Chairman's Speech:
57th Annual General Meeting of L&T
August 8, 2002

On behalf of the shareholders, I would like to welcome Mr.H. Holck-Larsen, Chairman Emeritus, who, as always, has been gracious enough to be present at this meeting, despite some health problems he has had recently. As you are aware, early this year, Mr.Holck-Larsen was honoured with the award "Padma Bhushan" for his outstanding contribution to the development of the Indian industry. This, you will agree, is a fitting tribute to his commitment to this country and his remarkable contribution in building up this company. This is a proud occasion for all of us.

The financial year which ended in March 2002, has been yet another year of challenges. The economic slowdown persisted during the year, and indeed, was aggravated in some sectors as a result of the traumatic events of September last year. The economic slowdown which persisted during the year, meant yet another year of no major investments or no fresh orders for many of the core sectors in which we operated. The Capital Goods industry segment showed a negative growth of 4%. There was, no doubt, new investment in infrastructure, especially in roads, but it was inadequate to give an impetus to the industrial growth. Unprecedented communal strife in Gujarat, border tensions, terrorist attacks and consequential measures taken by several countries and the slowdown in the US economy, seriously affected the business climate. It is in this background that we need to view the performance of our company. It is a matter of some satisfaction to all of us that the company has performed well despite these difficulties; and what is more, successfully addressed itself to the challenges.

Our strategy for the future has several components. But I would like to mention here two of them, which, in my view, are of more significance.
As you are aware, the Company has, over the last few years, been focusing on increasing its presence in international markets. This focus was partly to enable us to reduce our dependence on vagaries of the domestic economy and open out new avenues for growth. These initiatives for enlarging our export base are now beginning to show significant results. Our export revenues grew from Rs.313 crore three years ago to Rs.1113 crore in the year 2001-02.

The other major contribution of our thrust in developing exports has been to enable our company to improve its delivery capabilities, product quality, cost competitiveness and above all, to make our company alive to international business opportunities.
The other element in our strategy to improve our competitiveness, domestically and internationally, is to augment the talent base. Our company has always been fortunate in having a team of dedicated and motivated work-force, capable of positioning the company to seize the opportunities and meet the challenges of the 21st century. In order to further strengthen these capabilities, the company launched, two years ago, a Management Leadership Programme. The objective is to nurture leadership talent. Further to this, we have launched during the year, a Technology Leadership Programme in order to develop a technologists' pool in the company. We have been placing great emphasis on HRD, because ultimately it is the quality of human resources which determines the performance of the company.

We have initiated programmes for utilizing to the full, the potential available within the company. This involves greater emphasis on position evaluation in career progression and also programmes involving succession planning.

Let me now turn to the business of the company.

Engineering & Construction Business
The Engineering & Construction business constitutes the largest business segment of the Company accounting for nearly 60% of the total revenues. Notwithstanding lacklustre investment climate, the Division bagged orders valued Rs.7227 cr. during 2001-02, mostly in infrastructure, oil & gas and power sectors.

The Division successfully executed many orders during the year, the notable among these being -
1) Khandala - Lonavala elevated corridor of Mumbai - Pune expressway
2) A 330 MW Power project in Tamil Nadu
3) Sports Stadia in Qatar
4) Platforms for ONGC at Bombay High
5) Evaporator Exchangers for Sidem, France at Abu Dhabi.

The Company made scheduled progress during the year on some prestigious orders under execution such as Power projects in Oman and Sri Lanka, Delhi Metro underground railway corridor, Hospital project in Saudi Arabia, Naval Port in Karwar, re-building of blast furnace for TISCO. I am happy to inform you that this job was completed in a record time of 105 days.

The Division has augmented its delivery capabilities significantly over the years. Cost reduction initiatives, global benchmarking, leveraging technology, use of IT as the cutting edge in client delivery systems and partnering with leading international players are being aggressively pursued. All these are expected to help the Division realise its full potential, and establish itself in the international market.

Cement Business
The Company commissioned its 1 million tonne Grinding Unit at Durgapur, West Bengal during the year 2001-02. With this, the Company's cement capacity stands at 16 million tonnes including that of Narmada Cement Company Limited.

The cement industry grew by nearly 10% in 2001-02 as against negative 2% growth in the previous year. The Company sold 11.9 million tonnes of cement and clinker during 2001-02. This was 6% more than the quantity sold in the previous year. The Company exported 2.41 million tonnes of bulk cement and clinker to retain its position as the largest cement exporter from India. Average sales realisation during 2001-02 improved by 4%. But there were increases in input costs, particularly fuel and power cost. Continuous cost control, improved logistics management, implementation of ERP systems, asset sweating, etc. have considerably helped the Division to improve its competitiveness.

Electricals & Electronics Segment
The electrical industry grew by 1.7% during 2001-02 with the low voltage switchgear sector recording a negative growth of 5%. The electrical business maintained its sales and the market leadership during the year despite the adverse business conditions. The Division has stepped up its thrust on exports and has achieved 70% increase in 2001-02.

The Division has placed considerable emphasis on its R&D efforts. Our efforts are directed towards increasing productivity of assets and reduction in costs so that we become lower cost producers. We are also aggressively pursuing development of new products. Information technology and e-initiatives are the focus areas for this Division.

Financial Performance
The various measures initiated by the Company have resulted in improved financial performance during 2001-02. Sales and service income of the Company rose by 6.8% to Rs.8359 cr. during the year. While cement sales grew by 8.1%, sales of Engineering & Construction Division grew by 5.4% during the year.

The operating profit for 2001-02 at Rs.1053 cr. was Rs.40 cr. higher than the previous year. With business conditions remaining highly competitive, the increase in operating profit was largely due to various cost reduction measures undertaken by the Company.

Profit before tax at Rs.401 cr. grew by nearly 18% over the previous year, largely due to significant savings of Rs.46 cr. in interest cost. Despite higher tax provisions, the profit after tax at Rs.347 cr. was 10% higher than the previous year.
The Company utilised the additional cashflow generated through strict monitoring of funds employed to reduce its debt by nearly Rs.700 cr. during the year. The Company is committed to pursue this course and reduce its debt further in the current year.

It is creditable that the improved performance has been achieved in an extremely challenging business environment. The resilience shown by the company augurs well for its future.
Members would be happy to note the recommendation of the Board of Directors to increase the dividend to 70%

Looking Ahead
The Company has commenced the current year 2002-03 with an order backlog of Rs.11878 cr. The performance of the Company during the current year so far has been on schedule. However, the impact of possible drought due to deficient monsoon on the Company's business needs to be assessed.
In E&C business, the opportunities for the Company in the domestic markets are in infrastructure, refineries, oil & gas, nuclear power, aerospace and defence. Dismantling of APM in petroleum sector, new opportunities for private industry in the field of defence, power sector reforms, etc. are developments which hold potential for expanding the Company's business. The Company will also review and respond to Government's disinvestment initiatives in the areas of its business.

As for the prospects of cement business, increased spending in housing and infrastructure development is expected to result in approx. 8% consumption growth in 2002-03. The consolidation in the cement industry is expected to gather momentum and result in stable market conditions.
Improvement in overall economic scenario is expected to provide stimulus to the Electrical & Electronics business. Convergence of Electricity, Communication and Automation are becoming a way of life. All businesses of Electrical & Electronic Segment are synergised towards this.

The Company has launched several key initiatives to improve its competitive edge. The initiatives include recruitment / retention of top human talent, knowledge management and building an organisation geared for international business in target countries. Focused efforts are underway for upgradation of delivery / quality standards, technology innovations and improved distribution logistics. Considerable emphasis is being placed on optimisation of resources and cost leadership.

The next few years are going to be crucial for the manufacturing sector in our country. There are going to be new challenges, and also many new opportunities. No organisation will be able to prosper, or indeed even survive, unless it is sensitive to emerging trends and is capable of transforming itself to meet new challenges and seize new opportunities. This is the only way in which we can sustain our leadership position in Indian industry and move towards achieving our vision of becoming an Indian multinational. The Management of your company is optimistic about its future and confident about the appropriateness of the strategic initiatives that are being taken.