FE 500: 'Our goal is to creat a strong L&T'

Written by fe Bureau | Updated: Feb 29 2012, 23:47pm hrs
AM Naik
After he took over the reins of Indias largest infrastructure firm, AM Naik has attempted to diversify Larsen & Toubros operations, adding several new verticals. Now the MD and CEO of the countrys biggest engineering firm wants to earn a fourth of its revenues from overseas even as it faces competition from cheaper Chinese products. Depending toally on the home market is detrimental, Naik tells Baiju Kalesh & MG Arun, pointing out that L&T needs to diversify geographically.

What are the key reasons for your overseas push

We cant focus on everything so we have largely remained India-centric but that alone cant help, given that duties are zero here. China has an import duty of 35% and I cant sell anything there except notified products. India has lost 10-12 million jobs with Chinese imports and so sometimes it is easier to do things outside.Total dependence on the Indian economy is detrimental and we need to have diversity in geography but in a focused manner.

Is it not tough to do business in new territories

Every other country has put a ring protecting their domestic companies.

Saudi Arabia has declared that for projects up to $1 billion, it will only give to local companies. L&T has tied up with a local company there to qualify.

How do you plan to push for one-fourth of revenues from overseas

We are beefing up our our international marketing network and need to tap new territories, look at newer ways of doing business and hire more locals.

In some countries we will form allinaces and in others joint ventures.In Oman, we have four joint ventures two for heavy engineering, one for construction, and the other for offshore.

In the UAE, we have three, Saudi Arabia, four, and one or two in Kuwait and Qatar.In Abu Dhabi,the airport project we bagged is for $6 billion, but with others. The Perth office will explore opportunities in upstream, platforms and liquefied natural gas or LNG,while in Brazil we would look at heavy engineering equipment and upstream opportunities.We are going to be setting up shop in Iraq and Jordan, which will be a meeting point for all Iraqis.

L&T is already a highly diversified, complex company. What will it look like over the next five years

We will be a group of around R58,000 crore revenue this year. If that has to even grow at 12%, since the base is very high, you still have to manage, in four to five years, a R1 lakh crore group, with varying businesses, completely diversified.

What needs to be done now is simplify L&T into bigger businesses. No independent company (IC) will get that status if it is less than $1 billion. No strategic business group will get that status if its less than R2,000 crore.When that business grows to R5,000 crore, it will become an IC and will target R10,000 crore. No business with less than R500 crore will be acceptable.They go out for sale. Over-diversification is a killer.We should try and streamline.

Previous economic crises have derailed your five-year plans. Now we are going through a crisis. How will L&T review its strategy

We did come up with a plan in 2010, which has gone haywire because of the environment now So we are doing a mid-term review what are the countermeasures, should we be more aggressivel internationally... We have appointed McKinsey and Bain & Company and are looking for fresh inputs. The company has grown from R26,000 crore in 2007 to R58,000 crore. My goal is to create a strong L&T in the next five years and put the leadership and structure in place.

A professional-run company like L&T with no promoters is an ideal takeover candidate as earlier attempts show.

Is it still vulnerable

Everything is fine as far as you are vibrant and create value. The moment value-creation stops, L&Ts shares fall,

people get tempted and the company becomes vulnerable. Whether the government will allow it to be taken over or not is a question of time.

What are the biggest challenges in the next five years

The biggest difficulty is the succession planning, and huge dependence on outside talent. There are very few overseas Indians who are into our line of manufacturing and projects. They are settled there or do not have Indian experience. How to stabilise the leadership for the next 10 years will be the biggest challenge.We started IT to ringfence our people, but now it has become R5,000-crore company this year. Business-wise, power,unfortunately,is dogged by policy and Chinese imports and fuel linkage issues.The whole international effort is a Herculean game,and we need to orient our people in the next five years as to how to become multinational leaders.

Building an international organisation is not easy. If we put our act together to take international to at least 25%, conitnuously restructure our portfolios, get out of small businesses, consolidate our presence in big businesses, benchmark internationally, I think L&T will be a R1 lakh crore company in five years.

What are your plans for your electrical and electronics business

I am deeply involved now in that business, to see that we grow at a speed and consolidate our position in technology, bridging the product gap.There are new facilities being created at Ahmednagar, Baroda, Coimbatore.

Some of our products that are expected to come out in the next three to six years will take us ahead of others.

What will be the revenue mix in five years

As much as 85% of revenues come in from projects; this may become 90%. We dont have management staff to manage 10 pieces of $100-million projects, so we will go for larger projects of half a billion.