L&T expects to get Rs 11,500 crore for the division.
As part of a restructuring plan, Larsen & Toubro (L&T) has decided to sell its electricals and electronics division.
Sources familiar with the development said the board of the Rs 45,000-crore engineering company cleared the proposal yesterday. They said talks were on with Schneider Electric of France and Eaton Corporation of the US.
An L&T spokesperson refused comment. Schneider’s global spokesperson in France and Eaton’s spokesperson in India also did not comment.
Set up in the 1960s, the division makes switches, switch boards and switch gears, circuit breakers, control and automation systems, meters, relays and traffic management systems.
In 2008-09, L&T bought TAMCO, which has facilities in Malaysia, Indonesia, China and Australia, to expand the vertical. It also opened centres in Saudi Arabia and Dubai. In India, it is the market leader.
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The business has annual sales of Rs 3,700 crore and contributes 7 per cent to L&T’s turnover. Sources said L&T was expecting a valuation of at least three times the sales. Investment bankers aware of the development expected the business to fetch close to Rs 11,500 crore.
Earlier, the company had plans to expand the division beyond a billion dollars.
But, for the last one year, after the retirement of wholetime director and president, R N Mukhija, the division has not been represented on the board. It is headed by S C Bhargav.
Analysts said competition from multinationals (MNCs) had made long-term growth in the segment difficult. The division used to get big orders from the Gulf. These, too, have been hit after the Dubai debt crisis.
Analysts say prices of inputs such as copper have also hit record highs. Higher input costs are not always passed on to consumers due to tough competition.
In the 2009-10 annual report, Mukhija said, “The year witnessed aggressive efforts by MNCs with newly-built capacities to push the piled-up inventory. This department had to compromise on realisation. The major challenge in 2010-11 will be to improve gross margins while managing the top line.”
These reasons are leading L&T to focus more on projects rather than products. Recently, it exited its 50:50 joint venture with Case for making earth-moving and mining equipment.
L&T has in the past sold its non-core businesses such as petrol pump vending machines and cement. Many say it will further realign businesses.
For Schneider and Eaton, India offers an opportunity for fast growth. Both are already present here and expanding rapidly.
Ohio-headquartered Eaton is a diversified power management company. It saw sales of $13.7 billion in 2010. It has 70,000 employees and sells in more than 150 countries. The ¤19.58-billion Schneider is a global leader in energy management and solutions, including switches and electricals.
Earlier this week, Schneider said it had signed an agreement to acquire the passive networking business of Smartlink Networks Systems for Rs 503 crore.
It is also believed to be in talks with New-Delhi based Rs 1,150-crore invertor company, Luminous Power Technologies, to buy a majority stake.
L&T’s shares rose 0.59 per cent on Friday. The Sensex fell 1.6 per cent.