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COMPANY INFORMATION BOARD OF DIRECTORS

A. M. Naik Chairman & Managing Director

J. P. Nayak D& President (Machinery & Industrial Products)

Y. M. Deosthalee D& Chief Financial Officer

K. Venkataramanan D& President(Engineering & Construction Projects)

R. N. Mukhija D& President(Electrical & Electronics)

K. V. Rangaswami D& President(Construction)

V. K. Magapu D& Senior Executive Vice President(IT & Technology

Services)

M. V. Kotwal D& Senior Executive Vice President(Heavy

Engineering)

S. Rajgopal NED

S. N. Talwar NED

M. M. Chitale NED

Thomas Mathew T. Nominee LIC

N. Mohan Raj Nominee LIC

Subodh Bhargava NED

Bhagyam Ramani (Mrs.) Nominee GIC

A. K. Jain Nominee UTI

COMPANY SECRETARY

N. Hariharan

REGISTERED OFFICE

L&T House, Ballard Estate, Mumbai 400 001

AUDITORS

M/s. Sharp & Tannan

SOLICITORS

M/s. Manilal Kher Ambalal & Co.

REGISTRAR & SHARE TRANSFER AGENTS

Sharepro Services (India) Private Limited

D - Whole-time Director

NED- Non Executive Director

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Directors Report

Business Performance:

1) The gross sales, other income and interest income for the financial year under

review were Rs.25,863 crore as against Rs.18,423 crore for the previous

financial year registering an increase of 40%.

2) The Profit before tax (after interest and depreciation charges) of Rs.3,155

crore and the Profit after tax of Rs.2,173 crore for the financial year under

review as against Rs.2,005 crore and Rs.1,403 crore respectively for the

previous financial year, improved by 57% and 55% respectively.

3) On May 14, 2008, the Company entered into a definitive agreement for sale of

RMC business to Lafarge Aggregates & Concrete India Private Limited for an

enterprise value of Rs.1,480 crore. The financial effect of this sale will be

given in the year 2008-2009, on conclusion of the transaction.

4) The company alloted the following during the year.

a) 15,00,901 equity shares under Employee Stock Option Schemes.

b) 35,55,741 underlying equity shares in respect of Global Depository

Receipts issued upon conversion of 1,146 Bonds (value JPY 11.46 bn) out

of JPY 11.57 billion Zero Coupon Foreign Currency Convertible Bonds

(due 2011) issued in January 2006.

c) 40 lakh Global Depository Shares (GDS) at USD 100 each representing an

equal number of equity shares of Rs. 2/- each.

5) During the year under review, the Company tied up foreign currency long

term loans aggregating to USD 390 million to finance ongoing capital

expenditure, investment in overseas subsidiaries and overseas acquisitions.

The loans have tenors of 5, 7 and 10 years.

6) The Company has repaid rupee loans of Rs. 27 crore during the year.

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Dividend:

The Directors recommend payment of final dividend of Rs.15 /- per equity share of

Rs.2 /- each, which together with the Interim Dividend of Rs.2 /- per equity share

declared on July 3, 2007, works out to Rs.17/- per equity share for the year 2007-08.

Responsibility Statement:

L&T brings healthcare within the reach of the underprivileged. A priority is mother-

and-child care. Extending the reach of these services, seven new centres were opened

in Mumbai during 2007-08. Countrywide, around two hundred health camps targeted

specific diseases and specific groups.

Around 50,000 trees were planted during the year under review. In rural areas, L&T

has helped with conservation methods such as tube wells and solar lighting.

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AUDITORS REPORT

1. The fixed assets of the Company are physically verified by the Management

according to a phased programme designed to cover all items over a period of

three financial years, which in our opinion, is reasonable having regard to the size

of the Company and the nature of its assets.

2. The inventory has been physically verified by the Management during the year. In

respect of inventory lying with third parties, these have substantially been

confirmed by them.

3. The Company has not granted or taken any loans, secured or unsecured, to

companies, firms or other parties listed in the Register maintained under Section

301 of The Companies Act, 1956, of India (the Act).

4. The Company has not accepted any deposits from the public within the meaning

of Sections 58A and 58AA of the Act and the rules framed there under.

5. According to the information and explanation given to us and the records of the

Company examined by us, in our opinion, the Company is generally regular in

depositing the undisputed statutory dues including provident fund, investor

education and protection fund, employees state insurance, income tax, sales tax,

wealth tax, customs duty, service tax, excise duty, cess and other material

statutory dues as applicable with the appropriate authorities in India.

6. The Company has no accumulated losses as at March 31, 2005 and it has not

incurred any cash losses during the financial year ended on that date or in the

immediately preceding financial year.

7. The company has not made any preferential allotment shares to parties and

companies. Also company has not raised any money by public issue or debenture

during the year.

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Management Discussion & Analysis Report

The company has produced consistently impressive financial performance in all its

parameters, namely, revenue growth, operating margins & resource utilization. The

revenues registered a robust growth of 41%. All the business segments have reported

smart increase in both revenues and profitability, despite continued input cost hikes

and a sharp appreciation of rupee vis-a-vis US Dollar.

Revenue from International business is around 16 % and they wish to take it past

25% in coming years. Major target markets are Middle East and china apart from

Europe and Canada.

The Engineering, Construction and Contracts Division (ECCD) has secured the

47th rank amongst all the Construction Companies across the globe. [Source:

Engineering News Record (ENR)].

Under the current Strategic Plan Project Lakshya 2010, the Company has

identified and implemented various strategic initiatives encompassing

development of product/technology capabilities, risk management, M&A & HR

functions of the Operating Divisions. Various operational excellence initiatives

undertaken by these businesses have helped not only in improving market reach

and reducing cost of operation but also in streamlining business processes.

During the year, the Company successfully acquired TAMCO Corporate

Holdings Malaysia, and its 3 international subsidiary companies, whose products

in the medium voltage (MV) switchgear segment are already accepted

worldwide. The acquisition will provide an ideal platform to pursue the

Companys domestic and international ambitions in the MV switchgear products.

The financing of mega and complex projects has emerged as one of the major

business opportunities. Realizing this potential, the Company has entered into

infrastructure project financing; the venture is expected to focus on mid to large

infrastructure projects with an annual target of Rs. 2000 crore disbursements.

A unique and complex project of 17 KM long conveyor system for Lafarge in

Bangladesh was completed during the year 2007-2008.the hydrocarbon Industry

continues present significant business opportunities. The National petroleum

policy emphasizes on boosting investment in the refinery sector. Large spending

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is planned in public and private sectors towards capacity enhancement, residue

up-gradation & fuel quality improvement projects. Huge investments are planned

in the upstream sector during the Eleventh Plan period (2007-2008 to 2011-

2012). Focus by the Government on development of marginal fields and

redevelopment of existing fields will also provide business prospects.

Significant plan outlay during the Eleventh Plan period and thrust on power

sector is expected to generate opportunities in this market. Emphasis on Ultra

Mega power projects, shift towards super critical technology, continuing reforms

and increased role of the private sector will drive this industry.

Verticalisation will help achieve the business plans, improve competitiveness and

execution strengths by articulating of focused organization structure with

dedicated resources and clear accountability for performance.

Technology Services Division comprising two business units, e-Engineering

Solutions (e-ES) and Embedded Systems (EmSyS), operates in the rapidly

changing engineering services outsourcing landscape.

e-ES and EmSys provides a range of IT enabled engineering services required in

the design and execution of turnkey projects. With the market likely to witness

explosive growth, both e-Engineering and EmSyS are working on integrating

their individual skill sets to provide its customers a broader spectrum of

capabilities from a common source.

EmSyS was among the first business units in the world to achieve CMMI Level 5

certification and has additionally adopted Six Sigma Processes to enhance the

value of its services to its customers.

e-Engineering business unit has also achieved CMMI Level 5 Certification.

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FINANCIAL REPORT OF LARSEN & TUBRO

Analysis of Profit and Loss Account

Income

Sales:The sales are the revenue generated by discharging of product and services to the end

user or the intermediate. The sales for year end march 31, 2008 is Rs. 24855.00 Cr

excluded excise duty Rs. 362.61 Cr whereas sales for year 2006-07 was Rs. 17567.00

Cri.e., a 41.49% positive change over last year.

Other Income:

The income generated from the other operations which is not the companys regular

business. Other income includes interest received on bank deposits, long terminvestments and others i.e., Rs.676.00 Cr.

Expenditure

Raw Material Consumed:

The consumption of raw material indicates the total net material consumed for the

production process. Consumption of raw material for the year 2008 is Rs.12314.39

Cr, i.e. an increase of 38.44% over 2007.

Manufacturing Expenses:

It includes aggregate of material costs and other directly attributable to conversion ofmaterial to finished products. Larsen & Toubro has various manufacturing expenses

which include power and fuel, wages and processing charges etc. In year 2008

manufacturing expenses were Rs.21979.35 Cr which is an increase of 45.32% over

last year.

Selling and Distribution Expenses:

The selling expenses are the expenses which the company has incurred to make the

sale of the product. It includes advertising expenses, cost of sample, carriage outward

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packaging etc. selling and distribution expenses have increased to Rs.325.63 Cr i.e. an

increase of 46.86% over last year.

Financial Expenses:

It includes expenses like interest on loan, bank charges, interest on capital and loss on

sale of fixed assets and long term investments. Financial charges have reduced in the

past one year it has reduced from Rs.158.44 Cr to Rs.203.11 Cr.

Administrative Expenses:

The administrative expenses are the expenses which company has incurred to run the

business smoothly. Here company has incurred the expenses Rent, Rate, fees and

taxes, Insurance etc. In 2004 administrative charges were Rs.1066.81 Cr which has

increased to Rs.1408.44 Cr in 2008, i.e., by 32%.

Depreciation:

Depreciation is the expense which is a non-cash expense. Depreciation is an expense

which is incurred on the regular use of machinery or any other component which is

there for a longer period of time and used in multiple production cycle. This

production is charged on the fixed assets and a particular rate of charging depreciation

is given under Income Tax Act and company has to charge the depreciation as per the

Income Tax Act while filling the return of Income Tax. Depreciation for this financial

year is Rs.404.69 Cr. whereas depreciation of 2007 was Rs.293.44 Cr.

APPROPRIATION OF FUNDS

Net Profit:

The net profit is the result of all the business operations. Net profit of Larsen &

Toubro for 2008 is Rs.2173.00 Cr. Interestingly it is significantly greater than that of

2007, profit for 2007 was Rs.1403.00 Cr. This is after deducting tax, depreciation and

deferred tax. After this, profit is ready for appropriation.

Dividend:

Interim dividend paid during the year is Rs. 56.83 Cr., the proposed final dividend is

Rs.438.49 Cr. Last year total dividend was Rs.368.25 Cr.

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Dividend Tax:

Larsen & Toubro paid dividend tax of Rs.76.26 Cr whereas last year Rs.53.34 Cr was

paid as dividend tax.

General Reserve:

The general reserve is created to face the future unforeseen contingencies of the

business. This reserve also gets its funds from the net profit as the Debenture

Redemption Reserve gets at the time of appropriation. Amount transferred to general

reserve has increased by 66.29% i.e., last year Rs.5711.00 Cr were transferred to

general reserve but this year the amount has been increased to Rs. 9497.00 Cr.

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ANALYSIS OF BALANCE SHEET

SOURCES OF FUNDS

Shareholders Fund:

The share capital is the contribution of the owners of the company towards the

operations of the company. This capital is called as share capital as the members get

the shares as per their contribution. Authorized share capital is of 162,50,00,000

shares whereas only 29,23,27,390 has been subscribed for.

Reserve and Surplus:

Reserve and surplus are the funds which the company owns by the operations in the

shape of profits. In reserve and surplus, off course only profits are not there but also

other items are there but they are only the part of profits which are divided in the

appropriation. Some times addition amount get from owners as share premium can

also be seen there. Larsen & Toubro has capital reserve of Rs.10.52 Cr. and share

premium account has a balance of Rs.4223.69 Cr. General Reserves after adjustment

of intangible asset and transfer to profit and loss account is Rs.5039.41 Cr.

Secured Loans:

Secured loans are the funds arranged by the company from outside by giving some

security as guarantee to those outsiders. Secured loans for 2008 are Rs.308.53 Cr in

form of bank loans. Secured loans were as high as Rs.245.40 Cr in 2007.

Unsecured Loans:

Unsecured loans have increased from Rs.1832.35 Cr to Rs.3275.46 Cr i.e., an increase

of 78.75% from 2007.

APPLICATION OF FUNDS

Fixed Assets:

Fixed Assets are the assets which are acquired by the company for a longer period of

time not for just one year. These assets are charged depreciation for the amount lost

on their usage. In other words depreciation is the amount charged for the usage of

fixed assets. Fixed assets have increased from Rs.80.65 Cr to Rs.92.01 Cr in 2008.

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ANALYSIS OF CASHFLOW STATEMENT

Cash Flow from Operating Activities:

The cash flow from operating activities takes into account cash generated by the

company on the basis of its day to day business activities such as buying, selling

receiving payments from clients and clearing dues to suppliers. It is important to note

that in case of Larsen & Toubro the cash generated from operating activities has

decreased from Rs. 2130.45 Cr in 2007 to Rs. 1945.24 Cr. The management needs to

look in this matter as it may lead to lower liquidity.

Cash Flow from Investing Activities:

The funds which the business receives utilizes both by buying goods and assets. Here

we basically consider those activities which include buying assets and other

investment options and profit generated from them if any. In Case of Larsen &

Toubro it is essential to note that both in 2007 and 2008 we see a cash outflow and

moreover it has increased by Rs. 3653.72 Cr this is a huge matter of concern for the

management.

Cash Flow from Financing Activities:Every company needs funds for its projects, regular working and carrying out its daily

activities. A company may use any method for generating funds, be it issue of shares

and debentures, acquiring loans from banks, etc. The activities mentioned above are

known as financing activities. L & T had an inflow of Rs. 3166.68 Cr in 2008 as

compared to an outflow of Rs. 31.05 Cr in 2007. This is marginally good for the

company.

On the whole we find that there is a net cash outflow of Rs. 129.97 Cr, which raises

concerns regarding the liquidity of the company. The management needs to weed out

this growing weakness.

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RATIO ANALYSIS & TREND ANALYSIS

Ratios are the comparison of the two comparable items of the Financial Statements.

These ratios are basically the values of the comparison which has a meaningful data.

There are many types of the ratios; we will divide the ratio analysis in three parts viz.,

ratios for shareholders, lenders and managers.

1) Important ratios for shareholders

2003-04 2004-05 2005-06 2006-07 2007-08

Earning/share 21.41 38.81 38.03 50.22 75.59

ROIC 13.52 14.17 16.05 20.15 20.58

Return onNetworth 20.66 21.05 21.88 26.84 28.21

Invested Capital

Turnover Ratio2.269 2.452 2.388 2.228 1.883

Dividend

Payout Ratio0.422 0.414 0.345 0.305 0.263

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It is evident from the graphs drawn above that the company is progressing very nicely

as earning per share and return on net worth are increasing. This is a positive sign for

shareholders. However, the companys capital turnover ratio is falling which can be a

matter of concern.

2) Important ratios for lenders.

2003-04 2004-05 2005-06 2006-07 2007-08

Gross Debt:

Equity ratio 0.49 0.56 0.32 0.36 0.38

Current ratio1.47 1.58 1.38 1.27 1.19

Debt to total

investedCapital Ratio

0.341 0.367 0.248 0.269 0.276

Acid Test

Ratio1.26 1.359 1.249 1.089 1.03

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From the above trend we analyze that the company is facing a problem for liquidity as

both current ratio and quick ratios are falling, lenders may take it as a negative sign

for lending money. However, the debt equity ratio is significantly low which is a very

positive sign for the company.

3) Important ratios for managers

2003-04 2004-05 2005-06 2006-07 2007-08

Asset

Turnover

Ratio1.089 1.12 1.128 1.019 0.925

Average

Collection

Period

126.54 110.86 119.25 114.36 108.16

Gross Profit

Ratio 21.65 19.73 20.78 22.94 23.03

Net Profit

Ratio5.57 7.54 6.87 7.99 8.74

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The company has a falling average collection period, which again is a matter

of concern.

Opportunities

The Indian construction sector has been growing at more than 12% p.a. in the

last four years, i.e. almost 1.5 times the countrys overall growth.

Out of the investments of USD 500 billion estimated under the Eleventh Five

Year Plan in the Infrastructure Construction business, the construction component is

expected to be around USD 250 275 billion. Presently, most of the core industries

are functioning at their peak capacity. New capacity creation in the major industriesviz; steel, cement, petrochemicals, etc. would benefit the construction industry.

The efforts of the Government in bridging the gap between demand and

supply for power cannot be fruitful unless the distribution of the same to the end users

is achieved. This provides an excellent opportunity for the Electrical &

Instrumentation and the Transmission Lines businesses for furthering the growth

prospects.

The Governments continued thrust on developing Roads in Public Private

Partnership (PPP) mode, significant private investment in Container Terminals,

development of green field ports expected along the coasts of Gujarat and

Maharashtra and development of Greenfield Shipyards and Metro Rail Projects assure

ample business opportunities for Transportation Infrastructure Sector.

The Indo-US Nuclear Treaty is expected to give a thrust to growth in the

nuclear business of the Division.

Huge investments are planned in the upstream sector during the Eleventh Plan

period (2007-2008 to 2011-2012). Focus by the Government on development of

marginal fields and redevelopment of existing fields will also provide business

prospects.

In the International business, Middle East is expected to be the focus area for

the Division. New refineries and petrochemical complexes are being planned in this

area. Similarly larger projects are also being implemented for exploration and

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production of Oil. The Division expects to benefit from the various initiatives taken in

this region to garner significant business in the hydrocarbon sector.

Defense Procurement Procedure (DPP) 06 has made it essential for overseas

suppliers to have value addition from within India for major defense contracts called

offsets. The offset stipulation will drive business opportunities in the defence sector in

the medium term. This would benefit L&T who is licensed to produce defence goods.

Initiative of the Government on distribution sector reform through APDRP

helps to create demand for electronics meter sales.

On international front, Gulf countries will continue to witness large-scale

infrastructure development that promises big opportunities for the Electrical Standard

Products, Electrical Systems & Equipment and Control & Automation businesses.

Demand for Hydraulic Excavators is likely to grow at 48% and Excavator

market (7 T to 60 T) is expected to grow to over 15,000 nos. thereby offering

increasing opportunities for Construction and Mining Business.

With the market likely to witness explosive growth, both e-Engineering and

EmSyS are working on integrating their individual skill sets to provide its customers a

broader spectrum of capabilities from a common source. This combination of skills is

likely to result in opportunities to help customers transition their product design from

pure mechanical projects to ones with significant embedded electronic content.

The GABA business added 8.5% to both sales and volume for the European

region

Threats

The threats to transportation sector involve forecasting of traffic volumes

complex legal and regulatory procedures, requiring intervention / clearance of

multiple authorities. Long gestation periods also continue to weigh down PPP

projects.

With the entry of banks in all forms of retail and wholesale lending operations

there exists very little scope by way of exclusive business segments for L&Ts

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INDUSTRY ANALYSIS

Colgate primarily draws revenue from its first business segment, which

consists of oral care, personal care, household surface care, and fabric care. For

efficiency, that industry will be of primary investigation herein. While oil price

increases, the Iraq war, the SARS outbreak in Asia, increased raw material costs, and

acute pricing pressures have adversely affected consumer products companies, they

have posted notable achievements industry-wide. Most companies in this industry saw

significant earnings per share growth, and average sales growth of 4.7% during 2003,

according to Standard and Poors. Industry wide efficiency improvements aiming to

increase margins were overall successful despite increased spending on marketing.Implementation of various efficiency enhancing initiatives and technologies such as

SAP business software, operating earnings increased by and average of 8.3% in 2003.

Companies in this industry have very little pricing power, due to the value

consciousness of shoppers, buying power large retailers, intense peer competition. As

a result, little price increase has been possible in recent years. Combined with higher

material costs, this has caused many firms to innovate and introduce new products to

attain the higher margins they pursue. Product innovation appears to be the primarydriver of sales growth in this industry. Standard and Poors suggests that large

retailers such as Wal-Mart will continue to retain significant leverage over the

producers of such goods, resulting in limited pricing increases. This may allow such

firms to pass along increased costs in the future. Further, the weak dollar bodes well

for the international companies that populate this industry. Many of the goods

consistent with this sector are constant over economic cycles. IT is expected that US

economic recovery and the advance of developing nations to continue to drive

industry wide market growth.