"Over the next few months we will be studying several options. We have to also see whether, from the tax angle, it makes sense to run cement in a separate company", said Naik in an exclusive interview to The Financial Express, his first after taking charge. Naik emphasised that the company was taking a fresh look at whether L&T would derive greater shareholder value by separating the cement business or retaining it within. "Cement versus engineering is an exercise that will continue to go on for a while at L&T. There is no doubt that we can have a greater focus if these are run as separate businesses. But no hard and fast decisions can be taken right now," he said.

Naik outlined threebasic ideas for implementation during his term as L&T's helmsman. At the core, all business decisions would have to be driven by the goal of shareholder value. Following from this, the company will look only at projects in businesses that deliver a certain minimum return on capital. And three, if greater value can be generated by a business being outside L&T due to technology constraints or possibilities of growing markets abroad, these businesses would be spun off into joint ventures.

The following are excerpts from the interview:

Q: How do you see yourself continuing from where your predecessor left off?
A: L&T is a company that was founded by professionals 60 years ago. Since then, it has been in the hands of highly committed people who took care to preserve its traditions and culture and carry it from strength to strength. SD Kulkarni, my immediate predecessor, has done very well in enhancing these values further. L&T, you must remember, is different from other companies in that itsemployees feel as if they are the creators of this institution. People stay here because they simply love the place and this focus has been put in place by all its CEOs. I would do the same and and spread this idea of enhancing the value of the company.

Q: What would your medium term gameplan be? Have you set yourself topline and bottomline targets?
A: I am clear that by 2005, we want to be a Rs 25,000 crore company. I am going to go all out with my team and see that this target is achieved.

Q: Do you think that the strategy of entering into joint ventures makes sense?
A: Unless there is very good value addition (by going for a JV), L&T should retain its businesses within. In construction equipment, we knew that technology sourcing was going to be difficult and hence decided to spin it off as a separate joint venture with Komatsu of Japan. An encore is expected for the construction equipment business at Pithampur (Madhya Pradesh) with Case Corporation of the US.

Let me elaborate onwhen a tieup makes sense. Take a case of a huge multinational wanting to get a foothold in our switchgear business and gives a deal that is difficult to turn down. In that case, I would think about it but would first ensure that it does not affect shareholder value. There should be a very good reason to get into a joint venture -- profitability for instance.

We would look for more technology tieups in our E&C (equipment and construction) business which means that there will be alliances for each sector we work in, right from hydrocarbons, where we already have Chiyoda of Japan, to petrochemicals, refining, etc. More industrial sectors will call for more tieps.

Q: What about the cement business which is dragging you down now?
A: We have given no final thought to this and this is constantly being reviewed by the board. If we separate cement, it could have its uses in that the real value of our engineering business will be brought to light. Today, it is grossly underrated where the PE multiple ismerely nine when it should actually be 20. Yet, this does not mean that snap decisions should be taken on cement. The main message which I want to emphasise is return on capital employed (ROCE). For instance, even if we don't attain our goal of Rs 25,000 crore turnover by 2005, and go up to say Rs 22,000 crore, the key would still be ROCE. Maximising shareholder value will be the issue.

Cement versus engineering is an exercise that will continue to go on for a while at L&T. There is no doubt that we can have a greater focus if these are separate businesses. But no hard and fast decisions can be taken right now.

Q: What are your views on diversification? Doesn't this lead to lack of business focus? Wouldn't demerger of some businesses make sense?
A: Every company's profitability depends on the growth of its own business. We do not have the advantage of a global company, which can focus in a few big areas with just a few products. We realise that we need to be diversified without putting ourfingers in every pie. Managing diversity with a degree of focus is all-important. If I were a $10 billion global company, I could do just about anything but as an engineering entity which depends on fields like petrochemicals, power or refining, the returns (from being too narrowly focussed) could be limited. In any heavy engineering segment in India, if you even get a 65 per cent share, you will not go beyond a certain stage in terms of revenue.

This means, the need for exports becomes imperative. By 2005, 20 per cent of all hi-tech products are being planned for the export market. Each business, in turn, should focus with the backup of a strong company and grow rapidly on its own. Our gameplan for the E&C business is that it should touch Rs 15,000 crore by 2005 which, in turn, gives it the size of a medium-sized global company ($3 billion). Would I then like to be a $5billion company? No, because ROCE will suffer. The end result is shareholder value and the focus is on bottomline.

Q: Your softwarebusiness has been doing very well. Do you have other plans lined up for its growth?
A: We have great hope for this business which was spun off as a subsidiary. We have now begun the process of restructuring here and this could lead to the creation of three to five profit centres and, if it makes sense, spinning them off as other ventures. After that, selling their shares could be envisaged.

Q: There is an impression that L&T still operates on old world values. Could you comment on this?
A: We are not a family-owned company company or an MNC where decision- making is done by one entity. We are professionally-managed and hence the feeling that our decision-making mechanism is not as fast. But we are driven by one goal: that we should always be transparent to our shareholders.

Q: Given the pressures of globalisation, isn't L&T facing a drain of good people?
A: I must admit that over the last five years, we have had our share of people leaving the company. Our E&C people are inconstant demand in the middle-east while the younger lot get opportunities in the US. Yet, the overall exodus is still in control since people here have a tremendous sense of loyalty to the organisation.