L&T to integrate divisions

Firm eyes global branding; McKinsey, BCG shortlisted to draw up growth strategy.

Engineering and construction giant Larsen & Toubro will be integrating its engineering construction and contracts (ECC) division and its engineering and construction (E &C) business as part of a grand five-year strategy to more than double its turnover from Rs 10,000 crore now to around Rs 25,000 crore by 2008-2009.

At the same time, L&T is working towards positioning itself as a global brand and has also earmarked Rs 500 crore this year for overseas acquisitions.

The company has decided to almost treble its ready mix concrete (RMC) capacity by increasing the number of RMC plants to 84 from the current 27.

L&T has shortlisted the Boston Consulting Group (BCG) and McKinsey & Co to draw up a strategy for growth. A final call on the management consultant is to be taken shortly.

BCG had submitted L&T's previous five-year plan. This had suggested, among other things, the demerger of the cement business.

L&T's ECC and E&C divisions will jointly contribute a turnover of Rs 17,000-20,000 crore by 2008-2009, or around 75 per cent of the overall business.

Its ECC division (excluding international business) currently accounts for around Rs 6,500 crore and is expected to reach a turnover of Rs 12,000 crore by 2008. The turnover of the international operations of the ECC division is expected to more than double to Rs 2,400 crore from Rs 1,000 crore.

L&T's Rs 1,000 crore electrical and electronics business is expected to grow to around Rs 3,000 crore and its defence equipment sales are expected to touch Rs 1,000 crore from the present Rs 250 crore. Other diversified businesses will account for the rest of the turnover.

YM Deosthalee, L&T's chief financial officer, told Business Standard, "The job of the consultant would be to identify gaps in our overall growth strategy and accordingly guide us to achieve our targets. The consultants would essentially work at identifying the potential at various business levels, areas that have a hidden potential that has escaped the management's attention. The consultant would also work at developing a net to catch potential global opportunities, besides designing the right mix between manufacturing and service-oriented businesses. While international business accounts for 17 per cent currently, we target it to be around 30 per cent," Deosthalee added.

A Ramakrishna, deputy managing director and president operations of L&T said, "Even after the demerger of the cement business, we have been able to maintain the revenue of the company at close to Rs 10,000 crore and we have strategised an action plan to more than double our total revenue by 2008-2009."

Ramakrishna added, "In the ECC and E&C categories, we are six times larger than our competition, except with respect to the hydropower projects business. We have already integrated our international and domestic ECC businesses under one head. The growth drives would essentially be infrastructure projects, both in India and abroad."

According to Ramakrishna, the current Indian port capacity would be increased to 900 million tonnes from 350 million tonnes and existing port facilities will be upgraded. The investment in each port project is close to Rs 1,000-1,500 crore. Around 38,000 Mw of hydel power will be added in the next five years in India, he pointed out.

On the drawing board

• L&T's engineering, construction and contracts division and engineering and construction divisions will jointly contribute a turnover of Rs 17,000-20,000 crore by 2008-09

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• L&T's Rs 1,000 crore electricals and electronics business is expected to grow to Rs 3,000 crore by 2008

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• L&T's Rs 250 crore defence equipment sales are expected to touch Rs 1,000 crore by 2008