Change of guard at L&T: Subrahmanyan to be CEO from July

Naik will be non-executive chairman with effect from 1st October 2017 for a period of 3 years

Engineering conglomerate Larsen & Toubro (L&T) on Friday paved way for S N Subrahmanyan to take charge as the group’s managing director and chief executive officer in July. Subrahmanyan joined L&T in 1984 and was inducted into the L&T board in 2011.

L&T executive chairman A M Naik is expected to continue as non-executive chairman from October, for three years. Approving Naik’s appointment as non-executive chairman, the company said, “The board of directors requested Naik to provide advice, guidance and mentorship to the company’s executive management in the capacity of non-executive chairman.” Naik, 74, was appointed CEO in 1999 and chairman in 2003.

Though chalked out over a period of last few years, the succession plan does not mean that Subrahmanyan will have a smooth start. As the new MD and CEO, his task is cut out. One of Subrahmanyan’s key challenges will be maintaining growth rates the group is accustomed to. Between FY04 and FY16, L&T’s revenue has clocked a compounded annual growth rate (CAGR) of 20.5 per cent. In the December quarter, L&T’s order inflow was Rs 34,890 crore and its order book stood at Rs 2.58 lakh crore.

The target revealed at the annual general meeting in September 2016 requires L&T to generate Rs 2 lakh crore revenue and an order inflow for Rs 2.5 lakh crore a year by 2021. Subrahmanyan is confident the company is broadly on track with these targets. For FY2016, L&T’s consolidated revenue was Rs 1.03 lakh crore.

The company has also been facing execution problems such as regulatory issues and client related delays, which could have a direct bearing on the top line.  Analysts will closely monitor the company’s efforts to reduce working capital ratio and monetise its non-core assets. L&T has chalked out a plan to divest completely or partially non–core assets to, streamline business verticals and reduce debt.  Some of L&T’s bets have also not paid off as anticipated. The shipbuilding segment, for instance, continues to make losses. The good part is that the economy is on the mend, and with increasing spends on infrastructure, L&T and Subrahmanyan could gain.