infra continues to dominate the revenue pie at 50%. Secondly, 67% of our total revenues in FY 2020 is domestic, and within international, 42% of our revenues is Middle East. With those comments, I will move on to infrastructure segment. Slide number 15.
Infrastructure segment, as you are aware, is the largest segment within the group, and obviously the financial fortunes of this segment impact the group performance. Quick comments on order inflow before we move on to other financial parameters. As I said earlier, the segment has witnessed strong order wins in Q4 FY 2020, both from domestic and international in an otherwise challenging quarter. Our full-year order inflow in the Infrastructure segment crosses the INR 1 trillion mark in FY 2020. Order wins were in varied areas of health sector, affordable mass housing, power transmission and distribution, renewable energy, airports, industrial water systems, water supply and distribution projects, hydel projects, network management system, gold beneficiation plant, and railway freight facility package. Consequently, the order book of this segment is INR 2.24 trillion as on March 2020. Coming to revenues.
For FY 2020 infra revenues at INR 730 billion is up 1%, whereas for Q4 FY 2020 infra revenues at INR 253 billion has registered a degrowth of 6%. Muted revenue growth for Q4 FY 2020 and FY 2020 is largely reflective of execution challenges on account of stoppage of AP jobs, slow moving orders, funding constraints, and finally impact of COVID-19. As I said earlier, we would not compromise our balance sheet for the sake of execution. Due to this inability to execute jobs in a tough environment, and also the fact that some of our large value jobs did not cross the margin recognition threshold finally impacted margins for this segment. As a company philosophy, we do not recognize margins till the jobs cross a certain margin recognition threshold. Secondly, January to March quarter is a seasonally strong quarter for progress in the infra segment.
We have also been impacted by the slowdown and finally leading to the lockdown in the month of March. Consequently, our FY 2020 margins for this segment has moved from 8.5% in FY 2019 to 8.1% in FY 2020. We move on to the next segment, which is the power segment on slide number 16. Strong order inflow in the current year replenishes the order book and provides healthy revenue visibility for the coming quarters. Revenues for this segment at INR 5.6 billion for Q4 FY 2020 register the degrowth of 40%, whereas revenues for the full year FY 2020 at INR 22.9 billion register the degrowth of 42%, largely reflective of the depleted opening order book and tapering of international jobs. The new job awards during the current year are yet to pick up execution momentum. Margins again are reflective of job mix and state of execution.
The substantial increase in Q4 FY 2020 and full -year FY 2020 margins is on account of client claims. Finally, as you are aware, power business margins always appear optically low because boiler and turbine JVs, as well as the other power JV companies, are consolidated at a PAT level under the equity method. With those comments, I will move on to the next slide, which is slide number 17, heavy engineering segment. Quick comment on order inflow before we move on to other financial parameters. This business segment had a robust order inflow in the previous financial year, which is FY 2018-2019. Current year awards are impacted by deferments. However, that again, I guess to some extent would be dependent upon the economic cycles of global oil and gas industry. Revenues for FY 2020 at INR 28.5 billion, up 31%, largely driven by the strong opening order book.
Q4 FY 2020 revenues have largely been impacted by client delays and shutdown. Coming to margins, global competence, technology differentiation, proven track record and cost efficiencies yield strong margins for this business. Q4 and FY margins have been impacted by cost provisions. We move on to the next segment, which is defense engineering. This is on slide number 18. Policy bottlenecks, fiscal constraints, and lengthy MOD procurement procedures have continued to reset investment momentum in this sector for many years now. Consequently, large order inflows are missing, and order inflows in the current financial year comprises of multiple small value orders. Having said that, the very recent announcements on the time-bound defense procurement processes and faster decision making awakens hope for the future. Announcements around separate budget provisioning for domestic capital procurement is also a positive.
FY 2020 revenues at INR 39.7 billion, up 6%, led by the noteworthy progress in the execution of a marquee order for tracked artillery guns. Q4 FY 2020 revenues at INR 9.3 billion, down 15%, largely impacted by delays and non-receipt of targeted orders. Margins reflect stage of execution, job mix, and operational efficiency. L&T Shipbuilding Limited, 100% subsidiary under the defense engineering segment, has now been merged with the parent after obtaining NCLT approval. However, this does not have an impact on group financials. The deet Even advertisement. Moving on to the next segment, which is the hydrocarbon segment. This is on slide number 19. Now, hydrocarbon segment has been doing very well, and today there is an unexecuted order book close to three years of revenue. Hydrocarbon business had significant order wins in the current financial year from both domestic and international markets.
Slowdown in Q4 order inflows was largely due to global volatility in oil prices. Q4 FY 2019 had a large international order, which is the last year, last quarter of FY 2018-2019. The base effect obviously comes to play again. Strong revenue growth of 15% for Q4 FY 2020 as well as full -year FY 2020 on the back of inline execution of a large opening order book. Margins are contributed by efficient execution, job mix and change. Moving on to the next segment, which is the development project segment. Development project segment comprises of, as you know, power development business and Hyderabad Metro. In the previous year, this segment included Kattupalli Port as well. You would recollect that we sold off Kattupalli Port last year. Again, roads and transmission lines are consolidated at a PAT level under the equity method.
Obviously the numbers presented in this slide do not include roads as well as transmission lines. The balance stretch of Hyderabad Metro was commissioned during Q4 FY 2020, with which the metro is now fully commissioned. Revenues of this segment is largely contributed by power development business. For Q4 FY 2020, the revenues of this segment at INR 9.8 billion, down 9%, largely due to the maintenance shutdown. It's a regular maintenance shutdown of one power unit during the period. Secondly, lockdown impacts metro ridership in March 2020. Full -year FY 2020 revenues at INR 48.5 billion, down 4%, largely due to Kattupalli Port sale in the previous year. Margin profile of this business segment is still emerging, primarily because the final outcomes will depend on the various claims that we have filed in respect of Metro and the court cases in Nabha Power.
While Metro ridership is dependent on external factors, we will be working towards TOD monetization, financial restructuring and induction of equity partners. With those comments, I will move on to the next segment, which is the IT and TS segment. All the three companies in the IT and TS segment are listed companies. They had their earnings call as well. All the numbers are available in public domain. Revenues from the IT and TS segment for Q4 FY 2020 at INR 63.5 billion, up 68%. For full year FY 2020 at INR 221.4 billion, up 54%, primarily because of Mindtree consolidation from Q2 FY 2020 onwards. It is important to note here that all the three listed IT subsidiaries have posted healthy Q4 numbers in an otherwise challenging quarter.
An array of business verticals have contributed to the strong growth within each of these companies. The details are mentioned in the slide.
It is important to note that each one of the listed subsidiaries have smoothly transitioned to a work from home environment during the pandemic, with encouragement and support from customers. Margin variation again is the outcome of increased resource cost. We move on to the next slide, which is slide number 22. This is on the other segment. The other segment comprises of construction and mining equipment, rubber processing machinery, industrial valves and realty business. Q4 FY 2020 revenues of this segment at INR 11.3 billion, down 13%, largely due to the delayed handovers in realty business. Low demand impacts construction and mining equipment revenues. Valves business records growth on the back of large opening order book. FY 2019 revenues and margins of this segment are higher compared to FY 2020.
I'm again repeating, FY 2019, which is the previous year, revenues and margins of this segment are higher compared to FY 2020, primarily because previous year included lumpy sales of commercial premises in realty business. Moving on to the next slide, which is the L&T Finance Holdings Group. L&T Finance Holdings, a listed company again, and they had their earnings call as well. All the numbers available in public domain. For Q4 FY 2020 as well as FY 2020, income from operations has grown 6% and 9% respectively. The group over the last couple of years has demonstrated tremendous resilience despite the challenges facing the NBFC space. The group continues to maintain healthy capital adequacy levels and sufficient liquidity buffers in its balance sheet during these challenging times. L&T Finance Holdings and all its lending subsidiaries have been reaffirmed at triple A from all the four rating agencies.
Company continues to focus on various initiatives, starting from prudent and smart lending to focus on asset quality, generating robust NIMs and fees income, maintaining prudent ALMs as well as diversification of fund sources over time. Without getting into the numbers above, let me mention here that FY 2020 profits have largely been impacted due to one-time restatement of opening deferred tax assets, post migration into the new tax regime. Q4 FY 2020 profits have largely been impacted on account of credit costs arising due to COVID-19 provisions as per RBI guidelines. With those comments, I will move on to the next slide, which is electrical and automation. This is on slide 24. As mentioned earlier, E&A business has been classified as discontinued operations in FY 2020.
You would have observed in the earlier slide that PAT from E&A business is being aggregated as a separate line item in our profit and loss account. FY 2020 revenues at INR 52.3 billion registered a decline of 10%, primarily due to reduced industrial off take in a soft demand environment. Muted revenues in Q4 FY 2020 is a product of soft demand and COVID-19 lockdown. Consequently, margins are also lower in Q4 FY 2020. We will move on to our final slide on environment and outlook. This is slide 26. Just when some green shoots of economic recovery were visible in early parts of Q4 FY 2020, India got impacted by COVID-19. Consequently, India's real GDP growth fell to 3.1% in Q4 FY 2020 and full year FY 2020 real GDP growth fell to 4.2% versus 6.1% in FY 2019.
Government of India and RBI both put together have announced total measures of INR 20.97 trillion, which is roughly about 10% of our nominal GDP. Being an exception year, both the central government and the state governments will be borrowing an additional INR 9 trillion for FY 2021 to substitute for the shortfall in tax revenues and handle the forecasted expenditures for the year. As a company, we are back to our feet and at present, 90% of our sites are operational. Secondly, around 40% of labor is available with us today. We are in the wait and watch mode, and any type of forecasting is fraught with uncertainties till the macroeconomic situation stabilizes. We will be reworking our numbers once the dust settles down. In fact, even the Government of India is waiting to recompute the budgets for the year.
If we have to talk slightly longer term, Government has come out with a detailed roadmap around National Infrastructure Pipeline with projects of INR 111 trillion. Around 85% of these total NIP spends will be in areas like energy, roads, railways, urban intra and education. Since we are present across the entire infrastructure spectrum, we will definitely benefit from these spends. We believe much of it is achievable if India achieves a nominal GDP growth of 9%-11% over the next couple of years, which is not at all asked by any means whatsoever. We do believe that our large order book, a strong balance sheet, a robust business portfolio, and our capability spectrum will get us through this challenging period. Moreover, 80% of our domestic order book is from the Central Government, State Government, and PSUs.
Believe me, government credit risk is the best risk to have in these challenging times. Thank you everyone for the patient listening, and we will now commence the Q&A.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may please press star, then one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star, then two. Participants are requested to use handsets while asking a question. Anyone who wishes to ask questions, please press star, then one. The first question is from the line of Sumit Kishore from JP Morgan. Please go ahead.
Good morning. Hope you and your teams and families are keeping safe in these unprecedented times. Sir, I have two questions. The first question is, what is the proportion of slow-moving or non-moving orders in backlog currently due to COVID-19 or other factors across your domestic and overseas order backlog?
S.N.S., I can take this.
Yes, sir.
Sumit, during the course of the year, we have been actually removing some of the non-moving or in our assessment, difficult to execute projects. For the entire year of FY 2020, where we have reported a INR 303,000 crore order book, is after removing about INR 29,000 crore during the year in aggregate. It is not specific to COVID-19, it is specific to issues surrounding the project and award. For example, all the Andhra Pradesh orders that we won in the prior year, which is now due and fit for execution in the current year, got removed. Likewise, there were some orders which are subjected to green tribunal stay, and those have got removed as well.
A few of the building orders that the real estate sector took a beating and many of the developers who had placed some orders on us, we had to reassess the viability of those projects and remove them. The INR 303,000 crores has next to nothing in terms of non-moving orders. We do believe all the orders that we have reported are executable, subject to, of course, the current pandemic situation.
Sure. Because of the pandemic situation, you would say what portion of your order backlog is probably slow-moving?
No, as I was telling you, we think all the orders that we have in the order book are executable, and they're capable of moving forward. The only uncertainty is how long is this restriction and movement of people, movement of goods, et cetera, are going to exist in the larger scheme of things in India. Once those are sorted out, I think each of these INR 303,000 crores is executable and not slow-moving.
Sure. My second question is, could you please elaborate on the order inflow prospects for the year ahead and the visibility, especially on the big-ticket order prospects? I know there's a lot of uncertainty, but within the constraints.
S.N.S., would you like to go on this?
Yeah. Little early days, my friend, but as we see it, we see good prospects or the good is not a nice word to use nowadays, reasonable prospects in some of the segments like heavy civil, power transmission, water, and heavy engineering. These are expected to gather momentum over time. There are fairly large value tenders on hand as and that is the norm. We don't get into specifics of which are the tenders, but there are fairly large value tenders on hand, both domestic, Middle East, as well as from Africa. This should see the light of the day as we go forward. We are L1 in quite a few of these tenders. There are also a fair amount of proposals on hand to take it forward. Some of the businesses like hydrocarbon, buildings, transportation, we see the prospects, but not immediately.
Maybe it will start coming back into stream by Q2, Q3, and maybe those will be something which fructifies during the later part of the year. Construction equipment and business like that, we expect the momentum in the later part of the year. As you would know, the mining sector has also been opened up. We do expect fresh investments to come in. We expect mines which have been blocked, but now can be opened up from a mining activity point of view to be opened up in the later part of the year, or maybe sometime in the early part of the first quarter of next year. I mean, the January-March part of the quarter. Therefore, those should also pick up at that time. Overall, there's nothing to say that it doesn't look very good, but it could be better. Things are positive.
Sure. Thank you, and I enjoyed the Q&A.
Thank you. The next question is from the line of Mohit Kumar from IDFC. Please go ahead.
Good morning, sir. Congratulations on the good order inflow in a tough environment. I understand you're refraining from giving any orders or revenue guidance. How is the execution panned out in Q1 and the working capital challenges, and how has the activity picked up in recent weeks? When do you expect things to go back to a slightly normal level and the challenges? Can you comment on that?
As I see it's a no-brainer that April and May have been difficult. India is one of the few countries, or probably the only country in the world which had a total lockdown. The lockdown, in my opinion, was enforced fairly strictly in most parts of the country, with not only the states taking strict powers, but also the local district magistrates, taluk tehsildars and others aggregating sufficient powers to ensure a total lockdown. Therefore, whatever billing could be done was more on the engineering procurement and certain minimal activities from safeguarding point of view, but not much of work could take place. It's also a fact that we had held back nearly 160,000 odd laborers in our various labor camps and facilities, and to hold human beings for more than two months is by no means an easy task.
We did give them wages, we gave them breakfast, lunch, and dinner. We took care of their medical and such facilities. As far as domestic is concerned, there are hardly any cases of COVID-19 positivity or any other facts from that point of view. I think our administration has done a reasonably good job from that point of view. It's clear that due to psychological reasons, due to the need to go back to their families, due to the various media and such of the news that is coming out, as soon as the restrictions were limited, the labor did want to go back to barracks, as we call it, from the villages and towns, predominantly from the eastern part of the country, from northern and eastern part of the country.
Much of the running trains and other facilities that the government had opened up were filled with these laborers going back and quite a bit of them must have been Larsen & Toubro labor who were there in our rolls too. Now the challenge in front of us to get these labor back, it's not a new challenge for us. As you know, in a year, three, four, five times the laborers go back and come back during the harvest season, during the holy season, during the Diwali season, and during other festivities like marriages, et cetera. If we have to employ, we normally employ about 270,000, 300,000 laborers, and that means we employ four or five times that. That means about 1 million, 1.25 million people is what we employ because many of them go back. The same labor doesn't come back, somebody else comes back.
That's how they operate. This is not something which is impossible for us. We've been doing it every year. We have put our organization back to work to get back these laborers. The good thing is that most of the people in the country want to work hard, self-respecting. They want to earn their living and by doing the jobs that they know and being correct about it. There is an innate feeling in many people to get back to work now that they're seeing their families and seeing that most of the conditions are okay and such. We already got back quite a few laborers. At the pre-COVID, it was about 170,000, and during the last three, four weeks back, it went down to 70,000. Now it has come back to about 120,000 odd. Every day, we are adding about 1,500, 2,000 laborers.
The speed of adding laborers is expected to pick up. As this happens, we need to get back to about 220,000 as we see it right now, to get back to more or less the kind of activity that we did. If that happens, I think we should get back to billing. This should take another 30 to 45 days in my guess. The monsoon is happening also at the same time. Maybe for some point of time, we have to be more careful, not only from social distancing and other norms that exist from a work point of view, but also from the monsoon point of view, because one tends to be careful when monsoon times to prevent accidents and such.
I guess in another 45 days, if the pandemic does not reappear again in some manner or does not create any other scare, we should be back. That's one worry which nobody can answer any question as of date. Luckily for us in India, though there are COVID positive cases, the number of deaths or fatalities is comparatively, compared to the rest of the world, is very negligible. Although it's very unfortunate that some deaths are happening. I do hope that this doesn't become a W and it subsides as a V, and that only one can pray towards that, and that's not in our control to answer that. Assuming that from that point of view, something which can be managed and which does not create any further flutter, I think we should get back to very normal things by about 30 to 45 days.
That's the way I would like to answer that.
Sir, on the working capital challenges in the Q1 ?
Yeah. Okay. You have to look at working capital in two, three different directions right now. Yes, the working capital during the last quarter went up a little bit for two reasons. Number one, the clients had their own difficulty in paying. Second, I think we as an organization also took a very clear view that we have thousands of small-scale industries and other smaller vendors and people who believe in our ecosystem, who trust us, and who survive because of the work that we give them and that we expect out of them. Therefore, it was very important for us to support them. We took a policy inside that all the vendors will be paid, and to the extent possible, wherever there were issues, we sorted them out, we paid them, and to that extent, some cash outflow was there beyond the collections that we did.
As my colleague Shankar and Harish said earlier, even during March, even during the pandemic, we did one of the record collections. Even during April and May, the collections have been fairly decent from that point of view. What we got to see is that we got to keep to maintain the pressure to ensure the collections continue. A very good thing that has happened, I would like to compliment the government also out here, they understood the industry is facing problems. In much of the government jobs, as you know, 80% of the jobs are government jobs, whether it is central, state, or public sector. A great effort has been there to have dialogues with us. Even during the pandemic times, we have had extensive MS Teams or Zooms or bridge calls or whatever.
We have been able to water down the contract conditions to the extent that the advance recovery has been postponed. Certain milestones have been broken down, certain milestones have been pre-formed, a certain way of billing has been altered. The anxiousness on the part of the authorities, whether it is central, state, or public sector, to ensure that cash flow is maintained during these times as they knew that as an organization, L&T and maybe others too, were doing a national duty by helping out laborers, maintaining them, so on and so forth, including facilities. There has been quite a bit of easing on that. This should help us the next six, seven months as we go forward. I feel there should not be any major problem in working capital beyond what it is right now.
The only negative effect that could arise due to this pandemic going forward, as fresh proposals and tenders come into our books, one should be careful to see that due to tightening of budgets, due to non-availability of sufficient funds as before, it should not be the case that the government organizations or the public sectors put payment conditions which are more back-ended, which have mobilization advances, secure advance which are high interest-bearing and such, because that will deteriorate the payment part of it from a contractual point of view. As of the moment, we don't see anything. We do expect that something could happen like this in certain cases. As of the moment, things are as they are, and we hope to take it forward.
You did touch based on the domestic execution.
Excuse me, this is the operator. I'm sorry to interrupt. Mr. Parikshit, your voice is breaking.
Yeah. Yes. I can't hear you at all.
Sir, can you hear me now?
Yeah, much better.
Sir, my second question is, you did touch base on domestic execution. Can you touch base on the international order execution in the pre-COVID situation?
So international-
As of now.
There are two parts, international, basically Middle East and Africa. From a Middle East point of view, I think all the orders are going, whatever we have as a backlog in the hand are all executable orders, are all moving quite well. There has been incidences of COVID positive cases there, including quarantine of some fair amount of staff and labor in some of the key sites. No major incidents per se, but as a precautionary measure, the clients are overreactive there because of maybe the less population and more availability of facilities and testing. To that extent, works slightly got affected for the first two months, but things are getting back to normal. All the sites are moving, all the clients are positive, payments are coming in, and as of the moment, things are moving as they should from an execution point of view.
We do expect because Middle East has gone through a double whammy. One, the oil price coming to where it is right now, and second, the Corona issue. We do expect further prospects from Middle East to slow down a bit. The Rystad study and others indicate that the oil prices will get back to $50, $55 somewhere during the end of the year. Maybe till the time there will be certain amount of traction from a new proposals point of view. There are new ways of doing business coming up there. We are certainly seeing a fair amount of traction on solar. We are seeing various social infrastructure schemes being rolled out, and therefore, maybe there's another way to look at it. We are still neutral on Middle East, but what is going on is going on decently well right now.
From an Africa point of view, some of the states did get affected by COVID-19, but largely it has been less from an overall point of view compared to India or Middle East. There has not been any major quarantine or any COVID positive cases in any one of our sites. The works are going on as normal. There has been some slight non-availability of labor because of the psychological issues of pandemic, et cetera. The people are maybe trying to be restrictive in their movement, but that issue should be got over in another 14, 30 days from our point of view.
Thank you. I appreciate it.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference call, please limit your questions to two per participant. For any further questions, you may come back for a follow-up. The next question is from the line of Renu Baid from IIFL. Please go ahead.
Hi, good morning, sir. Good to see a reasonable performance despite challenging market situation. First question is to just understand a bit more on or for an update on the E&A business, which was due for sale closure by the end of June. How are we moving there with respect to timeline? Broadly, what would be the broad plan utilization of the funds given that in the April et cetera, you have raised about INR 90 billion of NCDs? How should we look at the sale transaction along with the utilization of the funds thereafter?
From an E&A sale point of view, the transaction was supposed to be completed by March 31st. We could not do it because France got locked out from around February, and therefore the senior people from Schneider could not move out of Paris and their offices, and therefore certain work and detailing that ought to have been done could not be done. Second, from our point of also, as you know, this is a business within the Larsen & Toubro existing system, and therefore there was land involved, properties involved, various building structures involved. There was novation of contracts involved and such. It is work in progress. We are come to a fairly high point in terms of closing out much of the issues.
I think hopefully as soon as this international travel begins and we are able to sit across the table, a few of these matters which needs to be checked and cross-checked and verified before one does the transfer will be done. I guess give us another two to three months and this should be on its way from that point of time. I would request Shankar to answer the other questions that you asked.
Yeah. Renu, I think the resource raising that we did was actually in anticipation of the requirements for the year. Half of the resource that we raised will be to refinance maturing liability, and the other half would be for our growth requirements. To that extent, the resource raising has been more of using the proceeds for the year's requirement.
Right.
The proceeds that Schneider transaction would release is actually capital unlocking. We would like to possibly use the proceeds to right-size the capital allocation that we have done to our large projects like the Hyderabad Metro and stuff like that.
Okay. All right. Second would be, also aligned with capital allocation, do you think there would be any requirement for equity infusion in any of the subsidiaries which could be a bit strained during this lockdown period? Especially there has been a lot of investor concerns on capital infusion required in Finance Holdings. Any view on that?
See, Finance Holdings is a debt play, right? I mean, if you want to retain the triple A that we are, our debt equity has to be around six, 6.5 and currently it's almost at 5.6, 5.7. Hence the disbursements has slowed down. Recirculating the existing capital on collections, et cetera, to meet the current requirements at this phase of operations is okay. If the operations were to pick up and let's say second half of the year, post monsoons, the rural India settles down and operation picks up in rural India, a lot of our disbursements go there. Possibly we might have to re-look at the need for capital.
This business every two years, every three years, depending on the growth, would go in for capital injection because that's the nature of the beast. I think when we come to that point, we might have to look as to whether further capital for the company is required. We'll also have to take stock of the market at that point in time for either dilution or in terms of rights. Those bridges we'll cross at that time.
My last question would be here relating to the asset monetization strategy. Now that large two assets are left in the portfolio which are yet to be monetized. You have the Nabha Power and Hyderabad Metro. What would be the broad outlook in terms of the roadmap for kick-starting the monetization process partially or fully for both these projects? Especially on the Hyderabad Metro. There was some InvIT structure planned over the next 12 to 24 months.
Yeah. See, I think unfortunately the plan was cooking up nicely and then this pandemic happened and threw a spanner in the wheel. First we'll have to wait for the trains to start. As you know, as a part of this lockdown, the metro network has been shut. Whatever ridership that we were having in pre-COVID has come to zero now. It's been the case for the last two months. We'll have to wait and watch when the state feels confident to open it up, and then the ridership has to climb back. Secondly, we also through this period of lockdown, experienced, all of us, that it is possible to work from home and be productive.
Many companies are reviewing their policy about how much of infrastructure they should incur by setting up large grand offices, or how much can actually be achieved from sitting at homes. I think every organization will go through some reassessment of this requirement, and that will also have a bearing on the ridership because Hyderabad, as you know, like Bangalore, is a very IT strong commuter traffic. To that extent, we have to wait and watch as to how these developments happen. Ultimately it will happen because our intention to unlock capital is very much on cards. No change in that strategy. Timing could have to suit the environment.
Probably it might be FY 2022- 2023 that bucket rather than 2021 for at least the power project as well.
Why don't you please wish things can improve fast and we can get back fast. We'll do it ASAP, Renu.
No problem, sir. I'll get back in the queue. I have a couple of more questions. I'll be back. Thanks and best of luck to you.
Thank you. The next question is from the line of Venu gopal Garre from Bernstein. Please go ahead.
Hi. Thanks a lot for the opportunity. My first question is more to understand the contractual obligations on the number of projects you have, given that there are several sites and several projects simultaneously work and each of them might have different obligations. The background to this is that. In a situation where you have a couple of, let's say one to two months of delay has already happened. Two things happen. One is, of course, there would be extra costs because you would have some leased equipment where you're paying money. You would have paid money to labor while there's no work going on. More importantly, there will of course, be some delay in terms of timeline of delivery of the project. The third thing is the fact that you're heading into a monsoon season, right?
I'm assuming that when you sort of create your project schedules, you always decide what to do during monsoon and what to do pre-monsoon. That could also have potentially some impact on how you look at project execution. Lastly, the labor challenge, which I'm assuming will be less as we go forward. Putting all of this into picture, have we managed to negotiate on all our contracts to get cost overruns spot? I'm assuming execution timelines, of course, will get pushed out. If that's not the case, how do we look at provisioning cycles through the year?
I think let's be positive on this. We knew this COVID-19 was hitting us. I think as a management, we were agile enough to get back to all our sites on what to do and what not to do. Luckily for us, the company is split up into various verticals, though, on an overall basis, there could be about 950 odd sites, India and international put together. When you look at it IC-wise, some ICs have just 30 sites, some ICs have 60, 70 sites, some ICs have maybe 200 sites. One could do that, including some of the workshops where contracting work is taking place in terms of fabrication, et cetera. One could do that.
Since there is also a fairly good, robust risk management process within the company, broadly the kind of contractual obligations that we had undertaken in terms of what kind of risks we have, may not be in terms of pandemic, but in terms of some stop-down, et cetera, were rather clear. Some contracts, it could be hazy, but most of the contracts were very clear. We did two, three things immediately. Number one, we went back to all our sites to read the contracts and write the necessary letters to the client. As we know, in a contract, there's not only an obligation from our side which is slipping, it is also an obligation from the client consultant, which was not coming through, because they were also working from home or not able to work, et cetera. They are not coming to the offices.
They need to give us drawings, they need to approve something. That process is also on. It's a trip from both sides and therefore in many cases either the force majeure clause or certain clause towards that we are idling and we need to be compensated, et cetera, have been taken up and that's work in progress as to how to get the cost reimbursed. At the same time, within the company, I think we put up an elaborate structure in place as task forces within various ICs to look at how to optimize resources, to look at how to ask certain people or service providers, others to stay at home, to ask discounts. The prices have also come down. The commodity prices are coming down, the oil prices are coming down. That means the logistics and production costs will come down.
On a hire charges point of view, we said equipments are idling, so give us discount or take it away. Though we have managed our labor for much of these months, there's also a dictate from the government, from the Ministry of Home Affairs that most of the clients should reimburse us. There are letters from most of the clients and some clients have even started paying us in terms of reimbursing the labor based on records, et cetera, that we are showing, collecting and proving it to them and such. Therefore, I think it's a fair play on. At the end of the day, there's a disruption, but from a cost point of view, yes, the fixed costs would definitely catch up, but that has to be rubberized over performing better in the next 10 months or nine months that is available.
How much we would be able to catch up is what we need to arrive at in some certainty within next 30-60 days. We are not able to gauge it right now. Monsoon is a factor. Of late we have learned to live with monsoon. We have learned to work with monsoon. Unless it's very heavy in some parts of the country, then the work does get affected for a few days. Other than that, work goes on in monsoon. Maybe if you're pouring X concrete per day, maybe it's slightly less. At the same time you work extra shifts, et cetera. Work goes on because it's also a good time to do the work from the climatic point of view.
Therefore overall, I don't think one needs to unduly, what do you call, put a measurement here that something has totally gone wrong. There would be lot of discussions, there would be lot of give and take. There would be a cost that has built up, which needs to be amortized over a period of time, and that cannot be helped. At the same time, I would think that there's a very remarkable change in many government agencies, maybe because of the central government's dictate, that most of the state governments, central government, and private sector units are being very fair to make earlier payments, to look at reimbursement of certain costs, to admit contractual clauses, not necessarily a force majeure, but even of disruption or non-working and trying to see how to provide for some cost reimbursement.
We may not get what we need, but there is a process involved to get something is fair enough, and maybe we'll also have to improve our productivity and speed of work so that some of the sales, which I would say are still in the backlog offices, which could not be done during the last two months, can be done to get something back. See, the biggest point with an organization like L&T, it's the brand evokes trust. It's an 82-year-old brand. We're known to perform. We have done things. Therefore, most clients look at us as, yeah, disruption took place, but this company would catch it up. They would finally keep up their obligations. We could restart whatever we need to do on time.
With that trust, I think most clients come back to us in a positive mood to see how to also assist us to pick it up. There was a client in Maharashtra who's come back to us and say that he will take care of all the labor wages for the next three months, just get the labor to site. He has said he will fund the food for all the labor, just get the labor to site. There are clients who are extremely positive on us. Therefore, most clients are, I would say, pure neutral. I won't say any client has been negative so far. We will get over it, but it'll take some time.
Thanks, Venupogal here. Actually, second question is again on government, a very small qualitative question. We just wanted a read from you on one aspect. There is a balancing going on. Government seems to be keen to revive the economy. Of course, they do have challenges on the fiscal side. When you speak to state governments and central governments, are you seeing any urgency from them at this point of time to kickstart new projects, in terms of tendering or also pushing me to execute where sites are open, which of course means cash flow side? More importantly, things like the renewed focus on defense, Make in India, et cetera, will it finally lead to any large projects coming in the pipeline? That's it from me.
Okay. From the speed point of view, there are government agencies, both public sector and predominantly central and some state governments urging us to get back to sites and push the projects. I wouldn't say everybody's doing it. A few of them are worried. Few of them are worried about budget. Naturally, much of the revenues have also gone down terrifically in these two months, and therefore, I guess they're also scratching their head as to how to go about it, what to do about it. Some states, I would guess that there would be issues, but many other states are positive. Very surprisingly, states in the eastern part of the country, northern and eastern part of the country, northeastern part of the country, seem to be wanting to hurry it up or seem to be wanting to really hurry it up.
Maybe they've been affected less by the pandemic, they see also the labor coming back, therefore they feel that the situation where much of the migrant labor come back or got to be given employment, therefore they see it as a panacea for that problem by seeing that work goes on faster. We have letters, we have phone calls, we have local discussions on how to speed up work on basically the northern and eastern part of the country, which is a substantial part of the country. The bigger part of the country from our point of view, the west and the south, where bulk of the backlog is, and there the key problem is, though the clients would want us to proceed ahead with the works, is the key matter is how to attract the labor to these places back again.
Huge amount of labor has gone back to the North, Central, and East. To get them back with the psychological cloud hanging on of this pandemic is a challenge in front of us. If we can crack that formula, I think we can get moving there. No government, no state or central or public sectors come back to us saying, "Stop the work," or, "We're going to defer the work. We're going to postpone the work." There's been no statement like that so far. There's been no letters like that so far. We need to, as we get into the work, look into the amount of budget allocation that has been done and whether these budget allocations are valid and whether it is for the year, and then do the work according to that.
Luckily for us, most of these contracts have price escalation and process towards time escalation and so on and so forth. Therefore, assuming work needs to be completed in two years, it takes two and a half years, we would get reimbursed from a cost point of view. That we are spending six more months is maybe a little bit of a heartache, but I think one needs to look into the situation from that point of view. On the second question of yours on the defense side. There has been a major liberalization which has been done, though principally, I don't agree to that from an organizational point of view and personally on the liberalization that we have done. We have increased FDI from 49%- 74%. Most countries have an indigenous defense industry which is highly protected.
Even if FDI has improved to 49 to 74 or whatever, I don't think any foreign company is going to come here and put into play technology from a high-tech point of view from a defense source point of view or from a national security point of view. There will be more doing fabrication or offsetting kind of work or some low-end CKD or assembly kind of work. Therefore, that kind of liberalization, I don't see where it goes, except for the fact that few people have announced collaboration with some foreign names, but that will be low-end facility, what you call assembly, et cetera, and not real true manufacturing or high-end defense capability. We have, as you know, probably the largest defense manufacturing capability in India. That program is going decently.
The money allocated in defense is also under strain because generally the funds availability, defense is always considered an expense which has to be there, but which should not be there. Therefore, that defense side always struggles with the requirement of fund. I call it the permanent startup. It will continue in that manner. I don't see any major change coming up there.
Thank you so much.
Thank you.
The next question is from the line of Sumit Jain from ASK Investment Managers. Please go ahead.
Yeah, hi. Is there a risk to the consideration to be received from Schneider based on certain milestones and because the performance naturally will be muted during these times?
No, there is nothing like that. It's a straightforward deal. There's a consideration, and a business transaction agreement is signed. There are some conditions precedent as we go forward. Essentially, as I said before, it is on the transfer of properties, it's transfer on the novation of agreements and the regular few other, the transfer of some of the vendors and wholesalers and retailers, and that part is going on, and beyond that, there's nothing else in the agreement. It's a straightforward agreement.
Sure. During these last three, four months, what is your experience in the Middle East geography, which is dependent on broadly oil and gas, in terms of closure cost, in terms of receivables collections, and with our past experience of what has happened with hydrocarbons previously with us? Do you see those risks coming and hitting us going forward?
I'll answer the second part of it first. Hydrocarbon went through problems. Many of the L&T businesses we went abroad have had some problems initially. Hydrocarbon has had its fair share of problems. It's got a great leadership in one of my colleagues there, Mr. Subramanian Sarma, and it's got a good set of people whom we have brought in now to strengthen the organization, not only from a managerial point of view, from a risk assessment point of view, from an execution point of view, from a client relationship point of view, engineering point of view, so on and so forth. It's a robust and extremely good setup as we see it. It's a fantastically good fighting commando force. It's done very well the last three years, and it continues to perform well. Hydrocarbon has got a backlog of roughly about INR 50,000 odd crores.
As we see it, 50% is Middle East, 50% is India. Therefore, it also balances. From a Middle East point of view, most of the contracts that we have are rigid contracts, good contracts, and very essential contracts from a future production point of view, because some of the wells are going down, therefore, they need to have this to keep up the production from the future point of view. These jobs are all going well. Where the problem will come as we see it is future proposals, future contracts from Middle East. That may see a slowdown immediately.
As I said, when you read the Goldman report, the Rystad report, and many other reports that are privy to many of the details, which we may or may not be aware and which have much better research and such other data scientists associated with them from a research point of view. You find that the oil prices are expected to come back during the later part of the year or the last quarter of this year, that is January to March. Therefore, we hope that these prices come back. Also, the oil-producing countries, OPEC+, as they call it, which includes Russia and Venezuela, et cetera, have cut down oil production by 10 million barrels. Roughly about 100 million barrels of oil have come down to about 90 million barrels per oil.
They also say that due to the present low prices, the shale and the Venezuelan hard and in the North Sea, some of the rigs are getting what you call decommissioned, and therefore there is a natural tendency to lower the oil production even from where it is today. It may come down to 70. As such, at the moment, the oil consumption has gone down, but once the world comes back to normal, the U.S. economy has suddenly generated 2.3 million jobs. Even Indian economy yesterday, when you see, you saw some green shoots of economic activity again picking up. Therefore, the world is coming back to order, and let's pray to God there's no W of this pandemic. Assuming all that happens, I feel the Middle East will come back from a hydrocarbon point of view, and therefore I'm reasonably confident about it.
From a Middle East spending point of view, yes, due to the lower oil prices, you may not find sufficient proposals during the Q2, Q3 kind, but I guess it will come back during Q4. Much of the infrastructure that needs to be created have been done. Surprisingly, what is happening there is suddenly you see a spend towards social infrastructure. That means power transmission, distributions, water jobs, and some pipelines and such, and therefore we will try to capitalize on those opportunities that are available as we move forward.
Yeah, thanks. That's it for my side.
Thank you. The next question is from the line of Abhishek Puri from Axis Capital. Please go ahead.
Thank you for the opportunity. Two questions. First, in terms of the execution expectations, you refused to give the guidance rightly so. Could you give us a sense as to how many of the infrastructure projects or percentage of projects are funded through the MFAs, central and state government exposure, private sector exposure? We're just trying to understand what proportion will remain steady despite all the economic challenges that we see.
As I see it, about 80% of our projects are central government, state governments, and public sector units. In those 80%, about 35-odd% is Multilateral Funding Agencies, JICA, JBIC, World Bank, Asian Development Bank, so on and so forth. The rest is, that means 50% are funded directly with the state and central government. As I see it now, we don't see any problem anywhere. The one problem that was there was Andhra Pradesh, which we believe was more political in nature rather than economical in nature. There was a change in government, and they had some tribulations whether the capital should come up at Amaravati or some other places. The present regime has declared three capitals, and maybe the confusion created out of that was they decided whether they needed a capital in Amaravati.
Much of the project that we're doing was towards the capital city development. We had decided to withdraw from that, and we wrote off all those backlogs that we had, and some money to be collected. We'll do that over a period of time. We have started receiving it. We'll continue to receive it. There has been some disruptions in Madhya Pradesh, Rajasthan too. Again, change of regime, and more to do with allocation of funds and reprioritization of projects. Somebody said, "Let us do the water line there." Somebody said, "Let us do the electricity substation here." These things will happen. We have not seen any cancellation or go-slow on the projects. We have reconciled many of these matters, and some of these projects have started moving, and cash flow has also started.
I think the government generally realizes that the key challenge in front of them to keep the economic activity going, to keep the nation at large peaceful, the most important thing facing them is the creation of jobs. As you can see, huge money has been allocated to the NREGA scheme. What's the main purpose towards that? The sufficient contracts are not available, therefore, the labor that is free, the humans that are free, the labor that is migrating back from the west and south into the east and north have to be given jobs. Contracts take time, three to six months for even the best of fast procedures to happen to settle even an INR 500 crore job or an INR 1,000 crore job because that is the procedures involved. Whereas an NREGA is something which can create a job.
In my sense, as I answered one of your colleagues previously, there is an urge in northern and eastern areas to quickly push ahead with the projects even at a faster speed, because that will give employment to the people who come back and who are locals but who had migrated and who have now come back. Therefore, I feel with this-brought thoughts in mind. Maybe new proposals to come may take certain time, but existing proposals to push and fulfill and to rectify, I think there will be a hard pressure to get going on it because that gives employment.
Thank you for the answer. My second question is on the working capital front. We understand that you managed it pretty well despite the tough scenario and the lockdown period. Still Q3, if we look at the commentary and the data for the Q2 which has been disclosed in terms of receivables, it had been declining, and the entire increase in working capital was due to the vendor support that we had given. Whereas when we look at the balance sheet data for now, the receivables and other current assets have gone up sharply. Has there been any change in payment terms or project parameters that has led to this?
Shankar can take that.
Yeah, I'll take this. Actually, it's not only what is fallen due and not collected. Many of the contracts, there is also a milestone up to which we continue to invest money, progress the project, reach the threshold for invoicing, then you are ought to invoice. Over the last two years, there has been a shift in the trend that increasingly, the clients have gotten used to using the balance sheet of the contractors. To that extent, the terms of the contract have gone a little biased towards the customer. The milestones which used to be frequent and to each other have got elongated. Secondly, we also have gotten larger and more complicated orders as compared to the past. Consequently, in the larger orders, the milestones are so defined that you need to first invest the money, reach the milestone, then release the invoices.
The nature of overdue, that is dues which the due dates have gone past and customer has not paid, has not deteriorated. We still continue to operate within 50 days and 60 days pay in those overdues. Out of the total balance sheet odd crores
I think, sir, we lost you in between.
Shankar, your voice was getting cut.
Better now?
Yeah, slightly better.
Yeah. Okay. What I'm saying is, if you look at the balance sheet, out of the INR 55,000 odd crores of dues from the customers, about INR 19,000 crores is what is overdue. That includes retention as well. Retention, as you know, is linked to performance confirmations and completion testings and stuff like that. These are often very laborious processes in project business. To that extent, I want to say two things. One is, I don't think there is deterioration in the quality of customer receivables overdues. They still continue to be around 50 or 60 days. Secondly, the nature of the contract that we execute from time to time will also put in the attrition in the balance sheet.
Sir, in that context, this is a continuation to this. How do we look at working capital in the coming period? I know it is difficult period, and in terms of as well as some of the cost reduction measures that you would have taken. If you can spell out that, it'll be helpful for us to model it. Thank you.
Shankar. Shankar, your voice is totally gone.
Can the Chorus person come in and.
Yes, sir.
Establish contact. I mean, I'm not able to hear him.
Now we can hear you, sir.
We can hear you, sir.
Okay. I didn't hear the question though.
Sir, the question is in continuation to the previous one, that any cost reduction measures that you would have taken or in terms of working capital, how do you see it, whether our targets which were there in 2021, how do we look at that at this point in time now?
We are a little short on data points to fix an exact target, but a very simple grandmother's recipe we are using, that we just collect and spend. To that extent, I don't expect, as SNS earlier mentioned, I don't expect working capital to deviate from here because I think we are going to keep circulating the capital and at site level, we have cascaded the message that the money that will be spent in the site is proportionate to the money that we collect. We are now also trying to talk to the customers, and they are in a bit of an appreciative mood now, given the situation that all of us find ourselves in. We are trying to loosen up some of the contractual terms to enable us to get some initial funding to be able to recommence the operations.
I think it's a question of both a very engaged partnership with the client in order to deal with the working capital situation. I think actually, later periods, maybe a month or two down the line, when we are clear about the revenue trajectory, we'll also be clear about the working capital trajectory. Suffice to say that I don't see it going south from where it is today.
Thank you, sir. Thank you and all the best.
Thank you. The next question is from the line of Bhalchandra Shinde from Max Life Insurance. Please go ahead.
Good morning, sir. As we are aware that there will be a limited budget opportunities for most of the state and central, and as we mentioned in the start, related to National Infrastructure Pipeline. Can we gauge which projects can be prioritized over the next two years to achieve or to be online on that target?
I couldn't get your question. You've got to be a little more specific about it.
As for the sectors wise, which sectors will be prioritized because of the limited budget available with the state and central from the National Infrastructure Pipeline? Those pipelines can be seen as a good prospect over the next two years.
I look at it in a slightly different manner. Most states realized that let the economy be where it is right now, let's save the lives. I think now that that part is more or less achieved, the thing would get back to saving the economy and reviving the economy. Much of the states cannot last without it because they have huge commitments, both in terms of their own payment as well as many social and other commitments that they've had. I think third is most governments, central and states realize that one way to get back to power is by creating employment. The self-respecting Indians and employment is paramount in everybody's mind. You could see from the present central government's way they've gone about, it is more about empowerment than entitlement.
There's been some entitlement, of course, because the very needy had to be provided for through direct benefit transfers and such, but much of the money was through MGNREGA or various other forms of help by giving loans and facilities to micro small industries, moratorium and payments, so on and so forth. The whole idea is give empowerment to people, they'll find jobs, they'll get back. With this in view, also, if you look at from an overall budget point of view, states have been allowed to draw 2% more overdraft from the Reserve Bank, but with certain caveats. INR 90,000 crores of money has been given to the discoms. With all this, there will be liquidity which is possibly created in the system. May not be the kind of liquidity that one wants, but definitely liquidity from that point of view.
It's not necessarily a revenue liquidity, maybe it's a debt liquidity. Having said that, the necessary infrastructure for creating liquidity has been created. There are many projects which are also awaiting clearance of multilateral funding agencies like World Bank, ADB, not African, this Chinese bank, I forgot the name of it, and also the government-to-government financing and so on and so forth. These will see the light of the day. This is going to happen tomorrow, next month, within two months, I'm not sure, but this will come back in some manner or the other. We did some calculations internally. It's not that the central state and public sectors are not going to spend. Maybe if they're spending INR 7 billion-INR 8 billion previously, it might have come down to INR 5 billion or INR 3 billion would be get. The priorities will be different.
For example, they would look at rural electrification, rural water projects. They would look at the roads to hinterlands because the goods needs to be transported. The creation of retail avenues for now the food grains and others can be sold across the country. That's a major liberalization that has come. Farmers can sell his produce anywhere in the country and need not go through the fixed price MSP and so on and so forth. The necessary storage and other facilities will come up. We'll have to wait. We're not going to be opportunistic, we will look for opportunities, if there are good opportunities, we'll definitely go behind it. That's the way we look at it.
Sir, on the metro project size, and even on the high-speed rail size, how we see those projects panning out, especially high-speed rail also, which has been on the back burner for Maharashtra government and even on the central government side.
On the metro project, there is a national policy that every city with more than 1 million population will have a metro. As you know, in the last few years, many metros have come up across the country. Much of these metros are hardly 20% funded by the state government, and the rest of it is funded by either a loan from JICA, JBIC, World Bank or sometimes even ADB, and with some funding or a viability gap funding from the central government. These projects will continue to grow because it's not enough if you do a line, there'll be always pressure to do multiple lines so that people from multiple points can be taken, brought in, hub and spoke and such. Those metro projects will continue. High speed, I have my own doubts.
It is a bit of a costly project, and to do that kind of a project in this particular season when you're constrained of budget and such, I'm not sure that project will go on, though it is heavily funded by JICA. I have a feeling that project may take a back burner. That's my gut feeling. Let's see how that goes.
Thanks, sir.
Thank you. The next question is from the line of Ashish Shah from Centrum Broking. Please go ahead.
Yeah, thank you. Sir, you spoke on defense as a space, but specifically referring to certain changes done by the government recently where they reserved some 26 items for domestic procurement. Anything concrete that we believe we can benefit from that?
I think the key thing is the strategic partnership. The government went with this policy of identifying strategic partnerships. The principle behind is that you can't have five people making tanks in India or five companies making missiles in India, five, 10 companies making something else in India. The idea was to identify one or at best two partners who will make certain very high-end defense item, let's say a tank or a main battle tank or a submarine or an aircraft carrier, whatever it is. You now look at this idea, we make submarines. If it is that we get one set of submarine, and after five years, we don't get the next set of submarines. We're going to have two companies in the country making submarines. When the third tender comes, and there's a third party coming in.
In a country like ours, with not so many submarine requirements, you can't have three companies making submarines. You can have, at best, one or two. That was the whole-- Why does it help? If L&T is making submarines, it's just not making submarines. It's investing in an ecosystem of vendors. It's investing in research. It's inventing new methods to do it. It's doing low cost, Make in India stuff. It is training our own people, so on and so forth. You can't lose this entire trained set of people into fabricating something else tomorrow because a submarine does not come. The idea was strategic partnership. I think that has started moving, and that's a pretty good news from an overall welfare of the defense or the goodness of the defense point of view, in our opinion.
The second is this FDI policy, which is in one way good that some foreign company comes in, and does not think in that terms of taking private sector around its arms and then cusping it to create a solid defense industry, sort of an environment by which continuous developments and new products are introduced to protect the organization. This will not go further. I hope somebody is thinking like that. It's not enough with two people like me screaming around about it. It has to be a national policy. It has to be a national requirement. They need to see the imperatives of having two very highly armed neighbors around us.
From that point of view, I think with the country's economy being what it is, sufficient funds as they see and deem fit is being allocated, but I guess it is not enough from an overall standpoint point of view. We need to look at it from that overall perspective.
Sure. Thank you. The second one is on the AP, you did touch upon that you canceled the older orders. Presently, none of the capital city projects continue in our order book. Can we take that as a position? Secondly, you did mention about certain receivables which you'll get over a period of time. If you can quantify that will help. Thank you.
The fact that none of the orders continue in our book is right. From an accounting point of view, since we have some receivables, something has to be kept alive, and that is kept alive from that point of view. We don't give such leaks of what is due from where, therefore, I'd like to avoid it from that point of view. It's nothing to be overall worried about. Let me also clarify that.
Sure. Thank you.
Thank you. The next question is from the line of Aditya Bhartia from Investec. Please go ahead.
Hi, good morning, sir. My question is mainly with respect to lower commodity costs. How big a benefit could it be for us over the next few quarters? What proportion of our orders would be having pass-through clauses?
Almost all the contracts have pass-through clauses. Even if they are lump sum contracts without a separate escalation clause, the escalations have been calculated and provided for in the contract value that we have got from the clients. Therefore, if the prices do not go up, that's the savings that is available. If the prices go up, that's cost that has been provided for, which is spent. Therefore, to a large extent, I can with absolute reassurance tell you that almost all the contracts have provided that, and without that, it does not go through the risk committee and high board committee within the organization. Therefore, that's the way it is.
Does that imply, sir, that with commodity costs being lower, that advantage should be largely retained by the company?
You're right. Absolutely right. We got to see whether there's any other increase in cost. labor is going to be a shortfall as we see it. Skilled labor is going to be tough to get. Maybe there'll be some little bit premium on labor cost. I do hope the oil prices continue as it is. I hope there's no other major disruptions in supply chain, et cetera, that we have to cancel an order somewhere and go somewhere else. To a large extent, these are limited and not negligible, and does not cause one to lose sleep. We should be having some efforts to save on some of these matters, and a real good effort is going on within the system to capture whatever we can.
Understood, sir. Sir, you explained about the Andhra projects. For Maharashtra projects, where also we faced certain issues initially with the change in government. Is everything now settled over there and the execution is I mean, once these COVID issues are resolved, should execution now on those projects be at normal pace?
Maharashtra, we never faced anything due to a change in government. What happened in Maharashtra was two of the most prestigious projects we're doing there, the two packages of coastal road and the metro project there, saw a lot of public interest litigations and unnecessary litigation from various points of view. Somebody objected saying that the coastal road is spoiling the fish liability there. Somebody said it's spoiling the corals in the sea. Somebody said his house view is getting affected. Somebody said the decibel noise, which is in 1840 Ash, is slightly more than what it is. We had to go through all that, and that was not anticipated, that Mumbaikars, when they know that they're getting such a good facility, would object to that. We have passed through most of it. We went up to the Supreme Court to get it cleared.
We lost six to seven months of good working in the previous year. This year, even during the COVID-19 season, if you are a Mumbaikar, you would have seen the coastal road works going on, the trans-harbor work is going around. Metro got affected the last 14 days because one of the contractors in another package had 25 or 30 of his people under COVID-19 positive tested. None of the people in our sites are tested positive. We have also had to stop the work because the administration got a bit panicky on that. Other than that, all works in Mumbai area are going on. Not at the speed at what we want because of labor shortage, The scope is that we attract the labor back to speed it up.
Perfect, sir. That's helpful. Thanks so much.
Thank you. The next question is from the line of Keshav Lahoti from Angel Broking. Please go ahead.
Thank you for the opportunity. Can you please guide me, as we know, 20, 30 odd days of work were not going on due to lockdown? What would be the proportion of fixed cost on the basis of revenue for core E&C business?
Shankar?
Keshav, generally, if you look at expenditure of the company, the staff cost is around 5%-6% of the revenue on an annualized basis, I am saying. The other administrative costs are around 3%-4%. Put together about 10% of the revenues goes in form of people and all the administrative costs that we run. Now, that's the thumb rule. Now, project to project, sector to sector, vertical to vertical, it could vary. This is something at the moment, since we have not been able to exactly quantify what is going to be the revenue impact, how much is going to be the catch-up, et cetera. At the moment, you can take it as possibly 8%-9% of the revenue lost could be the cost that the company is carrying forward.
Okay. Is it possible for you to quantify how much proportion of your order book is from Maharashtra?
Yeah, around 22%-23% of our order book is from Maharashtra.
Okay. Thank you.
Thanks.
Thank you. The next question is from the line of Varun Ginodia from Ambit Capital. Please go ahead. Varun Ginodia from Ambit Capital, please unmute the line from your side and go ahead. As there is no response, we take the next question from the line of Priyankar Biswas from Nomura Financial Services. Please go ahead.
Good afternoon, sir. I have just one question as most has been answered. What I wanted is, in your ex-services segments, which are the segments which have been worst impacted by COVID and which has been least impacted? If you can put in an order, maybe the topmost impacted and least most impacted. Where we are seeing utilization levels, let's say, coming back more faster than the others among the segments, if you can shed some light on that.
Are you talking about the services segment?
No, ex-services, excluding the services.
What do you say? How do you answer this question? We have a backlog of INR 3,03,000 crores. All the businesses have very healthy backlog at the moment. All of them are proceeding with the work, nothing has got impacted. The impact has been two months of severe lockdown, like nothing else in the world, in our country. Therefore, across the sectors, we have had a lockdown and not much work has progressed but for engineering procurement and certain basic activities to protect the sites from some natural calamities and such. Therefore, now that the lockdown is getting eased, we have started activities. As I said, 90% of our sites are back, laborers are only 40% when we need to pick it up. From that point of view, we are a healthy organization.
There are very few organizations in the globe which can say they have an $47 billion backlog, and that's what we have. Therefore, I don't think there's a cost to be. All our workshops have work till September 2021. The big complex at Hazira, the power complex, the Kaliagaon, the Baroda, the Coimbatore. Except for the Kattupalli shipyard where we are desperate to get some defense orders, even the yard there has got work till September, November 2021. We have enough work on hand. That's not the issue at all for us.
Sorry, sir, I'm just reframing the question. What I meant is, right now with the unlock thing happening, what I meant was which segments are maybe ramping up faster than the others. Like for example, let's say heavy engineering could be doing better than the infra sub-segments like power, T&D, heavy civil. That sort of a thing I was asking.
Trust and believe me, the biggest advantage of L&T is its verticalization. Either it's an IC inside or it's a listed company outside. Across the board, the IC head or the CEO of that setup, including his team of top management, is going all out to revive the sector. Across the board, we see work happening and people trying to push. I wouldn't be able to rate somebody is doing better, somebody is doing less better. It's a question of somebody getting laborers little faster than the other, somebody getting slightly more skilled laborers, somebody holding some more in the camp. That's a very marginal difference. Everybody is going all out to get the steam back to push the work, and that's across the company.
Okay, sir. That will be all from my side.
Thank you. The next question is from the line of Amit Mahawar from Edelweiss. Please go ahead.
Hello, sir. Two quick questions. First is on overall market opacity and consolidation. Do you think in the coming quarters and years, we will see a much greater consolidation of market opportunities in the domestic market? Because if you actually see peer set for L&T, the profile of most of them is getting much poorer, and our focus has been towards balance sheet and cash flow as reflected in past couple of quarters. Do you think you will have a much stronger consolidation of market share? It's already reflecting in some of our segments where we have a much higher share versus all the conventional segments. That's my question number 1. Second is, sir, more on reimagining the project sites. No one knows what kind of disruption, what's going to be the disruption cycle in project sites. You will have demobilization and social distancing costs.
Do you think the contractual terms need to change with the top clients, at least top 1,500 clients? As a sector also, do you think there will be critical changes there? These are my questions. Thank you.
I think the second question I did answer earlier to one of your colleagues who was on the line, but I'll try to give you a short answer. On the first one, the market consolidation, you've got to look at it from a point of two views. Number one is much of the competition is under terrific strain from a balance sheet point of view, heavy debts, poor cash flows, and so on and so forth. Including many of them have gone very heavily into HAM and BOT projects and have huge debts on the books. With this two, three months of lockdown, whether they collected submission tolls to repay back the debts and interest thereon, we are not aware, but you do see the deterioration from that point of view. This will continue to happen because that's the way they have taken those contracts and such.
I cannot comment beyond that on that. What will happen is because of their inability to sometimes bid for large projects, et cetera, we would maybe tend to get a higher share of the market. That will also go through a process because in India, normally a single bid basis is not accepted. Mostly government clients, especially government clients, will call for a bid twice or will hard negotiate with us to accept a certain price they consider as budget. It makes the life a little more difficult from that point of view, but it's also good from that point of view that we make hay while the sun shines for some time at least. That hopefully answers your first question. Now, regarding consolidation, I'm not very sure.
There have been at least four or five of those construction companies who have come back to me saying, "Can we buy them out?" We are not interested in any M&A in this space. I think we have a good backlog. We need to take that forward from various points of view. Some of these other construction companies, we know the type of contracts they've taken and what price they've taken, what kind of obligations under which they have taken those contracts. We would avoid any M&A in that particular space. Now, whether they consolidate among themselves, I cannot comment on that again. From a site's point of view, I did tell your colleague earlier, and if you don't mind, repeating it. As I said, we have about 120,000 laborers in our sites right now.
We need to get it to 220,000, 230,000 to attain the pre-COVID kind of good activity that we had. Every effort is being made to do that. Yes, you're very right that due to the prevailing circumstances, it's extremely important to have proper, safe working conditions on site. Huge, elaborate standard operating procedures have been done for working from offices, for working from project site offices, from working at sites, so on and so forth. The productivity will not be as much as it ought to be because of the social distancing and such. You can't pour concrete or do bar bendings with social distancing. People have to be together to carry the load or to place it or to tie it, et cetera. There will be some, let's say, fallout there.
What we're trying to do is, we've been talking about mechanization for a long time, and what we ended up doing was we mechanized and we also had the labor. Now we are getting back to many of our people saying that, "Listen, at least now you get back to mechanization, improve productivity," and so on and so forth. One of the good things that is happening is also due to lack of projects in Middle East. Many of the companies there are not doing well, et cetera. A lot of labor who are much more productive, much more efficient, and maybe used to better ways of working from Middle East are coming back.
We'll try to attract them back to the domestic sites now that they don't have work in Middle East, that will bring in better work methods and more efficiency and productivity to the sites. The combination of this should help, the fact remains that standard operating procedures and norms look good on paper. While in practice, it is going to be difficult, I don't want to shy away from the answer that life at site is going to be a little more difficult than what it was originally because you can't work in those conditions to your optimum.
No, that helps. I just have a follow-up on that explanation only. Will you basically proceed on execution, or will you first clarify with all major clients on all major sites? A lot of costs, they cannot compensate. Even if they say they will compensate, practically speaking, a lot of what we will incur might not get compensated. Just to safeguard ourselves, do you think we will more be hell-bent? L&T has been focusing very well on, we've preferred cash flow over growth also, we've seen in the last 10 quarters. Likewise, in profitability also, our fair share of profitability to claim that back. Do you have something in mind so that we safeguard our profitability? That's my point. That's it. Thank you.
I'll answer this question like this. The only companies that will survive such a situation is the ones that have cash in hand. Therefore, our dictum to all our site managers, accounts, and project managers, very clear. Chase cash, sales will come. Progress will correct. This dictum has been repeated a thousand times by me and Shankar, and I guess it is recorded very well in the mind, and they know it when they get up, when they go to sleep, or even in their dreams. It is known to all the people at site. This message continues to be given. Also remember, in times of natural disasters, pandemic, et cetera, fear, et cetera, people will always migrate to organizations, brands, or good names whom they trust.
In our case, it is an 82-year-old company with a brand that is highly reputable and which has always done things on time to quality. The clients look forward to holding our hands now to help us out in such circumstances and to cooperate with us to see how to get their work done because we will be one of the few organizations which will want to get work done from that point of view. Therefore, I see in most of the cases, the clients wanting to help us in some manner or the other, even government clients, by easing out contract terms, by taking decisions which are not contractual. If it is pre-COVID, they would not have taken such decisions. Today they are taking such decisions. Yes, of course, there would be some public sector and government clients who will be stuck up about it.
What we need to do is we need to show the good examples of what has happened in A, B, C, D, E, F, G, H clients and tell them X, Y, Z. Please, there's a precedent. One of your sister companies within the same government have done it. One of your governments in the same country has done it, so why can't you do it?
Thank you, sir. Really helpful. Congratulations and good luck. Thank you.
Thank you.
The next question is on the line of Nishant Chandra from Temasek. Please go ahead.
Yeah. Hi. Thanks for taking my question. I'm just looking at the company's forward-looking view in the context of where the journey has been over the last four, five years. When we look at the EPC business, at least the ROE has improved meaningfully over the last five years. Perhaps it's similar or lower margins. Now, as we stand today from an order book perspective, as you covered earlier, I think we are well-positioned. Would it be fair to say that as we look forward in incremental bids, we should see some element of stronger margins, especially for sectors like infrastructure? Because there are a lot of uncertainties in India. If you look at the last three, four years, starting from demonetization to GST to NBFC issue to elections and now COVID, there's been no letup in unforeseen circumstances.
Do you start pricing that in into your bids going forward in a greater manner?
Chandra. See, the margin play is not simply the demand and supply. Most of the bids that we submit our prices are also in the context of the budgets that get approved by the customer with their respective boards. We have had instances where we have been L1, but the prices have exceeded the customer's budget, and hence it had to be rebid. It is actually a loss of productive time and money effort to get into rebids. I think the effort would be to operate at profitable levels. It will be difficult to put a number to say that we will accept bids only if it gives me 12% margin or et cetera. There is a floor and a cap within which we operate. If you see over the past several seasons, despite the cyclical business cyclicality, we've been more or less stable in our margins.
Understood.
I think that strategy has worked well. We don't want to fix something that's not broken.
Agree. No, I think my question was also in the context that if you look at it since five years back, there was some competition. Now, even those competitors who were there in the last three, four years, they've also gotten washed out, including some well-established names. I was just wondering whether that-
Yeah. Affordability is also an issue.
Fair point. The second one is in terms of the consolidated ROE target of 18%, which was articulated a few years back.
Yeah.
At this stage, I think there may be some sort of timing challenges, but is it fair to say that if you were to look at that as a cutoff, would financial services, development projects, power development, and Hyderabad Metro be the four large things below the 18% threshold today?
Financial services have been managed but for the current year where there were some specific provisioning. Financial services almost touched 18.
Okay.
They were one of the first ones to touch 18. Very asset-heavy investments like Nabha, Hyderabad Metro will have a challenge, and that's why we want to unlock the capital. We have not lost heart. We've been pushed back in time for our 18% ROE, we will continue to plow along and figure out sooner we get some divestments going. Possibly we will touch there.
Understood. I wanted to place on record the fact that the free cash flow generation of the company has been quite robust despite all of these times. I think it's a commendable achievement by the management. Thanks a lot.
Thank you for appreciating.
Yeah.
Thank you. The next question is from the line of Aditya Mongia from Kotak Securities. Please go ahead.
Yeah. Hi. Thanks. My questions have been answered. Thank you.
Thank you. The next question is from the line of Parikshit Kandpal from HDFC Securities. Please go ahead.
Hi, yes. Earlier you had highlighted that there are some good prospects in heavy civil power transmission, water, and heavy engineering. Can you quantify at least for this part what is the prospect pipeline now?
I don't count the chickens before they hatch, so I have not summed it up, but sufficient to say I'm quite busy going through pricings and risk review meetings and such, that there are quite a bit of prospects which have come to even my level. There are sufficient, Parikshit. I have not added all together to see how much is the prospect. That's putting the cart before the wheel or feeling too hungry before you're hungry. Let it come. Let's be positive.
Okay. Sure, sir. Just on the labor issues, I've been talking to other contractors, the smaller ones and mid-sized. Their sense has been that because of the social distancing in the trains where not more than 50 people are allowed, and even some of the migrant laborers which want to come back. There has to be a policy push from the government side, like how they started the Shramik trains. There has to be reverse Shramik trains and more in number for the people who want to get back. On the logistically, I mean, how do you see this thing panning out? Have you represented this at the federation? Has it presented this to the government to get these laborers back? What will be the way forward for getting these people back?
No, the Shramik trains, let's say, originates outside Mumbai and go to, let's say, Ranchi. They're coming back, too. In these coming back trains, we are loading back labor who want to come back, and we are getting them back in a similar manner, Parikshit. It's not that it is not happening. In some of the labor clusters, we are also arranging buses, and naturally, if a bus can carry 50 people, they now carry only 30 people. We are, through that method, also getting labor back. Some of the major labor contractors, some people who hold 500, 1,000, 2,000 people, they are also playing their part in it. We may have to reimburse some cost of travel, et cetera, which we'll do from that point of view. As you see now, beyond Shramik trains, some of the regular trains have also started.
It's not that trains are not moving. I believe nearly 2,400, 2,600 trains are functioning in the country, many of them between west and east and south and east, and therefore there is a movement of labor back. As I said to one of your colleagues, we are adding about 1,500 to 1,600 people a day. The target is to jump it to 3,000, 4,000 by next week or so, and we are on the job on it.
Okay. Sir, in the real estate business, we have been adding projects. Recently you have been partnering with some of the developers in Mumbai, taking up their projects. How do you see the development business on real estate side now in the current context of COVID-19 from the capital allocation lens?
The real estate business has got, let's say, two parts to it. One is the residential part and second is the commercial part. The residential again had two broad segments in it. The larger ticket sizes, the four bedroom and the bigger flats and the studios and the small size apartments. Where we had done these larger size blocks, because that was the trend three, four years back, five years back, we went for it. Those are slightly not moving or moving very slowly. Whereas the studio and small size apartments, for instance, in the Boulevard that we are doing in Bangalore, we even had 25 bookings last week, including advance paid and such. The studio and small size apartments are moving very well. Our Mulund has gone very well. Our Seawoods has done very well. These are studio or small size apartments.
The Parel one, which has got one block of some big apartments, that's not moving very well. The cost of structural modification is very heavy compared to what we can sell. Therefore, we said, let's wait for it and sell it over time, or we give some slight discount and sell it. As such, the residential, I guess, will move fast. Please understand, in terms of natural calamities, fear of pandemic, et cetera, people would not invest too much in shares and stocks and bonds, et cetera. They tend to invest in real estate because it's considered a relatively safe investment. Also, they've looked to a brand like L&T, having constructed something to invest there because it's considered to be on time, all papers are clean.
The property is good to invest structurally and otherwise. Therefore, people would tend to do it. Therefore, we believe the residential will go well. Maybe initially one or two months there would be a problem, but it'll tend to go well because people have surplus money and they would want to invest it. On the commercial side, like you are, I am also confused. I don't know where this is going to go. We have some commercial developments at the moment. Now, whether the work from home is going to come back in a big manner, whether the work from home was a temporary spike and maybe there would finally be some 15%-20% work from home, et cetera, I don't know. At the same time, let me tell you some positives on it.
The trend in U.S. after the present administration came to power was that they would want on-premise work. They would tell people to stay in U.S. and work. They want locals to be employed, so on and so forth. Due to the pandemic there, many of the states in the United States and Europe also got closed out, and the people there were working from home. Now we are going back to the clients and saying, "Listen, you're paying us X dollars to do the same work from home. We'll do it at X minus dollars sitting from India at home. Why do you want these people out here?" Second, there is that in India, many organizations in the United States also looking into costs and optimization and better productivities and improvements.
Therefore, I guess there could be a spike in IT spending from that point of view to bring in overall efficiencies. That would mean more commercial spaces in India and otherwise. Therefore, that part is a bit confusing. We need to wait for the things to settle down from a strategic point of view. What we look at real estate today is there are very good developments available, and some of the developers are going financially kaput. Some of the banks are not able to hold on. It is a chance for us to get these properties at good prices and see how to make some capital out of it, and that's what we'll try to do.
The cash flow monitoring, have we availed any moratorium of any of the development assets or for the EPC business on the working capital side, any deferment?
I couldn't hear you. Got to be a bit louder and clearer.
Sir, I'm talking about moratorium. Have we availed any of the moratoriums for our development projects, road assets, Nabha or Hyderabad Metro, or any deferments on interest on the working capital side of the term loans?
For the main company, yeah. For the main company, there's no moratorium that we took. For Hyderabad Metro and some of the road concessions, we had applied for a moratorium, and we had availed what was available to us.
For Nabha, sir?
No, Nabha , we've not taken any moratorium.
Okay. Thank you, sir. That's all from my side.
Thank you.
The next question is from the line of Shalini Vasanta from DSP Mutual Fund. Please go ahead.
Hi. I have two interrelated quick questions. I will ask them in one go. These are on the group's financial strategy. Given that there is inbuilt leverage in the L&T group due to the financial services business. How do you view this appropriate standalone debt levels in L&T Limited? Would you see zero debt as an objective? Leaving around the current environment, which is challenging. Working capital always remains an issue in India, and you do take some amount of credits in your projects. The first question is regarding the standalone debt in L&T Limited, especially in the context of financial services business. Taking the same question forward, the financial services business, apart from capital, which you alluded to, also needs liquidity now and then because the market can break. You've committed some level of support.
How do you see that in terms of support and other governance saying that you'll give this much support or this much capital maintenance shareholding, et cetera? Thank you.
Yeah. Let me take this. The standalone debt in the context of, they're not connected issues. As I mentioned to someone earlier in this call, the standalone debt was the function of the refinancing that we are required to do and the gross money that would be required for our own core businesses, not the ones that is run through listed subsidiaries. The standalone debt historically has been very low in L&T. They'll continue to be low. We had raised about five years ago, a lot of long-term debt, which is coming up for repayment in the current year. As we normally do, we have raised money little ahead of time to repay those. You can call that as some kind of a timing issue from time to time. Standalone debt is for L&T's core requirements, which is largely working capital.
When it comes to financial services, I think even though there is, as a parent who are sponsoring organization, there are credit lines sanctioned by the board for the financial services so far. They never have had the requirement to dip into those resources to be able to meet their liquidity requirements. Being a listed company, there is adequate visibility on their operations, and their disclosures have been fairly transparent to the capital markets. They've been able to raise money on their own for their requirements. None of the financing that L&T Finance, the services group, financial services group has raised, has got any recourse to L&T. They are standalone debt. Even during the last six, seven months when liquidity was very tight and we've had so many NBFCs governance issues and credit issues tumbling out of the cupboard.
Financial Services have been able to manage raising money to the extent they require and at an attractive cost. I do believe that their cost of money is pretty competitive. To that extent, I think we are closely managing and facilitating and helping the business, in a manner of speaking, handholding them to deal with the economic uncertainty. I don't think there is any financial drain from the parent to support the liabilities of the Financial Services business.
Thank you, sir.
Thank you.
The next question is from the line of Ankur Devre from Bank of America. Please go ahead.
Hi, this is Amish from Bank of America. I only have a couple of clarification questions now. Firstly, in a scenario of potential wage inflation on account of labor shortages, would that also not be a pass-through in your contract?
Wage increases, yes, it is to a large extent minimum wages are fixed or base wages are fixed, and if it goes up, we can claim it from the client. If we are paying some for transport or some incentive cost to get them to the site, that would go as a general CPI inflation claimable, cannot be specifically claimed as what we did from a labor point of view. To a large extent, that's how contracts are defined. In lump sum contracts, we would have taken the normal increases you see based on CPI or any other factor. There it could become, we have to put it in some other cost and claim it from the clients who has done during pandemic or done during extra mobilization or something like that.
We may not get the full cost that we have spent, to a large extent it should be got. We are not talking about huge. See at the end of the day, if you take L&T's contract, labor wages are at about 6% to 7% of our total cost. Even if you assume 10% increase on that, it is about 0.6-0.5. Assuming bulk of it can be get reimbursable, we're talking about very negligible cost increase from that point of view. That's one advantage of India, the labor costs are still low.
FS, thanks for that. Let me rephrase it. I think that you do use a lot of subcontract labor as well, right? With the migrant labor availability shortages that we're talking about, there's a possibility that the subcontract labor wage goes up, and that is a decent percentage of your expenses. Isn't that right? Could that increase? If that increases, can that be a pass-through? Is actually my question.
It's like this. All our laborers are in a way subcontracted. We don't have any laborers directly on our rolls. We employ the laborers through what is called as subcontract gangs. There are people who own labor gangs, 100, 200, 500, sometimes even 10, 15 specialized people. All the contracts are through them. We give contracts to them either based on minimum wages or through certain productivity measures that we give a base wage. If you do so much productivity, give you more, we give you so much more. If there is a cost coming up there, we would recalibrate these productivity increases to tell them to produce more and thereby compensate the cost increase with better productivity and such other work content at site. There's another form of subcontract, like for example, we give the entire air conditioning to somebody.
We give the entire plumbing sanitary work to somebody. We give the entire erection work to somebody.
In those kind of cases, it's a back-to-back contract. If we get some money from the client, we give it to them. If we don't get money, we don't give to them. That's how contracts work. It's to a certain large extent protected from many points of view. Of course, they would make mercy claims on us, we would pass on the mercy claims to the client. If we get it, we pass it on. Sometimes if it's a well-known contractor who's working with us for a very long time, we may have to make some adjustments even if we don't get the money. These are give and takes that happens and somewhere we gain, somewhere we lose. Overall, it balances out.
Okay. My second question is around L&T Finance. RSR did mention in his comments that if growth comes back, then there may be a possibility of an equity raise. Just to clarify, L&T did mention about dilution of rights. Does that mean that we are talking about L&T, if having to raise equity, L&T Finance will raise on its own, and this is not about L&T increasing its stake into L&T Finance?
Every time L&T Finance has raised money since its listing, it has raised on its own. L&T had 100% holding. It had come down to 75%. It had come down to 65%. Last time over, there was a preferential offer where L&T invested in money. We've had all kinds of situations. We need to judge this in the nature of the investment allocation. If the investment is going to create value for the L&T shareholders from a larger context, L&T will participate. If the alternate application of money that L&T has better return potential, then obviously the money will be allocated to the more meaningful return asset. It's a contextual thing. We'll have to take a call as and when we come to a situation where capital is required, then we'll take a call.
The fact is that as a part of services business, Financial Services is an integral part of the services portfolio. The broader de-risking strategy that we have followed at a portfolio level is to balance the projects business, manufacturing business, and services business, so that at the portfolio level, we don't have imbalance or risk skewed towards one particular type of activity. Within that overall context, keeping that in the back of our mind, we'll have to take a call from time to time.
Sure. Very quickly, my last question is that the projects business, as we calculate it, actually even currently earns around 18% ROE, which is actually quite healthy in this environment. While you may not want to confirm the number, but would you say that despite the working capital challenges, execution challenges that we are facing around, this is like a pretty high return business, if you were to go on average, it's an above-average return business right now.
It's the bread and butter of L&T. It's core of L&T. EPC business is core of L&T. I think, over time, we're learning and we are mastering the art of execution. Consequently, I think the current levels of return on equity on project business has been hard-learnt over many years. To that extent, I think we would like to stay and improve on that level of capital efficiency for EPC business. Fortunately, most of the EPC business we do in clients' premises, so we don't have to incur substantial fixed expenditure like setting up a factory and stuff like that. We'll have to manage working capital efficiently. We'll have to contract smartly, procure very capably. If you do all that, I think it is a good business to be in.
Risky, and the returns that you're talking about is actually the reward that matches the risk that we take.
Thank you.
Thank you. The next question is from the line of Abhishek Poddar from HDFC Asset Management. Please go ahead.
Thanks for the opportunity, sir. Part of this question was touched upon before. This is regarding the increase in the working capital, and we have seen that the margins have not increased commensurately, and that has led to a decline in the ROIC in last few years. If you look at the competition, I think the situation for L&T still looks better where competition balance sheet is even in worse state. What is your sense, do you think that working capital is a stretch would start getting priced in by the competition as well as company, whether ROICs can return to historical levels?
See, working capital, again, is a function of the contractual obligations that we run. Normally, when we sit down and price a bid, we take into account the cash flow trajectory of the project and price the amount of money that we need to invest, and that hopefully becomes a winning price. If we have a contract that we have won at the price at which we have quoted, so long as there is congruence between the projected cash flow and the actual cash flow, you can say that the working capital has been compensated for by the client or by the project that we are executing. The trouble happens when the projects start getting executed at a timeline which is different than what was originally anticipated. The minute there is a time delay, a lot of things goes wrong in a project, including working capital.
What we need to be acutely focused on is that if you're able to execute project in time, a lot of these things actually will fall in place and should not create mismatches.
Wishing for an ideal world. We do go through our own upheavals in trying to execute projects. The working capital that we are allocating is mostly working capital that has been priced. Because of the way we account, they appear as capital in the current asset scenario. The margins have been stable despite these movements of working capital. One other way to look at it is, why is it that this company has been able to maintain a certain stability in its margin? Give and take a certain band, which is, in my opinion, highly acceptable band of 1%. The only reason why we've been able to do is most of the times we've been able to get the pricing of working capital as part of the project.
Okay. Sir, if you look at the competition, there are companies with net debt to EBITDA even of four or five times, and part of that problem is created by working capital. I understand you also mentioned the budgets and all. Won't the companies themselves, when they're quoting the pricing, they would be mindful more about all these issues that is there, because these issues are not going away in last two, three years. We have seen that working capital kind of we were at 14%-15% five years back, but those were different times, but we have accepted that 20%-23% is kind of a normal level right now.
Wouldn't that get priced in terms of when you're quoting or would it be constrained by so much by budget? Essentially what quotation is coming from the entire industry and everybody is a price setter there.
That's where I did say that we will obviously price it in and try to endeavor to stick to the same trajectory. Most of the other competition, especially the types that you're referring to, will be so stressed on working capital. The problem is not so much about cost of capital. The problem would be access of capital for them. The availability of bank lines to be able to give various guarantees as we get into the project itself becomes an issue. Access to credit, according to me, is a competitive advantage for L&T rather than just a comparative pricing of credit between the competition and ourselves.
Okay. Sir, moving to second question. You had mentioned earlier that your intent is to monetize the development sites, including Nabha and Hyderabad Metro. You made a comment about allocating more capital to Hyderabad Metro. How do we see that?
I said capital reallocation in terms of capital structure correction. When the project is getting implemented, it takes in a more traditional capital structure. Once the project gets completed, the construction risk is off the table, thereafter it becomes a project which is essentially based on revenue risk. That gives an opportunity for us to resize the debt equity in a project. If you come across a situation where the project is going to generate less revenue than what is anticipated, the amount of sustainable debt in that project has to come down. To that extent, there could be an infusion of money to repay the debt of that particular project to make it a sustainable, viable debt.
If the revenue profile improves in a project and it can afford to take a little more debt than what it is currently engaged in, then possibly the capital unlocking will happen, and then the debt-equity will get appropriately altered. What I was trying to say is there are several options given that we have a portfolio of investments that we have made around our businesses. There are several opportunities for us to productively use the capital so that the overall return at a consolidated level improves from where it is. That's what I meant. I did not mean either to give capital or take capital. Take capital would be to de-risk equity exposure. Give capital would be to de-risk the unsustainable debt to sustainable debt.
The proceeds of Schneider Electric, which will be coming through, part of it you said could go into equity infusion in Hyderabad Metro. Is that the right understanding?
Yeah, it could go to reduce the debt. Whether it goes as equity, it goes as any other form is something we need to sit and evaluate. Essentially, if the traffic does not pick up, and suppose there is extended lockdown and stuff like that, we need to recalculate as to what is the level of sustainable debt. The debt we have committed in that project is based on a certain level of traffic and running without interruption.
Right. Sir, you mentioned that part of the capital can go in growth of the core business. Is that because of the COVID challenge and it's a short-term thing, or do you think that for your EPC business growth, you still need more capital?
See, growth is life, right? I think we have not come to a conclusion that we are hitting the ceiling insofar as growth opportunities. We do think that we should continue to look at a 10%-15% growth on a year-on-year basis. When we are looking of a 10%-15% growth, on the delta growth, we also need to provide the capital support. When I talk about growth requirement, this is what I meant. Obviously, there's going to be a timing mismatch because of the pandemic and the disruption that has happened. We are not measuring the company's requirement in a limited time frame of one quarter or one year. We're trying to look at next three, five years. What is it that would take the company to become more stronger, more formidable than what it is?
From that point of view, this capital raise, et cetera, will go to strengthen the growth opportunities for the company.
Sir, sorry, just the last point. If I look at the.
Excuse me, this is the operator. Mr. Poddar, may we request you to come back in the queue, please?
This is just a follow-up. It will just take a minute. On the same question.
Okay.
Sir, regarding If I look at the EPC operations and kind of cash flows they generate. If I look at the modeling the numbers for next four, five years, I see EPC business actually throwing up cash flows rather than taking something. I'm not very clear that where the capital will be going in the growth business in core operations.
Can we actually take this offline? This would mean getting into the details of EPC business and where the growth opportunities would come up. Secondly, in a very simplistic way, the model of EPC, which used to be working on customers' cash, has changed over time. Going forward, looking at the way our customers are largely government and PSUs, looking at the way the cash flows are arranged in the next couple of years, I would expect that the working capital intensity not to relent to those levels of either having customers' cash or having very low working capital. When you want to add another INR 10,000 crores of revenue, you might have to think in terms of INR 2,000 crores of working capital, just to give you a ballpark estimate.
Okay. Understood, sir.
Thanks. I will come back. Thank you.
Thank you.
Ladies and gentlemen, we will be able to take the last two questions. Request participants to please limit your questions to two per participant. The next question is from the line of Puneet Gulati from HSBC. Please go ahead.
Yeah. Good afternoon. Thanks for the opportunity.
Excuse me, Mr. Gulati. Mr. Gulati, your voice is breaking.
Okay. Can you hear me well?
Yeah, better now. Thank you.
Okay, great. Sir, thank you so much for giving a lot of color on the ordering and execution side. Am I understanding correct that you are not facing any major delays in terms of execution of the existing orders and no major cancellations have been reported as well?
Yeah, I confirm there has been delays, of course, because of two months lockdown, but we hope to catch it up.
Yeah.
There is no request from clients for cancellation or go slow or anything like that. There has been some discussion on reallocation of budget and can we do this little later and prioritization and such, but as such, nothing else there.
Okay, great. Does this hold private sector order?
Private sector, it's not much at all. It's mainly some Middle East clients, who are requesting reallocation of budgets and so on and so forth, but hardly anything. No, nothing. In fact, many private sector in India are requesting to speed up and go back to the original commissioning time in spite of the lapse of two months.
Okay, great.
Mr. Gulati, your voice is breaking again.
Yeah. Any prospective orders that you would be looking at this year?
I didn't even get your question. Your voice is badly off.
Sorry. Is it better?
Yeah, much better.
Can you give-
No, my friend, we can't hear you.
Okay. Sorry. Yeah. I'm saying, can you give some number for the prospect order book?
No, we never do that. As I said, there are prospects. We are quite busy. We have proposals in many of our businesses, and we look to the future with positivity. To give any numbers is not fair at the moment.
Okay. Great. That's all from my side. Thank you so much.
Yeah, thank you.
Thank you. The next question is from the line of Charanjit Singh from DSP Mutual Fund. Please go ahead.
Sir, thanks for the opportunity. One thing which I wanted to check is if you look at the ability of the state or central government to order out the average size of the project, do you think that may go down? Because even in the prospect, I think there was some reduction in the average order sizes. Looking at this scenario with capital constraint, maybe they might focus on the smaller projects. How do you see that, and then L&T's ability to look for those smaller ticket size projects?
I think that depends more on the season that you're talking about. Last two years, there were huge packages of this dedicated freight corridor and this national water schemes and distribution schemes that were going on, and you had good packages. Much of those work has been done. Unless and until the government comes out with new dedicated freight corridors or this high speed or river interlinking or this Bharatmala scheme and such, I don't think there would be scope for very big packages immediately. When you say very big packages, greater than INR 5,000 crore or INR 7,000 crore, et cetera. What I would guess would happen is, unfortunately, we are such a low-cost country. Even a huge football stadium, which in Qatar costs INR 4,000 crore, in India, the entire cricket stadium, the world's largest, with the reasonable margin that we made, has cost only INR 800 crore.
That's the kind of costing that we have in this country because of the low prices. We have three times lower cost than other countries. Just to give you an example, if same L&T was in U.S., our turnover would be three times what it is we reflect in India. That's the way it is in India, and therefore, we have to live with the fact that our rupee buys lot more things than what a dollar can do from a pricing point of view.
Therefore, at the moment, I guess, since there are no major new schemes that has been announced, and what they will do is carry on existing schemes and existing projects, which will be mainly the railway projects, predominantly the National Highways sector, the certain amount of river interlinking they're talking about, the power transmission, the water kind of projects and expansion of refineries and such. This would be reasonably big projects, but not those very big value projects.
Okay, sir. Thanks for that. Just lastly from my side now, if you look at the NIP and the thought process that the Government has. Government wants to sell out assets across different sub-segments or across different companies to raise money. What we are seeing is that there could be a limited appetite in the near term from the different, maybe pension funds or wealth funds to invest. Government is one thing, crowding out as a developer in the market. It will also create problems for the other developers to de-leverage their balance sheet. How do you see this overall selling of the assets to different stakeholders in the market going forward? That's all from my side.
I think sale of assets is taking place in two particular manners. One is the divestment program that the government is thinking about, and second is the NCLT process, which has kicked in very earnestly. Unfortunately, the NCLT process, due to this pandemic, et cetera, there's a deferment there in much of the cases that were fast-tracked and going very well from a disposable point of view, has got deferred by three months, six months. Of late, some beginnings of disposals have again started. That is one point. From a central government point of view, for them to achieve their budget or even for them to generate certain cash flow, a divestment is a must and part of their overall scheme of things.
A few of these assets divestments like BPCL, et cetera, started, but again, LIC, et cetera, started, but again, were put in back burner due to the pandemic. I guess if they have to match their budget or come anywhere near matching the revenue requirement to the budget, they need to do some of these things. That's a process that will continue, in my view. Good assets will find buyers and the not so good assets, we'll have to see how they take it forward.
Great, sir. That's all from my side. Thanks for taking the question.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Arnob Mondal for closing comments.
Thank you, ladies and gentlemen, for a very patient and interactive session. Frankly, it went on considerably longer than what we expected. With this, we'll close the session with a small note that if anybody else has any queries, they are free to contact me or Harish. With that, good afternoon and goodbye. Thank you.
Thank you. Thank you all.
Thank you. Thank you.