Larsen & Toubro faces Rs 3,000 crore order cut as its client GMR terminates toll road project

MUMBAI: India's biggest engineering company Larsen & Toubro faces the prospect of cancellation of one of its biggest road building contracts worth almost 3,000 crore as its client GMR Infrastructure has decided to terminate the toll road project for National Highways Authority of India (NHAI).

GMR Infrastructure has pulled out of NHAI's biggest road project being set up at a cost of 7,700 crore for the six-lane Udaipur-Kishangarh-Ahmedabad segment of the national highway, citing land acquisition, environmental clearance and toll notification as some of the issues.

A senior executive of L&T, who heads the engineering, procurement and construction business, told ET that the company has not received any official communication from GMR and the order continues to be on its books. Analysts and sector officials, however, fear that cancellation is imminent, given GMR's decision to not go ahead with the project. "The issue is between our client GMR and NHAI and we hope they will be able to sort it out. As of now, we have the project in our order book and we will wait and watch," SN Subrahmanyan, whole-time director and senior executive vice president of the firm's infrastructure & construction division, told ET.

NHAI is believed to be planning to take action against GMR for non-compliance with procedure for exiting a project.

In 2011, GMR Infrastructure had bagged NHAI's biggest project, the Kishangarh-Udaipur-Ahmedabad highway, by quoting an aggressive premium of 636 crore. The winning bid had raised quite a few eyebrows then with analysts speculating the viability of the project, considering the premium.

Subsequently, GMR placed two orders with L&T in December 2011 and August 2012 totalling 2,809 crore for construction of the road project, which are now likely to be cancelled. A GMR spokesperson declined to comment on whether they have officially terminated the order to L&T.

"The GMR road project will be knocked out of L&T's order book. This order accounts for around 2% of the order book, so there would be some negative impact, especially because some other orders are moving slow," said Ankush Mahajan, research analyst with Mumbai-based KR Choksey.

Over the past few days, several frontline brokerages like Citigroup, Barclays, Nomura and ICICI Securities have raised concerns over L&T's growth prospects.