We are at the front end of global competencies

Updated: Sep 30 2008, 04:04am hrs
The $7-billion engineering and construction major, Larsen & Toubro (L&T), has transformed over the last few years, from a slow-moving, old economy giant to a more nimble-footed, technology-driven company. AM Naik, the companys CMD who has been at the helm of affairs since 1999, is still working hard to prune unproductive businesses and scale up targets as he prepares to combat the economic slowdown and credit squeeze. Excerpts from an interview with FEs Sourav Majumdar and MG Arun:

Over the last few years, L&T has seen much restructuring of operations, which has made it a more nimble organisation. How do you envision the next few years

When I took over, I started a journey of transformation at L&T in multiple directions: on the human resources front, in giving stock options, demerging the cement business, selling off the ready-mix concrete division, and putting the medical division up for sale. Moreover, business units posting less than Rs 500 crore in revenues will have to cross Rs 1,000 crore in the next five years, or will be sold off.

The leadership required to run businesses, whether big or small, is of the same level. Once we exit certain businesses, we can deploy the leaders to run other promising businesses. Everything is talent driven. In the engineering industry, you need ten times more talent than in capital-intensive projectscadres at different levels of talent. Thats why you see no private business house ever succeeding here, since they are not culturally inclined to train thousands of people. So, its either government-run firms or companies like L&T into this business.

How will the business reorganisation help

We have recast L&T into 15 operating companies, three outside of L&T and 12 within. All the companies will grow beyond $1 billion by March 2012; some will be $2 billion, others, $2.5 billion. Our construction business has been divided into four operating companies, and eventually, there will be five. The first three cover transportation, infrastructure, heavy infrastructure, metros, hydropower, airports and seaports, SEZs and factories. Each one is a multiple-business unit. These are civil oriented.

The fourth is metal, minerals and material handling: building steel plants, copper, alumina and zinc plants. Fifth is in power generation & transmission, railways, rural and plant electrification. Railways will later be transferred to transportation infrastructure. We have decided not to bid for any projects of less than Rs 500 crore. Until I took over, we were bidding for Rs 5-crore projects. We have now increased turnover five times and reduced the number of sites to one third. So, per site intensity has gone up by 15 times.

Is there a sense of caution, considering the overall slowdown in infrastructure sectors

We dont want to bid for all projects. By March 2010, we do not want to bid for projects of less than Rs 1,000 crore. We are taking up large projects, building townsfor instance, the Seawoods project in Navi Mumbai, which is a Rs 4,500-crore project. The Mumbai airport project is a Rs 8,000-crore one, while Delhi airport is Rs 9,000 crore, Bangalore is going to be doubled to Rs 1,500 crore.

These are all signature projects, which will impact society at large. These five sectors will do around $7-8 billion. The Gulf businesses will also serve as a backup if Indian business moves into recession. We have set a target of $2 billion from the Gulf in the next two years.

Then we have the turnkey project business group, like power, refinery, cross-country pipelines, petrochemicals, upstream (drilling rigs, offshore platforms), sub-sea pipelines, floating production systems, and midstream all these put together would be $2-2.5 billion. These three verticals will produce $5 billion. So, in all well do $13 billion. In heavy engineering, we will do more than $1 billion, shipbuilding would have taken off in the next three to four years, and we are targeting $1 billion there.

Anything to do with defence liberalisation, nuclear energy and aerospace can contribute $3 billion. So, you are at $16 billion already. Then there is the machinery group. We will keep a few big ones out of the group, the ones with less than Rs 1,000 crore turnover. Even if we sell six units, we will still do $1 billion. In switchgear, we will sell medical, we may sell the petrol pumps, but the core switchgear products will do $1 billion easily.

You have often said you floated an IT company to retain talented staff. Is this business promising in other ways, too

The IT business is now $500 million, and we are planning to take it to $1 billion. When I lost 10,000 people in IT in the 1990s, I decided to have an IT unit to help stem attrition. While every big IT company went with big branding, I had zero branding. People were not ready to join me. From there, we are in Nasscoms list of top ten. This year, we will make a profit of Rs 300 crore. When we started, people questioned me, since the Y2K issues were over and the dotcom bubble had burst. But I had a clear goal in mind: to retain my people.

Talking about talent, how do engineering companies like yours stem attrition and attract talent

Our attrition rate has slightly diminished, but it is still at around 11%. People in L&T are preferred everywhere. You lose people to the Gulf and to the outsourcing industry. With this, we dont have civil engineers in the country. What is the point in locking up graduates in call centres My request is not to misuse domain engineers. You can train housewives and school dropouts for call centres and shift graduates from call centres to the IT industry. Use software engineers for the IT industry. IT needs only 10% of domain experts.

We have built six centres for retraining school dropouts. One of them is in my own village, where I runin my personal capacityan education and medical centre. When we can do this, why cant we use women in BPOs We are now taking chemical engineers and putting them into programming.

The media also used to highlight mostly the IT industry. Nobody wrote about, say, how to do construction. How do we build a powerful India if we do not have the talent to build We have to use talent to the optimum level. There are training institutes that can teach anyone the basics of IT in just a few months. Thats no big deal. We, on the other hand, build nuclear reactors, one among eight in the world. We build submarines, one among seven. We are at the front end of global competencies. We are not like the IT industry, which is at the bottom endproduction support, maintenance, application.

One Chinese creates 20 blue-collar jobs. Half of Chinas GDP is from manufacturing. People get jobs when someone works in manufacturing, which can be done in the interiors, and the development is then spread out. So, 500 growth centres come up, instead of 15. L&T is going to train 20,000 craftsmen, and has already put up ten centres for this under a vice-president. We are also building a new project management institute in Baroda.