L&T planning for growth through acquisitions

Engineering giant Larsen & Toubro is chalking out a growth plan through acquisitions. It has not given the mandate to any investment banker. Instead, every operating division of the company has been directed to look out for suitable acquisition targets.

What more, its information and technology subsidiary, L&T Infotech too is on the prowl. The infotech arm, which is set to register 40 per cent growth in its revenue to around Rs 350 crore in fiscal year 2003-04, is looking for an acquisition in telecom technology, financial services and ERP space.

Y M Deosthalee, chief financial officer of L&T, said the hiving off of the glass division over the next month or so will mark the company's exit from the non-core businesses.

"From now on, there could be fine-tuning of our portfolios and exposures to various projects. For instance, we may decide to participate only in projects worth Rs 100 crore and above. The focus is now on inorganic growth," he said. Earlier, L&T had exited from packaging business.

Post demerger of the cement business, engineering and construction business will account for about 80 per cent of L&T businesses. While about 15 per cent will be accounted by electrical equipment, the rest by capital goods.

Deosthalee pointed out that funds for acquisitions is not a problem for L&T as its debt equity structure is favourable.

At present, the company's debt is 55 per cent of its equity and post demerger of the cement division this will come down to 40 per cent. The company has replaced its high cost with low cost ones and saved substantially on the interest cost in fiscal year 2004.

"We are looking at all possibilities as we need to prepare ourselves for the future. We want to augment our capability. We will acquire companies to fill in the gaps that may exist in any area of our operations," the CFO said. In value term, there may not be big-ticket acquisitions as the company is focused on strategic fits.

Its infotech arm is looking for companies with offshore capabilities. Building on its domain knowledge of manufacturing and utility sectors, L&T Infotech is being positioned as a strong ERP company.

"We are looking at a couple of possibilities. We may pick up a company in the financial services area. We don't also rule out the possibility of buying out a company in the ERP space to add to our capacity or an outfit strong in telecom technology," Deosthalee said.