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Equipment | April 02, 2013
#33081

L&T cuts power gear prices to reverse order flow

Larsen & Toubro, which enjoyed premium pricing due to its leadership position and execution capability, has lowered prices for its power equipment and engineering business responding to the intense competition to grab a share of the shrinking pie.    

L&T, which has two joint venture companies with Japan's Mitsubishi Heavy Industries for manufacturing of supercritical technology-based boilers and turbine-generator sets for thermal power unit, has been hurt by the double whammy of domestic slowdown in power projects and intense competition in the sector.    

The JV companies did not win a single order in the bulk tenders floated by state-run NTPC in FY12, leading to worries that the breakeven on these ventures would be delayed.    

Now, L&T has abandoned its "good pricing" strategy, where the price quoted to customers is arrived at after factoring all costs and profit expectation, for a "fine pricing" strategy, where the company first sets a competitive price in view of the competition and then works on reducing costs to improve profits, Shailendra Roy, Director and Head of Corporate Affairs and Power said.    

On Apirl 1, L&T announced of winning an engineering, procurement and construction (EPC) order worth Rs 5,689 crore from Rajasthan Rajya Vidyut Utpadan Nigam for setting up two units of 660-mw supercritical thermal power project. This order would be crucial for L&T to meet its target of winning new orders worth Rs 80,000-85,000 crore in FY13, after it missed its order inflow growth in FY12.    

Driven by India's capacity addition plans, companies like L&T, JSW Energy, Bharat Forge and Thermax formed joint ventures with foreign capital goods major to manufacturer super-critical technology based power equipment in India a few years.    

But the change in investment environment in the last two years, coupled with fuel crunch and problem in securing land and clearances has led to muted order flow and intensified competition. Roy said that the competition may heat up more, though almost 50 per cent of the local players bidding for power projects are only on paper with no operational capacity.

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