Remember when our elders used to say ‘Think before you speak’ or that the popular proverb from the Bible, ‘Words cannot be taken back’? Because the repercussions and regret that follow are inevitable. Why are we reminding you of this? Because L&T is all over the news again. Didn’t you hear it? Fear not, let Corporate Soldiers break the news for you. The Indian Defence Ministry rejected L&T’s proposal for a ₹70,000 crore ($8.4 billion) tender to supply six submarines for the Indian Navy under Project 75 India. People are wondering whether it has something to do with SN Subrahmanyan’s controversial 90-hour workweek statement. However, the real reason for this rejection was the proposal’s failure to meet the Indian Navy’s requirements. Needless to say, this is a huge loss for L&T.
What Does it Mean For Larsen & Toubro?
Whenever there is any major construction, we all have seen those big guiding barriers with the logo of L&T. For us, the Indians, L&T, has always been a major player in Indian engineering and construction. Well-known for its diverse projects and the ability to win large contracts in various sectors, L&T is a name we all have heard. Though lately, this name has been trending for controversial reasons, first its CEO and Managing Director SN Subrahmanyan’s remarks over a 90-hour workweek and now, because of the lost bid for a large defence contract.
Although the specifics of the defence contract are private, reports indicate L&T recently lost a major bid. If we look at this contract, it was a large-scale naval or defence project and could be a key winner for L&T. This could also substantially increase their defence orders. But unfortunately, this isn’t the case anymore. Losing this contract is a major setback for L&T’s defence division and causes the concern about its competitiveness and future success, especially under its CEO, SN Subrahmanyan.
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The Lost Bid:
It is definitely a huge loss of ₹70,000 crore submarine contract, and for L&T it represents a significant setback. This rejection not only removes a substantial opportunity from the company’s grasp, but also raises critical questions about its competitive strategy and future prospects. But there could be more consequences for this lost bid. The impact will be on L&T’s various divisions, forcing a reassessment of its bidding process and a new emphasis on securing future contracts.
The pressure will surely be felt. Since there was a crucial gap between the company’s offering and the Navy’s specific stipulations, this will definitely force L&T to go over everything. For this project, L&T collaborated with Navantia of Spain to propose a submarine equipped with an Air Independent Propulsion (AIP) system. The Navy insisted upon a system that had been sea-proven, a demonstrable capability L&T could not provide. But, at last, the bid was unsuccessful.
What is the Project 75(I)?
Initiated in 1997, Project 75(I), is the Ministry of Defence’s ambitious plan to build six advanced diesel-electric submarines. This dream project will take the Indian Navy to new heights. But what is so peculiar about this project? With this project, the submarine will have an enhanced ability for much longer submerged operation which will be achieved through the advanced AIP systems. To support the initiative of ‘Make in India,’ Project 75(I) will promote India’s self-reliance by prioritizing domestic construction and defence technology.
Overview of the Project 75 (I):
| Aspect | Details |
| Objective of the project | 6 diesel-electric submarines with AIP systems(For extended water endurance) |
| Estimated Cost | Over ₹40,000 crore (approximately $4.6 billion) |
| Initiation of Project/Approval | 1997 |
| Expected Delivery Time | Mid of 2030 |
| Project’s Importance | Advancement and modernization of the Indian Navy,Promotes self-reliance in defence |
| Capabilities of Advanced Submarines | Anti-surface warfare, Land-attack missions, Enhanced stealth operations |
| Long-term Goal of Defence with This Project | To build 24 conventional submarines by 2030 |
Repercussions Will Follow:
This reminds us of Newton’s third law of motion, ‘For every action, there is an equal and opposite reaction.’ Simply stating that the fallout from this lost submarine bid will be extensive for L&T. The repercussions are set to impact both its financial health and its reputation. The magnitude of the lost contract creates immediate pressure to think about and strengthen its defence order book. Now L&T’s focus will be to restore investor confidence and rebuild its credibility as a leading player in the Indian defence sector. But what will be the repercussions we are talking about? Let’s explore!
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Revenue Projections:
The impact of this lost bid extends beyond the immediate loss of revenue. It will directly impact the company’s revenue projections and financial outlook. Also, it will affect its stock valuation and investor confidence.
Reassessment of the company’s bidding strategies & process:
This might force L&T to reassess its competitive strategy and re-evaluate its bidding process so it can identify areas for improvement in its defence operations.
Competitors will benefit and this mounts the pressure:
It could heighten competitive pressure as other domestic and international players become more aggressive in the Indian defence market.
Reputation at stake:
Losing a significant and huge bid like this can have reputational implications and will impact L&T’s credibility and standing in the industry.
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Who Were The Other Contenders?
Initially, when the bid was started, the competition was among the big players in the market and the shortlisted companies were ThyssenKrupp Marine Systems (Germany), Navantia (Spain), Rubin Design Bureau (Russia), Naval Group (France) and Daewoo Shipbuilding and Marine Engineering (South Korea). However, since L&T has lost the bid, Mazagon Dockyards Limited (MDL) remains the sole vendor in contention for this submarine project. MDL previously delivered 6 Scorpene-class submarines and is now also expected to receive orders for three additional submarines with support from the French Naval Group.
Need For Reassessment & Future For L&T:
With its CEO clenching headlines on the 90-hour workweek row, and the rejection of this ₹70,000 crore bid, things don’t seem smooth for L&T. Not only it will impact the company’s financial prospects but also raises questions about its future involvement in defence projects. Amid the rising regional tensions with China and Pakistan, the Indian government has been actively pursuing various submarine projects to modernize its naval capabilities. This bid rejection also is concerning for L&T as it diminishes its prospects for future involvement in critical defence projects. Also, it will cast a shadow over L&T’s competence to compete effectively in such important sector.
