Larsen & Toubro (L&T)’s plan to sell its Rs 15,000 crore electrical and automation business may face some resistance from Life Insurance Corporation of India (LIC), the single-largest shareholder in L&T.
Sources have told Moneycontrol that LIC is not comfortable about L&T selling a business in which it is a leading player. LIC holds a 17.59 percent stake in the company and also has two representatives on the board.
The division had generated revenue of Rs 4,281 crore and an operating profit of Rs 520 crore in 2016-17. The electrical business accounted for around 11 percent of total consolidated income in 2016-17.
Reports of L&T selling the electrical business have been floating since 2011, though the company had denied the information then. In 2015, the company said that it would sell the division as part of a broader plan to exit non-core businesses.
“LIC feels this business has a lot of potential in the future as well and there is no competition as present,” said a source close to the development, adding that the deal would have to be really good for the insurer to give its nod to proposal.
LIC did not respond to a mail sent by Moneycontrol.
In an emailed response, L&T said: “We have no such information. This is purely speculative and we do not wish to offer any comment.”
Media reports suggest the division could fetch anywhere between Rs 14,000-18,000 crore for L&T.
September 7 was the last date for submitting bids. Schneider and Eaton are believed to be the front-runners.
According to another source, L&T is not very keen on continuing in this business as the growth would be around 10-12 percent in a good year. Also, the additional capital required for the business could earn better returns if deployed elsewhere, the company’s top brass feels.
During its annual general meeting in August, the then group executive chairman of L&T A M Naik had said that they are redefining their core businesses.
“There are some businesses which are simple, small, some very competitive, and some where we lose money. So we’ve identified those and we hope at least two-three such businesses may find their rightful place elsewhere as part of much bigger companies,” he had said.
A third source told Moneycontrol that if LIC opposes this deal then other insurance shareholders may also follow suit. “One of the banks which is a shareholder of this company is also showing resistance towards this deal,” the source said.