Diversifying portfolio is a de-risking strategy for us

Written by Anandita Singh Mankotia | Updated: Aug 1 2009, 03:21am hrs
YM Deosthalee
L&T Finance, a subsidiary of the countrys largest engineering and construction firm L&T Ltd, is all set to make a public offer of non-convertible debentures (NCDs) to the tune of Rs 500 crore for its project and corporate financing as well as repayment of its existing loans. In an exclusive interview to Anandita Singh Mankotia, the companys CFO YM Deosthalee, who is also the whole-time director and chief financial officer of L&T Ltd, outlined the way forward for the finance arm and the corporate strategy for the L&T group, including its plans in the IT sector. Deosthalee, whos on the board of L&T Finance, said that the company is also gearing up to foray into general insurance. Excerpts:

Is there a case for L&T Finance to enter the banking sector

There is no plan to enter the banking sector. Given the current RBI restrictions, it isnt even possible. However, what we are attempting to do through this route is to make retail finance available at large. Although we arent taking any deposits, we are ensuring that we have listed instruments through which we can approach the retail market. This is a route that other NBFCs have already tried and this is an excellent method of arranging an additional source of financing. At the same time, this sort of financing has certain advantages over banks since banks do not have that kind of a reach in certain areas of financing, which require customer knowledge extensively such as micro-finance. For instance, if one has good branding and a strong distribution network, which is a very difficult task as it includes having strong office base and people, then it gives you an upper hand over banks.

So the NBFC space is not a restriction

What I am trying to explain is that the main limitation is the cost. One doesnt have access to the savings and current account deposits. However, there are certain areas where you can do much better than banks.

Are you planning to broad-base your offerings in the near future

Any non-banking financial services company will have to constantly provide a wide array of financial products including general insurance if it wants to become a meaningful financial services player and we are no different. As and when we sense the right opportunity we would certainly keep innovating and try to offer new financial products tap the market opportunities.

With L&T diversifying its portfolio into manufacturing, IT and financial services, does it mean that the engineering giant now wants to become a large conglomerate rather than just being restricted to its construction & engineering activities

This is a de-risking strategy for us. Over 80% of our business is project-oriented, especially after we sold off our cement business in 2003. These projects are very large exceeding Rs 5,000 crore. Considering all this we had an internal discussion five years ago and we realised that we needed to balance out our portfolio in order to decrease our risk by diversifying into other areas. Hence the company decided to have projects, manufacturing and services in our portfolio. We have a significant presence in manufacturing today and there too a part of manufacturing is projects. We envisage 25 to 30% of our business arising from manufacturing and 15% from the services sector. Since we need to maintain stability in the growth of both our topline as well as bottomline given that one cannot bag such large projects at a regular pace, we had to diversify into sectors which would stabilise our topline and bottom line. This way we are able to control the volatility and risks. Secondly, L&T is very clear on the kind of services it wants to enter. We are using only technology and the financial services platform. We wouldnt enter the commodity business.

Your IT arm, L&T Infotech lost out to Tech Mahindra in the race to bag Satyam Computer. However, you need to acquire an IT firm to grow this business. Are you looking for a right size company for acquisition Is there anything on the radar

As and when opportunities arise we would examine them. Theres nothing on the table right now.