'I want to build many MNCs within L&T'

Q&A/ A M Naik

A M Naik's children want him to "take it easy," but the chairman of the country's largest infrastructure firm, Larsen & Toubro, is still maintaining a hectic 18-hour-a-day routine.

The 65-year old Naik talks to Shyamal Majumdar and Kausik Datta on his blueprint to simplify the "complex" structure of the company, which hopes to achieve the Rs 30,000 crore turnover mark by March 2010, up from Rs 18,000 crore now. Excerpts from the interview:

L&T is going through a process of restructuring and setting up of new subsidiaries. What's the rationale?

L&T is already very complex with 62 different businesses and is difficult to manage. So I don't want any further strain on the system. We would get into major new business opportunities through separate companies which will have their own CEOs and boards.

Power, for example, is one such vertical. We already have formed a company "" L&T Power projects "" which will be the umbrella company for all power businesses. Other power segments such as boilers and turbines will become separate subsidiaries under L&T Power.

There will be several other such companies in areas like shipbuilding. The separate company for shipbuilding will come into being in another couple of weeks. The idea is to create many multinational companies within L&T. Each of these companies can have footprints in many countries and grow into real mega businesses.

Will you go for dilution of stake in these companies?

Not before five years. There won't be any opportunities to make money before that as the factories themselves will take at least two years to be operational. At the moment, it is just convenient to spin off the big and new businesses into separate subsidiaries.

Which are the other new businesses?

Railways. This business is based out of New Delhi and we are looking for a dynamic CEO who can grow the business up to Rs 1,000 crore in three-four years. Defence could be another area. We are interested in entering the submarine project. We have the required expertise and after getting the Raksha Udyog Ratna status, we will be in a better position to bid for future projects.

L&T is building Pinaka rocket launchers for two regiments of Indian army and is bidding for the modernisation of Bofors guns. There are many more such orders in the pipeline.

Have you found CEOs for all the new verticals?

We are talking to a global HR firm for this. Some of these posts will be filled up with insiders. For example, the CEO for the turbines company will be an insider. For the boilers company, we may induct an outsider. For the shipbuilding company, we may have an expat CEO.

What's your plan for L&T Infotech? The listing has been delayed.

These things take time. L&T Infotech aims to achieve $1 billion annual revenue in the next three to four years from $287 million now, growing at 50 per cent in each of the last three years. The initial public offer is expected in the second half of 2008-09.

Will L&T eventually follow the structure of a holding company?

The problem with a holding company is that we have a double dividend tax now. This is very inefficient. I have spoken with the finance minister on the issue and he said he is looking into it. The Companies Act has to be changed to scrap double taxation.

As and when it is done, we may seriously look at spinning off some companies which are not related to each other. L&T is unlike Tata Sons which is mainly an investment company.

We are an operating company which is not very big in size but complex. Therefore, we have to put a simplified structure in place to ensure better governance. But in the process, we should not loosen control so much that our businesses can be taken over. L&T ko sab log kha jane ke liye taiyyar hain (People are keen to gobble up L&T). We have resisted it for the last 30 years and will continue to do so.

Will you ever think of getting back to cement?

No. There is anyway a lot of brand value attached to L&T as India's premier engineering giant and we don't need to get into any commodity business. We restructured the company in 1999 as per advice from BCG and exited all the businesses we are supposed to get out of. I didn't sell cement just because Kumar Mangalam Birla wanted it; it was a conscious decision.

What is your broad plan in the financing space?

At the moment, our target is to grow the finance company, L&T Finance. Last year it grew by 70 per cent. It will grow by another 50 per cent this year. We have just formed L&T Infrastructure Finance and that must mature in the next three to four years.

In addition, there is treasury and commodity trading business. These companies should grow up to a sizeable level so that we can fetch value.

What about a succession plan in L&T?

We have people retiring in the next three to four years. That's one of the reasons why we are bringing in CEOs for the new companies. We expect some of the nine new CEOs "" a first in the history of L&T "" to graduate to the board level. When I took over in 1999, we didn't recruit even a general manager from outside. That's a big change.

Almost the entire board got extension last time...

Why only the board? Quite a few other employees are also getting extensions due to the acute talent shortage. L&T guys are hot property abroad and are also being lapped up by multinationals which are paying four times more than what we can pay. I can hire for $200,000 in the US to head a special business unit (SBU). But with this money""Rs 80 lakh a year""we can't get an SBU head in India!

Salaries have gone through the roof, so we are forced to give extensions to employees who are in good health. Only last month, 46 young people left one of our divisions. So extension to existing employees is a safe option. Things should change as we have introduced merit-based compensation and stock options.

The L&T stock has not been showing its potential on the bourses...

The new orientation programmes took a lot of time. L&T is a very old company and its stock never went up in 30 years. After I took over five years back, we started focusing on shareholders' value. That's why it is a blue chip company now.

Don't you think that the management should have taken care of enhancing the shareholders' value even earlier?

I would not like to comment on anything that concerns my predecessors. All my previous colleagues were excellent. They had limited opportunities in their times when socialism was at its peak, license raj was prevailing, and so on.