L&T said that with the commissioning of the power generation unit in record time of 24 months, the company has demonstrated its integrated execution capabilities. L&T said that, in September 2006, the company had successfully commissioned the first unit of a similar capacity at the same location. Work is also in its advanced stage for the third unit of similar capacity in which a gas turbine is expected to be synchronized soon. The complete unit is scheduled to be commissioned in the next few months. On completion of all three units, the national grid will benefit from a total capacity of 1,200 megawatts (MW) gas based power plant at a single location, L&T said in a statement.
L&T said, this project has been executed by the Gas Based Power Projects -- Strategic Business Unit of L&T Power, based in Baroda. L&T's scope included design, detailed engineering, supply, installation and commissioning of the complete power plant on a turnkey basis. The plant incorporates state-of-art advance class gas turbines from General Electric and high efficiency steam turbines from Alstom, L&T said in a statement.
Biz confidence hurt, facing risk of sluggish order: L&T
It has been long since Indian companies had hit the alarm button of a growth slowdown and now here it is. It is official that Indian economy is not growing but infact has contracted to a 28-month low of negative 5.1% in October. Criticising government’s inability to bring any policy action, AM Naik, CMD, L&T feels that policy measures could have boosted growth significantly.
In an interview to CNBC-TV18, Naik stressed that India must get the house in order and stop worrying about global cues. He is worried that GDP growth of more than 7% is unlikely.
Expressing concerns about the slowdown, he added that business confidence is significantly hurt while the power division has been worst hit. Unhappy with government’s inaction, Naik emphasized that coal block issues could have been resolved in weeks.
The impending risk of sluggish orderflow is looming large as growth will be hurt if global orders don’t pick up. The overhang will be felt in FY13 -14 revenues, he pointed out. “FY13 will be very challenging focussing on export markets. Orderflow growth will be at best 0-5% in FY12,” Naik added.
Below is an edited transcript of his interview with Udayan Mukherjee. Also watch the accompanying video.
Q: We have seen some very bad IIP numbers, but how bad is the situation on the ground?
A: It has been bad. I have been expecting this for more than a year because the capital goods spending or project spending is the first indicator of how the economy is going to behave in future. So I have been always saying that I don’t think the growth will be more than 7%.
The worst can come next year because I don’t see too many things in the pipeline; there are many policy decisions still not being taken. I have been talking about liberalization of defence which can create hundreds of thousands of jobs, but it is still being imported. For that matter, it is given away to very non-performing public sectors, and the offset has been diluted. Even power equipments are being imported due to which the industry itself is in disarray.
So there are many things for which we are not dependent on global economy or what is happening in Europe. But we have to put our own house in order first and it should be immediately tackled so that we can see some recovery during the second half of next year, at least in capital goods. And if the capital goods doesn’t grow two years down the road, it is going to have an effect on auto, consumer goods and so on and so forth.
Q: GDP growth aside, why has the investment cycle stalled so badly over the last few quarters? What would you say is the real problem for such a weak investment cycle which is weakening with every passing month too?
A: The Reserve Bank of India has increased interest rates 13 times and banks have passed it forward, which makes projects expensive. Many of them are not viable at these interest rates.
If you see the western world, they have brought down interest rates to spur the economy to 1-2% maximum. How can you have a growth if you have more than 11-12% of the interest? In an already high cost situation, this only adds fuel to fire. The inflation is already high, so there is hardly any positive that one can see for investing at this point in time.
Q: When you speak about policy inaction, and that also being a big part of the problem, what kind of policy are you alluding from the government which has led to some kind of freezing up of the investment cycle?
A: What I have been saying is on the defence. For example, instead of depending on the private sector for investment and acquisition of defence equipments, more than 80-90% is being imported. Whatever is being made here is done by the public sector, which doesn’t perform. Deliveries extend by more than four-five years and cost overruns are huge, but still the private sector won’t be allowed.
This is something which is in the government’s hand; it has been sitting there for last six years. Defence Ratna and so on could be implemented to make sure that future defence equipments are made in country with minimum knowhow that is required for abroad and the industry will rise to the occasion. This has no concern with the investment from private sector; it’s a policy decision which is pending for five-six years.
When it comes to other industries like steel, cement and commodities, they are all capital intensive and if they don’t see economic growth coming, obviously they are going to slowdown their own investment. That’s what has happened, whether it is steel or aluminium or anyone else. The other thing is auto; if you don’t have the purchasing power improvement in larger section of the society, obviously it will affect the consumer durables, the autos and the other consumer products.
Q: Which of the businesses or verticals that you work in L&T seem the worst affected between power, hydrocarbons, metals etc. Where are you seeing the greatest amount of sluggishness and delay in execution or decision-making?
A: One is power sector, because the industry itself is facing problems on coal linkages. The recent hope in farmers is that they will get 5-6 times more for the land, due to which land acquisition has become very difficult. There are also problems with water connection. Proper power purchase agreements are not signed, and those which are signed are not paid by the electricity board because they are giving away power to most of the sections of the people for almost free. So all of this needs to be corrected if you want investment, because the demand is there. With 1.2 billion people, there is demand for almost anything.
Many of the coal blocks are not allotted for two years; we hear it will be done next month, but it gets delayed again. These are things which can be set within a matter of weeks, but has been pending for years. When you look at for what trickles in for the power industry, most of it gets imported from China because of that 30% indirect subsidy on account of managed currency. There also is the indirect subsidy of 10-12% and on top of that we have Indian taxes of 11-12%. So now you have a gap of 54-55%, due to which Indian power equipment manufacturers do not have work. I think these are the serious problems in power industry.
Cement has slowed down, but I won’t say as much as power. Steel also has slowed down, but those who have committed to the funding are still going on. It is the new funding, the new projects I don’t see. Nobody has stopped the work which is going on at this stage, but the question is if there new projects in pipeline. With the current political environment and the kind of situation you see everyday, very few people will think about going ahead and making a big investment till they see political stability. So political stability plays a big role and currently that is not there.
Q: You had earlier cut down your order inflow guidance to 5% in FY12. With the way things are going, do you think you can get any growth in FY13 on order inflow?
A: Next year it is going to be very challenging, but we are doing our level best to see what we can do outside India We are putting all our efforts in that direction, and should that materialise and mature which normally takes a long time, I think we will have second half where we will begin to make up from outside India rather than from within India.the Indian prospects are not going to be that good and
I hope we succeed in what we are trying to do outside, we did about 1.5 billion this year from outside India and I think we want to take it to 2.5 billion next year and if that happens we will have just about that 5% growth otherwise it will be zero growth or negative but we are hoping that we will make some success outside India.
Q: You did concede that it takes a lot of time and effort to convert those global orders; do you think there is 50% chance that you are staring at flat to negative order inflow growth in FY13?
A: I would say its not 50%, but 25-30% that growth could be flat and hardly 5-10% chance that it could be negative. 50-60% chances are that we will recover from outside India because of the amount of investment we have made for the last one year. We have been opening up new offices for hydrocarbons, and almost all companies qualify L&T up to USD 1 billion projects. We have also opened up many gates for building infrastructure outside India and Gulf, and I only hope that we will bring about some relief.
About two-three years ago, people used to say that one L&T is not enough in India and you need four- ten. Today, the same L&T don’t have enough work, so what must be the condition of others. The sales are not going to be impacted because of the backlog, but that will have tailing effect on FY13-14.
Q: Do you think the competitive intensity, especially in a difficult time, will reach such proportions that even margins will be under pressure in FY13 in a difficult order inflow environment?
A: The point is it’s a normal situation where if there are not enough orders and if many companies are chasing the same orders, obviously the pressure on margin comes. We are now putting all our efforts to do cost cutting to a point where the impact will be minimal, but its only natural that the pressure will come on margin. But that is making all of us believe that we will have to make good by drastic cost reduction. So lots of economic measures in L&T are currently on the way to make sure that the impact is minimal.
Q: You would be aware that the government has circulated the draft note for the duty of imports on power equipment and what is being proposed is 14% but 5% import duty, 5% special additional duty and 4% countervailing. This is at a slight departure to what the Maira Committee had recommended. Are you okay with this format or this formula?
A: Not really because it doesn’t help indigenous power producers because the countervailing duty does not have any moderating opportunity, so it’s an extra cost. Also, it does not offset our taxes which were considered to be 11%. So 10+4 is what was recommended and that is how it should be done.
Q: So 5+5+4 does not make you competitive?
A: It’s not a question of competitive; it’s a question of whether it offsets the tax burden and the answer to that is no. 5+4 is 9 and what we need is 14. The CVD and excise is anyway additional burden on the producer and we as well will pass on to them. So that 5% CVD and excise duty should have really been 10% on import duty. I don’t know what they get out of changing this. We have been resisting this as well as the power producers have been resisting it.
Q: In the next three quarters, do you expect minimal order inflow and are you confident of even reaching the 5% order inflow guidance if the Q4 is very tough this year?
A: We have quite a few projects from infrastructure right now in pipeline, both within India and elsewhere and we are working hard to make sure that happens and if that did then we should be at least not negative. We will be somewhere between same or 5%.
Q: Zero to 5%?
A: Yes.
--
CA. Rajesh Desai
In a CNBC-TV18 exclusive, AM Naik says that the global economy is in a challenging enviornment and that L&T is unlikely to see 15% order-book growth.
“If you want to keep up with the growth momentum of 15-20%, you need to have your order book also grow by 15%,” he reasons. “Unfortunately, we have this year, a situation where such a thing is not happening.”
With the way the current year has panned out, Naik is skeptical about performance in FY13 too. “At this point, it appears to be even more challenging, how do we get over it and still really find our way into coming back into growth trajectory,” he says.
If you look at L&T, in the core sectors, infrastructure, the strategic sectors, whether it is defence, nuclear or aerospace, all are under pressure have problems that need to be dealt with.
“We are all going through a very challenging time and in last several decades, hardly has there been a situation where the global economy is in bad shape and the European crisis happened at the same time,” Naik points out.
There is now a restriction of code of conduct on account of the upcoming elections. However, according to Naik, once the five state elections get over, growth could be better. Meanwhile, it is going to be business as usual. “I sincerely hope that 2012 emerges better than what we all felt in the last six months that 2012 will really even further the slowdown,” he says.Shares in Larsen & Toubro gain 3.1%, after earlier gaining as much as 4.3%, after Japan's Kyodo News quotes a Mitsubishi Heavy Industries Ltd. executive expressing interest on Monday in acquiring a stake in L&T Shipbuilding "within a few years."
Mitsubishi Heavy currently provides L&T Shipbuilding with technological assistance, ranging from design drawings to quality control, under a tie-up agreement signed by the two companies in December.
However, L&T says no discussion has taken place on a stake sale.
"So far we have no discussions on this at all," said .V. Kotwal, President of L&T Heavy Engineering, tells Reuters. "But if in future such a situation arises, definitely we will be looking at it on merit," he added, referring to a stake sale. "Right now there is no such agreement or discussion."
Conference Calls reminder - Larsen & Toubro Limited at 04:00 PM on 22 Oct. . |
Call numbers 022 3065 0058 |
MUMBAI | Mon Oct 22, 2012 2:11pm IST
(Reuters) - Larsen & Toubro(LART.NS), India's top construction and engineering company, beat estimates with a 42.4 percent rise in net profit for the July-Sept quarter, the company said on Monday, helped by a one-time gain and higher revenue booking.
The Mumbai-based engineering conglomerate said net profit rose to 11.37 billion rupees during the second quarter of the fiscal year from 7.98 billion rupees a year earlier. Excluding a one-time gain during the quarter, L&T reported a net profit of 9.15 billion rupees.
Market expected a profit of 8.76 billion rupees, according to Thomson Reuters I/B/E/S.
Sales rose 17.3 percent to 131.95 billion rupees.
(Writing by Henry Foy; Editing by G.Ram Mohan)
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Karishma Suvarna
L&T during trading hours today, 8 March 2013, said that its strategic business unit viz. L&T Integrated Engineering Services (L&T IES) recently inaugurated its offshore development centre (ODC) for Calsonic Kansei (CK) at Chennai. This partnership initiative called Calsonic Kansei Engineering Centre India-L&T (CECI-L&T) will extend CK's presence in India by replicating their engineering function to support project development, L&T said in a statement. Over the initial phase of five years, CECI-L&T will focus on expansion and optimisation of activities in this facility.
L&T IES' partnership with CK is an enablement of business opportunity in the southern capital of India, giving an immediate prospect for a geographical uplift, L&T said. This strategic initiative will focus closely to support CK's Indian customers. L&T IES will facilitate the ODC with test labs and advance functional areas over the period of time. L&T IES' bilingual engineers are the mainstay feature of this project, L&T said. The progress made in a short span of time has been impressive to establish core function teams at CECI-L&T, including design and analysis, material research, supplier localization and global process standardization, L&T said in a statement.
L&T after trading hours on Thursday, 7 March 2013, said that the company as a licensee of CMI Energy, Belgium, has signed an agreement with CMI Energy, Belgium for extension of L&T's license territory to manufacture and supply small heat recovery steam generators (HRSGs) installed behind gas turbines below 80 megawatts (MW) to South East Asia and the Middle East. Under this agreement, L&T will have the exclusive rights to apply CMI technology in these markets for manufacturing and supplying single wide HRSGs installed behind gas turbines below 80 MW. L&T and CMI Energy will jointly develop/improve the existing CMI design to suit the client requirements in the extended territory. This will allow CMI and L&T to improve their competitiveness in the regions, L&T said.
HRSGs are used widely in combined cycle power plants and cogeneration applications in process industry. Over the past decade, the market for small HRSGs represents 24% share in terms of number of units sold worldwide, L&T said. This market is poised to grow by 3.5% per year over the next decade, L&T said. CMI Energy and L&T intend to be the key players in this market by attracting a minimum 10% market share, L&T said in a statement.
Also Read: Invest in L&T for long term: Doctor
In an exclusive interview to CNBC-TV18, Shankar Raman says, staying optimistic was the only key to survive in this difficult business environment. "We had to keep our options open for any strategies that we were to pursue as a company and always have a plan B because you are not very sure about plan A. The uncertainty taught us couple of things, it taught us how to manage volatility, how to remain certain in an uncertain environment," he adds.
Below is the verbatim transcript of Shankar Raman's interview on CNBC-TV18
Q: It has been a very difficult year, what has stood by you for the last one year that has helped you overcome all the economic and financial challenges that you had to deal with?
A: We had to remain
optimistic. The biggest challenge was always to look at the cup as half
full because we went through situations where it was difficult to be
very decisive about our moves. We had to keep our options open for any
strategies that we were to pursue as a company and always have a plan B
because you are not very sure about plan A.
The uncertainty
taught us couple of things, it taught us how to manage volatility, how
to remain certain in an uncertain environment. This means we had to pull
levers which are within our control and try to reduce the risk element
there and hope and pray that something catastrophic does not occur.
Q: What is your outlook for this new fiscal that we are about to enter? Do you see the prospects for the Indian economy improve and respond to this question while keeping the Budget in mind given what the Finance Minister do as an attempt to bring fiscal deficit under some control?
A: There were a lot of announcements about what needs to be done. The biggest challenge for all of us in the system is going to convert the sentence into actionable points. The solution lies beyond the Budget document and the entire bureaucracy and the policy framework has to get facilitative.
Q: After the cumulative effort of the government (which they keep touting), like Sachin Pilot, Corporate Affairs Minister talk about the Cabinet Committee on Investment (CCI), Finance Minister talk about the fiscal deficit, are you seeing a difference on ground in terms of reviving several big projects that were stuck?
A: There is a movement forward but whether it is adequate, I am not yet sure. However, I do see some anxiety in the minds of people to push ahead and convert the intent into action. There have been some clearances that have been announced. We have also seen National Highways Authority of India (NHAI) making some conciliatory moves in terms of resolution to stuck projects.
Larsen & Toubro (L&T) subsidiary L&T Construction has secured new orders worth Rs 3057 crore across various business segments in June 2013. The company’s Building and Factories Business has secured orders worth Rs 1808 crore for the construction of an office space, residential building and a hospital from customers across the country.
The Water and Renewable Energy Business has bagged orders worth Rs 628 crore. A major order is from the Water Resource Department, Jharkhand for construction of the Kharkai barrage with gates and allied works including civil, mechanical, and electrical systems. Another turnkey order is from West Bengal Power Development Corporation Limited for supply of equipment, material, erection and services for plant water systems of the Sagardighi Thermal Power extension project units 3 Et 4 (2x500MW). The Company also received orders for various utility development works at Gurgaon from a private developer, including an additional order on operating projects.
In the Power Transmission and Distribution Business, orders worth Rs 442 crore have been received from the Delhi Metro Rail Corporation for design verification, detailed engineering, manufacture, supply, installation, testing and commissioning of electrical and mechanical system including fire and hydraulic system for underground stations of Delhi Mass Rapid Transport System project phase-3. Additional orders have also been received in domestic and international markets of ongoing projects.
New orders worth Rs 179 crore have been secured in Heavy Civil infrastructure and Metallurgical and Material Handling Businesses from various ongoing projects
Larsen & Toubro's (L&T) subsidiary L&T Construction’s Heavy Civil Infrastructure Business has secured an order worth $1403 million from the ArRiyadh Development Authority, Kingdom of Saudi Arabia for the design, construction and commissioning of a metro project in Riyadh, Saudi Arabia.
The company has secured the order as a joint venture partner of ArRiyadh New Mobility Consortium. The total value of order is $5941.93 million. The consortium comprises Larsen Et Toubro, Ansaldo STS, Italy, Bombardier Transportation, UK, Impregito S.p.A, Italy and Nesma Et Partners- Saudi Arabia.
The project is to be implemented during a period of four years, which will be preceded by eight months to prepare the detailed designs and to carry out the enabling works, the coordination for utilities diversion and the site preparation works, and followed by months for system demonstration, trial runs and project handing over. The scope involves design, construction and commissioning of Line 3 (41 km of Driverless Train Operation) to carry approximately 5000 passengers per hour per direction.
The contract includes construction of bridges, tunnels, elevated a underground stations, depots, roads, systems for CCTV and public announcements, SCADA with allied systems, etc. This project would be the first of its kind in the Kingdom.
The rail systems will be undertaken by AnsaLdo STS and rolling stock by Bombardier Transportation. The entire infrastructure facilities together with electromechanical and plumbing systems will be executed by the integrated joint venture comprising AT, Innpregilo and Nesma.
The Consortium’s design engineering will be by Hyder an Idom and the Project Management will be done by Worley Parsons. This order was won against stiff global competition. It aligns well with L&T’s expansion plans in the international arena.
L&T announced that the water & renewable energy business of L&T Construction, a leading player in the water infrastructure and renewable energy sectors in India, has secured new orders worth Rs 1141 crore in August 2013 in various business segments.
The water supply & distribution business, secured an order from the Public Health Engineering Department, Rajasthan for an integrated drinking water supply project linking towns and villages in Rajasthan. The scope includes supply and laying of transmission pipelines, construction of clear water reservoirs and pumping stations.
Another turnkey order was received from the Public Health Engineering Department, West Bengal for the design, construction and commissioning of a 52 millions of gallons per day (MGD) water treatment plant, the company said in a statement.
The company also strengthened its position in Tamil Nadu by securing a water supply project for Cuddalore Municipality from the Tamil Nadu Water Supply & Drainage Board, the statement added.
In the waste water business, orders have been secured from Delhi Jal Board for the supply and laying of internal and peripheral sewer lines in various parts of Delhi.
The industrial water systems business has received a turnkey engineering, procurement & construction (EPC) order from an infrastructure provider for constructing plant water systems for an upcoming project near Raichur, Karnataka, the statement said.
The water & renewable energy business caters to turnkey infrastructure projects including water supply & distribution, desalination plants, waste water networks, water & waste water treatment plants, industrial water systems and lift irrigation systems. In the field of renewable energy, the business provides best-in-class EPC services for projects on photovoltaic and concentrated solar power plants, wind power plants, micro-grid systems, smart-grid systems and integrated security solutions. The business is playing an important role in creating a water-surplus, energy-secure and green future.
t L&T surged 3.54%. The company after market hours on Friday, 18 October 2013, said its recurring profit after tax rose 7% to Rs 978 crore on 10% growth in gross revenue at Rs 14648 crore in Q2 September 2013 over Q2 September 2012. The company attributed top line growth to pick-up in execution of various jobs.
L&T said that the upward trend in order inflow was sustained in the second consecutive quarter of the year. Order inflow rose 27% to Rs 26533 crore in Q2 September 2013 over Q2 September 2012. L&T said that its order book at Rs 1.76 lakh crore as on 30 September 2013, increased 11% on year-on-year basis. International order book constituted 15% of the total order book.
L&T said that the macro-economic environment continues to remain weak and uncertain on account of the twin deficits, tight liquidity, persistent inflation and heightened volatility in the financial markets. Investment climate in the economy is yet to show sign of recovery. Deferral of new projects and delayed decision making/execution features the weak performance of the core sector this far, L&T said. The recent government measures such as improved allocation of resources to kick-start the stalled projects are, however, a welcome move to improve the investment sentiment, L&T said.
The company said its strategy of business development in select international markets has started yielding results as is evident from the increased share of international business. The company continues to focus on emerging prospects in the Middle East and other select international markets as part of its twin strategy to hedge against domestic slowdown and attain global competitiveness, L&T said in a statement. With its growing order book, increased international presence, and improved competiveness, the company is hopeful of meeting its growth aspirations in the near and medium term, L&T said.
View from Sharekhan
Larsen & Toubro
Recommendation: Buy
Price target: Rs1,165
Current market price: Rs1,067
Surge in overseas business and subsidiaries add value
Key points
Order inflow going strong; international opportunity shinning in: Larsen & Toubro (L&T) has shown an excellent track record of order inflows even in the current difficult time. The average quarterly order inflow run rate has stepped up consistently in the last two years; from Rs17,000-18,000 crore in FY2012 to Rs25,000-26,000 crore in H1FY2014. Amidst all this, the share of international order has gone up remarkably in the last three years, from 6-7% in FY2011 to 13-14% in H1FY2014. We believe that the "going international" strategy is paying off and the international order is likely to grow further. Further the upcoming mega events in the Middle East and North Africa (MENA) region (Dubai Expo 2020 and FIFA World Cup in 2022 in Qatar) could provide a significant opportunity for L&T as well. According to various industry sources, infrastructure investment inflow could be around $7-8 billion for Dubai Expo 2020 and $140 billion in Qatar over the next five years. L&T already has a meaningful presence in this region with 15% of the total order book coming from this region.
Finding channels of funds for IDPL; trigger for RoE improvement: As an attempt to improve its return on equity (RoE) in the next three to four years, L&T is looking for equity investors in its infrastructure development arm, Infrastructure Development Projects Ltd (IDPL). In this regard, the company is looking at three options: (1) fresh issue to sovereign funds or pension funds; (2) overseas listing of road projects in a business trust model; and (3) monetisation of assets in Dhamra Port and Hyderabad Metro (18.5 million square feet (sq ft) of built-up space is available for commercial exploitation). The company has identified six operational road projects which could be clubbed under a business trust and be listed in the overseas market. Recently, the Expert Advisory Committee (EAC) of the Union Ministry of Environment and Forests (MoEF) has recommended environmental clearance for Dhamra Port's second phase expansion, where the company is looking to sell stake. Recently, IDPL bagged a road project in Odisha on public-private partnership (PPP) model which could generate an internal rate of return (IRR) of 18-20%.
Introduced FY2016 estimates; maintained Buy with a revised price target of Rs1,165: Since our management meeting note (released on September 25, 2013), the stock has moved up by 28%. We maintain our view that L&T would continue to be the most preferred stock within the infrastructure space due to advantages like the size of the company, its delivery track record and its diversified presence. Hence, we retain our positive stance on the stock and roll over our target price/earnings multiple to the average of FY2015 and FY2016 estimates for the stand-alone entity. Further, we feel an improving outlook for its technology subsidiary (L&T Infotech) and the expectation of a banking licence for its financial subsidiary (L&T Financial Holdings) are likely to add to its consolidated valuation. Consequently, we arrive at a revised price target of Rs1,165 (based on sum-of-the-parts [SoTP] valuation method). Despite the recent run-up, we retain our Buy rating on the stock since it still trades close to a one standard deviation (on the negative side); hence it leaves scope for re-rating of multiples in line with its historical mean premium over the Sensex.
Interview with Chairman, Larsen & Toubro
Larsen & Toubro Chairman A M Naik wears the Indian tri-colour and his company’s logo on his jacket because, he says, he is as passionate about protecting India’s manufacturing sector from the onslaught of Chinese imports as he is about the future of L&T after he retires in 2017. In an interview with Shyamal Majumdar & Malini Bhupta, Naik talks about his succession plan, which involves a distributed leadership model and his strategy for a leaner L&T, where the structure of half of the businesses will be “simplified”. Edited excerpts:
Are you seeing any green shoots that the government keeps talking about?
I don’t think anything will happen till a stable government comes to power.
How do you rate the UPA government’s performance over 10 years?
The figures speak for themselves. Manufacturing growth, for the third time after Independence, is in the negative territory. Manufacturing accounted for 17 per cent of GDP a couple of years ago but is now down to 13 per cent. The two sectors that could have saved the day — infrastructure and manufacturing — are in a mess. Infrastructure projects worth Rs 8.75 lakh crore and investments to the tune of Rs 2.5 lakh crore are stuck. Today, foreign companies don’t want to invest in India.
Where has India gone wrong?
We largely export commodities like cotton, copper, organic chemicals, plastic, salt, sulphur, iron ore, stones and other raw materials, which constitute our top 10 exports. Our imports are boilers, turbines, electrical equipment, nuclear inter-boiler and project goods. If these equipment were manufactured in India, tens of thousands of jobs would have been created. For every billion dollars in trade deficit, 50,000 jobs are lost. Every other country is protecting its interests, but we seem to be an exception.
What about L&T’s huge debt, especially IDPL; do you have a plan to reduce it?
Our debt is Rs 62,000 crore. Of this, Rs 28,000 crore is in L&T Finance, which is on its own. It is proportionately coming to us because it is a subsidiary. L&T’s debt is Rs 8,000 crore; Rs 25,000 crore is in IDPL. This is my other priority, as I want to make the company asset-light and bring down debt by Rs 10,000 crore in three years’ time. At the consolidated level, our debt should be less than Rs 30,000 crore. Our net worth is Rs 40,000 crore. All the projects are non-recourse but still, as a parent company, we are worried and need to lighten it.
Getting talent into infra companies has bothered you for quite some time.
Yes, nobody wants to join an infrastructure company. We are facing an issue at all levels. Since L&T is very diversified, it is a recruitment haven for others but we cannot get people from other sectors to work in the infra sector.
That brings us to the succession issue at L&T. Do you have a plan in place, considering you are to retire in 2017?
It is a challenging situation. For example, we have been searching for a leader for the hydrocarbon business for quite some time. Internally, we don’t have an inventory of leaders. Though I started building the pipeline 10 years ago, attrition at the middle level is high, as multinationals are hiring due to a boom in the energy business. Today, a CEO gets $4-5 million in a year in the hydrocarbon sector. Also, I won’t get best talent globally, as they have reservations about working for an Indian company. And, live in India, where quality of life is an issue. So, we have decided to move our business headquarters to Dubai. We have found an Italian who will take over one part of the hydrocarbon business. He will look after upstream to begin with.
Are you facing the same issue across verticals?
I don’t run one company only. There are 21 companies within L&T and I need to address this question for all of those. I have to create 21 organisations, hire 21 CEOs and build 21 international organisations.
What is the road ahead?
I have appointed two directors (S N Subrahmanyan, who heads the engineering and construction projects division, and Chief Financial Officer R Shankar Raman) who are just over 50 and have an innings of 12-15 years.
Will L&T have an executive chairman after you?
I don’t know if there will be an executive or non-executive chairman after me. I am almost like the founder of the company and will finish 50 years in March 2015. We are not working because we want to hang around. Nobody (at the senior level) is working here for salary. I have three senior people retiring this year. So, succession is not just about replacing one person.
I am personally mentoring 19 people today. I need only two executive assistants, but I have 13. I am training people who may be relevant only 10-12 years later.
Do you think everyone is making a big deal about your retirement and L&T’s succession?
I am going to be 75 in September 2017 and will not continue because I don’t have the energy; you need a younger person. But ask me this a year before I turn 75. If we set up a strong management structure, there will be no need for me to continue. I don’t want people to say I did not leave behind a proper succession plan.
Some senior people are retiring this year. Who will replace them?
I have a plan on who will take over which piece of L&T in 2015 and 2016. Somebody will also emerge as CEO a year before I retire. That will take care of 70 per cent of L&T but the balance 30 per cent needs priority.
What will L&T look like in a few years and who will replace you?
The company needs to be simplified and some businesses need to be sold; the others will have their own CEOs. L&T has to act like a shareholder now and not act like management. At L&T Finance, for example, I take interest only from a strategic point of view. That’s the model I would like to follow for other businesses, too. Who will replace me? I have no idea and the board and the nominations committee will take a view on this. At L&T, 21 companies are merged into one. Like other diversified conglomerates, there will be many CEOs in the times to come.
Will the new CEO be an internal candidate?
I cannot say that. If we find a superlative person from outside, we will see or will select an internal candidate. There may be a chairman who manages all the 21 companies but he may be a non-executive chairman. Fifty per cent of business will remain as those are, but the rest will be simplified.
Do you have a committee to identify the CEO?
We have 21 search firms working with us.
What is your prescription to revive manufacturing in India?
I have suggested 25 per cent safeguard duty on all imports from China till they become a market economy. Second, we must review our free trade agreements. The third is to rationalise taxes for export-oriented manufacturing. Fourth, exports have to be incentivised. Fifth, port and logistics infrastructure needs to be improved.