L&T looks to turn asset-light, eyes Rs 2 trn revenues by FY21

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Engineering major Larsen & Toubro’s outgoing Chairman A M Naik has laid out a five-year road map to become an “asset-light” entity with revenues of Rs 2 lakh crore by 2020-21.

The company has identified a few non-core assets and is waiting for the opportune moment to sell them off, the chairman said while outlining his vision for a leaner L&T in times to come.

Addressing shareholders at the company’s 71st annual general meeting here today, he said, “I would like to take this opportunity to share my vision of L&T of tomorrow… Our goal is to achieve a revenue of Rs 2 trillion by 2020-21 without compromising on margins and achieving an order inflow in excess of Rs 2.5 trillion per annum.”

Naik, who is due to retire on September 30, 2017, talked about the unfinished agenda, but his priority is to make the company asset light and restructure small businesses.

“There is still so much to be done, but one thing is asset light and putting in top gear all the restructuring which is left of small businesses that are still part of L&T due to the bad world-wide market. They have to be sold or tackled strategically,” he told reporters after the AGM.

The company is restructuring its projects division — L&T IDPL — and Naik hopes the process will be completed by March next year.

“In general insurance, we have sold the business and we hope it will go out (from the books) in the next 10 days. We have already sold Kattupalli port project that was asset heavy. Once we have finished restructuring the main ones, we will then look at selling the Nabha power project in Punjab,” Naik said.

For the Nabha project, according to Naik, the company will have to wait till the legal problems, claims and counter claims are resolved and it might take more than a year to get settled.

L&T is reportedly in talks with the Adani group to sell the project at an estimated value of around Rs 3,000 crore.

Naik expressed confidence that with the economy starting to turn around, this target is achievable provided a right strategy and on-ground execution is in place.

As part of sharpening the business focus, Naik spoke of the company identifying select growth businesses in L&T’s broad portfolio. These include IT, technology services, defence, smart world and water management.

“Our strategic plan involves re-allocation of resources – both talent and capital – to businesses with visible value creation potential. As most of these are also asset-light businesses, the initiative will be in line with our larger objective of building an asset-light organisation.
L&T had reported consolidated revenue of Rs 1,03,522

crore for the year ended March 31, 2016, a 12 per cent rise over the previous year, and its consolidated net income for the year rose just 7 per cent to Rs 5,091 crore.

Group companies L&T Infotech and L&T Technology Services will play a key role in this process, he said, adding that for the technology arms, the enterprise-wide initiatives will act as a ready-to-market showcase, enhancing client confidence in their capabilities.

On the economy, Naik said, “We are at the cusp of a turnaround. All indicators are positive. The government thrust on infrastructure and the ‘Make in India’ initiatives provide a range of opportunities for L&T.”

On the defence sector, he said that with the opening up of the sector, there will be opportunities worth Rs 13 lakh crore over the next 10 years.

“With the resolution of issues relating to fuel supply and a clearer understanding on nuclear liability issues, the nuclear power sector is expected to grow significantly in the years ahead. We are looking at orders coming from the Navy, that is in the submarines– nuclear and conventional and many other Navy and Coast Guard ships, which we make,” Naik said.

He further said the company is also expecting orders for weapons systems, missile launchers, electronics warfare system, defence electronic systems, among others.

“We have seven facilities for manufacturing defence products that we have developed over the last 7-8 years. We were waiting for privatisation of this sector for a long time and now since it has happened, we think it will be a big opportunity for domestic players,” Naik said.

He, however, expressed displeasure over the decision of the government to allow FDI in defence.

On the infra front, the Chairman said over 1,000 projects worth over Rs 14 lakh crore are in the pipeline in areas like roads, ports, airports and railheads.

“L&T has both the expertise and the track record to make the most of each of these opportunities. Over the years, we have set benchmarks, only to surpass them ourselves,” he said.

On the ongoing technology-driven leadership drive at the company, Naik said, “This is more than a statement of intent. It is at the heart of the new L&T. Our mission is profitable growth through technology leadership.

“Since 2000, we have developed and rigorously implemented a five-year strategic planning process. We are now in the fourth wave of this programme,” he said.