L&T's corporate credit quality reflects the company's demonstrated engineering and construction capabilities, high level of vertical integration, and considerable forward order book, mitigated by its exposure to India's currently difficult construction markets and a weakened financial profile that heightens the company's sensitivity to domestic economic shocks.

The board of L&T has decided in principle to restructure the company's cement business. However, the timing and the manner of implementation are yet to be finalised. These developments have been driven by a strategic review of L&T's business mix. L&T's position as India's largest cement producer, aided by recent acquisitions, has delivered substantial synergies with existing operations. Cement demand, however, is highly correlated with construction activity. Accordingly, margin erosion, industry oversupply, and plant under utilization historically have undermined earnings; however, in the nine months to Dec. 31, 1999, L&T has managed to improve operating margins to 16.5% from 6.9% in the previous period.

The proposal currently being considered by the board is to restructure the cement business, including transferring the business into a subsidiary, which could lead to a potential listing and/or partnerships. If implemented, this restructure will reduce L&T's exposure to the cyclical commodity industry, but will reduce the benefits of an integrated and diversified business profile. In addition, an initial public offering of L&T's information technology business is planned for 2001. The company also is assessing an entry into other information technology and communication services. The capital commitment to possible internet services and limited band width access are likely to be moderate relative to L&T's overall capital expenditure.

The company is expected to maintain its existing core business lines of construction, engineering and construction (E&C) projects, heavy engineering, and electrical switchgear.

Underpinning L&T's leading position in India's construction and engineering sectors is an established record of timely project completion within cost, quality, and time-frame parameters. L&T has managed turnkey projects and engineering fabrication for a range of applications, including transport infrastructure and housing construction industrial plants.