Anil Manibhai Naik, chairman & managing director of Larsen & Toubro, is a self-confessed ‘sharpshooter’ who rarely minces his words. But as he settles down for an interview at the company’s manufacturing site at Powai in Mumbai, this L&T veteran, who has spent 45 years with the company and 11 years as its head, is at ease, and begins the conversation with a tinge of nostalgia. ?You may wonder why I am sitting in such an old building, when we have built so many hi-tech buildings,? he says. ?Right above this room, I was interviewed for the first time in 1965. So I thought, let me retire from here itself….? He then went on to answer a range of questions, in an exclusive FE interview with Shailesh Dobhal, MG Arun & Smita Joshi Saha. Excerpts:
For the last quarter of 2009-10, L&T saw a whopping 90% growth in order inflow and a 28% growth in sales. Does this signify a complete revival for business after the slowdown pangs?
The events in 2008 were unprecedented. The whole world was impacted (by the slowdown) but in India, times were even more difficult owing to (general) elections. So 2008-09 is not a year one would want to use as a benchmark. In the period, we grew in our order intake by only 5%. That affected our sales last year, and we fell short of our expectations on sales from 15% to 11%. But the good thing we did was that we went into a massive cost reduction drive and recovered profits by improving our margins 1.5%. While we went down by 10% in sales, we went up 12% in profits.
However, the 90% increase in order intake during the last quarter was exceptional. This cannot be an appropriate indicator of the future, as most of these projects get bunched up for decision-making towards the last quarter of the year. But we have given a guidance of 25% growth in order intake.
This is on the back of the 31% increase in total yearly order intake in FY10. We have crossed our order book by Rs 1 lakh crore and we expect next year to end at Rs 1.25 lakh crore.
The contribution from international operations were hit, weren’t they, and came down to 15%…
I don?t think that the world has recovered from the slowdown and shock, apart from two or three countries where the financial system is as healthy as it is in India, China and Brazil. Now, just when we thought that things are recovering, especially in the US, Europe has entered into a big problem. I don?t see the global recovery happening very fast.
We will stay at 15% because our targets took into consideration business in the Gulf region. There is a (positive) movement there, since oil prices have firmed up. For us, (the vagaries of) international business will not create the overall impact. For instance, if we book $15 billion worth of orders, $2 billion would be global. This could go a shade above $2 billion, or could be $1.5 billion. However, the remaining $13 billion worth of orders from the domestic market can become $14 billion or more. We have decided that we will not cross the threshold of 20% (of order intake) outside India. In terms of projects, this would be just 15%, and in equipment supply, 5%.
Moreover, in projects, the geographies we would focus will be the Gulf region and Malaysia, and may be one or two countries in Africa. The main reason for us to go outside is to improve ourselves and become sharper (in competing), and make a global benchmarking.
Has the restructuring sharpened the focus of your company? Do you think there is a room for taking a call on exiting more non-core businesses?
The focus has sharpened, but now we are working on re-looking at the portfolio for the next five years, deciding on the strategies and the structure to fulfil those strategies. Also on the agenda is the hunt for talent. This exercise will continue in on till September 2010.
Every third year, when we undertake a review, what was core earlier, becomes not so core. We are in 65 businesses, and we can?t remain in all these businesses. The whole idea is that the management attention should be focused on bigger opportunities.
When I took over (1999), I put all the businesses in four baskets, and prepared a document of things to do in the next 90 days. I faithfully followed it and made sure I achieved the targets by July. Making 2% PBIT is irrelevant, I want to ensure we get to 11% PBIT while serving our nation.
Therefore, I said that if a business is ‘non-core or too small’, we need to exit it or close it down. This happened in glass bottles and leather. The second move was to ‘define the core’, which will be reviewed once in three years. Third was to ‘grow to sell’. In 2000, I said we would grow cement, but we will sell it, as it is not our core business. Indeed, there were proposals for RMC (ready mix concrete) to be given away with cement. But I refused this, since I wanted to grow RMC to 100 plants. When we reached 65 plants in RMC, Lafarge bought the business at a valuation of $100 per tonne.
This was ‘grow to sell’. Last, we should ‘shrink to grow’. This means a business may be core or defined as core once, but it is too small. If 20 years have passed, and that business is still at Rs 100 crore, and is locking up talent, then that should go.
Now we are in the mode of unlocking value. For instance, L&T Finance will be spun off by the end of this year, and every year, one company will be listed. We will still own 80-90% (in these companies, post listing). So now, my philosophy is to unlock, let them stand on their own and excel. If they shrink in the process, which I doubt will happen, it will be too bad, but I will not be over protective.
How does generation fit into power? Why are you getting into generation?
I believe that there is a potential for value creation. For example, it is dramatically increasing our capability to build turnkey power plant. We will do an integrated plant. Our Rs 7,000-8,000 crore order intake will come from our own development project. I will put about 5,000-7,000 mw as I can?t commit more resources because we are an engineering company, not a capital-intensive one, and yet we have to strike a balance between the two.
Power development is the standalone, ownership company, as different from our EPC company. Some day India will merge and consolidate into no more than six to eight power companies, including the Tatas, Reliance, NTPC, among others. And if L&T is not one of those eight companies, I will (still) get a lot of value out of it. This is a decision to be taken as we progress. It is also possible that I might sell a minority stake (in the power company), get a lot of value and re-invest.
You spoke about dressing up businesses for scaling them up or selling them off. In infotech, when you went for Satyam, there were talks of you breaking into the big boys’ club. Now, somehow you have come below the radar again…
In these, sometime you win, sometimes you lose. The biggest problem we faced was that we already owned 12% in Satyam. So, the tendering procedure came in our way, while we were the front runners. But that is behind us now. We have made a profit in the bargain.
I started L&T because we lost so many engineers between 1988 to 2000. In infotech, we are much bigger than any other IT company, as a group. We are going to continue at a (growth) rate of 19 to 20 %. IT still has unlimited opportunities, and I still have a lot of reasons to keep that, because I keep losing people. This year, our IT company will grow 20 to 25%, after a couple of years of posting flat growth.
But would you go aggressively after inorganic growth for L&T Infotech? There were reports you were eyeing Patni Computer.
Patni again would have taken you to $1 billion. That is not a big boys? game anymore. It starts from $3 billion. We have to see how we can reach to that or some day what we can do further with these companies. We are looking for opportunities, and we will continue to look for a Satyam-kind of an opportunity.
What’s the status on the NTPC bid (from which L&T Power was disqualified last month)?
We have rebid for the NTPC tender.
