L&T plans to exit from Hyderabad Metro Rail project after FY2025-26

Hyderabad, India (Metro Rail Today): Construction giant Larsen & Toubro (L&T) is strategizing its exit from the Hyderabad Metro project after 2026, following a significant decline in ridership attributed to the Telangana government's initiative of providing free bus rides for women, revealed R Shankar Raman, the company's whole-time director, president and chief financial officer (CFO).

L&T currently holds a 90 percent stake in the metro project, with the remaining 10 percent owned by the state government. However, the daily passenger count has plummeted from its peak of 550,000 in November 2023 to 480,000 presently, raising concerns about the financial viability of the project.

During a media interview, Raman expressed apprehensions about the financial sustainability of the metro and disclosed the company's intention to explore monetization options for the asset post the fiscal year 2026 as part of its non-core business strategies.

The implementation of the free bus ride scheme by the Telangana government in December 2023 triggered a noticeable shift in commuter preferences, adversely impacting the metro's ridership. Raman highlighted a significant gender divide in public transport usage, with women gravitating towards buses despite no increase in their numbers, leading to a decline in metro ridership, particularly among men.

Furthermore, L&T intends to leverage the real estate assets associated with the metro for monetization. Despite holding a 65-year concession to operate the system and receiving a soft loan of ₹3,000 crore from the state government, L&T Hyderabad Metro Rail bears a substantial debt burden of ₹13,000 crore, compounded by a ₹2,000 crore loss incurred in recent years. The company aims to reduce its debt to ₹8,000 crore.

Earlier indications of a potential uptick in ridership, driven by stricter return-to-office mandates imposed by IT firms, have not materialized as expected. Raman acknowledged the importance of IT industry employees returning to office spaces to revitalize metro ridership, although the anticipated resurgence has yet to materialize.

In light of these challenges, L&T intends to reassess its divestment plans for 2024-25, prioritizing debt restructuring and initiatives aimed at boosting ridership in the Hyderabad Metro.

Having secured the Hyderabad Metro project in 2010 and completing it in 2020 at a total cost of ₹20,000 crore, L&T now faces the imperative task of navigating the evolving transportation landscape and ensuring the project's long-term sustainability.