SN Subrahmanyan, who takes charge as managing director and CEO of Larsen and Toubro (L&T) on Saturday, has his task cut out. While the $17-billion company has weathered many a storm, analysts point to several challenges in a sluggish economic environment. Execution has been slow due to project delays, private sector capex has been weak, and public sector capex spends too have been modest. However, the opportunity is enormous. India needs quality infrastructure whether in the form of highways, railways, urban infrastructure, defence or power. Few infrastructure companies have balance sheet strength to take on orders and execute large projects, giving L&T a sharp competitive edge.
Dharmesh Mehta, MD and CEO, Axis Capital, told FE, “India is at a cusp of change and the kind of growth needed in infrastructure to fuel that, who other than L&T is better placed to take that opportunity.” The order book size of L&T is Rs 2.61 lakh crore as of FY17-end, which makes it the largest infrastructure developer in the country.
In fact, analysts say that defence, transportation and smart cities will chart the company’s growth trajectory for the next 5-10 years. According to an analyst from an Indian brokerage covering L&T, the change at the helm does not alter the growth path that the company has charted out for itself, of which Subrahmanyan has also been an intrinsic part.
“At this juncture his (Subrahmanyan’s) focus is to help chart out plans for larger segments like defence and transportation, which will be the sunrise sectors in the coming years,” he said. AM Naik, the non-executive chairman of L&T, in his AGM speech last year had said that the company’s goal is to achieve a revenue of Rs 2 lakh crore by 2021 — without compromising on margins and achieving an order inflow in excess of Rs 2.5 lakh crore per annum.
For this, the company had identified select growth businesses in its portfolio, which included defence, IT, technology services, smart world and water management. Naik will continue as non-executive chairman of the company for a period of three years effective October 1, 2017. However, along with opportunities, the incumbent CEO and MD will also have to deal with challenges that are for the sector as a whole and therefore present themselves for L&T, and those that affect the company in particular.
According to Sandeep Zarbade, vice-president (research), Kotak Securities, sale of non-core businesses is one of them, which would result in efficient capital allocation. “There would be a requirement to take some bold decisions, sell assets and right size the businesses which are not core in nature. They have sold some but there are more which need to be churned and that will be one of the crucial decisions ahead of him (Subrahmanyan),” he said.
Subrahmanyan joined the construction business of L&T in 1984 as a project planning engineer after completing a degree in civil engineering and post-graduation in business management. After rising to the leadership positions, he has been at the helm of L&T’s large infrastructure projects and expansion of operations in international geographies. In 2011, Subrahmanyan was inducted into the L&T Board. He had also assumed apex-level responsibility for other businesses like LTI (erstwhile L&T Infotech), L&T Technology Services, Smart World & Communication and digital initiatives. He was also appointed chairman of L&T Metro Rail and L&T Shipbuilding.