Larsen & Toubro (L&T) is in the process of transforming into a technology firm by venturing into new businesses, while it intends to exit roads and power concession projects and double revenues under its strategic five-year plan.
To begin with, the engineering and construction conglomerate will expand its information technology and technology services, grow its edtech and e-commerce platforms. Technology would be the “common thread” across all its business, manufacturing and including engineering, procurement and construction (EPC).
“We have invested in technologies in the past to automate and digitise our EPC projects and manufacturing businesses, some with the help of our listed IT subsidiaries and some with in-house efforts. Automation has helped improve operational productivity over time. We view technology driven solutions to be a differentiator,” L&T Chief Executive Officer and Managing Director SN Subrahmanyan told FE in an interview.
L&T is already using technologies to automate and digitise EPC projects and manufacturing businesses, and is of the view that technology-driven solutions are a “differentiator”. The move to become a technology firm will “possibly shrink” its projects and manufacturing businesses revenues to about 64% of targeted group revenues by FY26 from present 68%.
L&T will use the services of all its listed IT subsidiaries – L&T Infotech (LTI), Mindtree and L&T Technology Services (LTTS)– in the journey, and would also be investing in data centres. IT and technology services are expected to account for about 26% of group revenues by FY26, from the present 21%.
The firm is also planning to exit roads and power concession businesses and de-risk Hyderabad metro project.
On the recent merger of Mindtree and LTI, Subrahmanyan said that the synergies are many. The merger would help in achieving scale, provide complimentary vertical offerings, lead to cross selling opportunities and access to a wider pool of digital talent among others.
“The revenues of LTI-Mindtree and LTTS are currently at about Rs 32,200 crore and they should be comfortably growing in the high teens over the next four years,” he added.
L&T also intends to become a zero-debt firm in FY23, as it intends to exit Nabha Power concession project in the “near term”, and capital restructuring in the Hyderabad Metro project. At present, the group’s debt is at about Rs 1.24 trillion, with a large chunk of about Rs 84,000 crore under its lending arm.
Under a strategic plan, Lakshya’26, L&T is also planning to more than double revenues. “Our revenues will grow from Rs 1.4 trillion in FY21 to Rs 2.7 trillion by FY26, registering a CAGR growth of 15%,” Subrahmanyan added.
L&T would also be entering into manufacturing of electrolysers (used in production of green hydrogen) by setting up 500MW capacity by 2026, which could be ramped up to 1GW by 2028. Further, it will also invest in data centres.
According to Subrahmanyan, the firm is looking to monetise its Hyderabad Metro project.
“The Telangana government is giving us a soft loan of Rs 3,000 crore to make the project viable. We are also in talks with some equity investors for a stake in the Metro. Then there is a transit-oriented development monetisation, which we are exploring in the special purpose vehicle,” he added.
In its financial services business, L&T had made a decision to shift from wholesale to retail as credit costs in wholesale book, especially during downturns, are a lot more than retail which is well spread out”. Further, with retail being a big market, the group expects to capture a large market share.