Larsen & Toubro aims to conclude some asset sales (US)

Share on Facebook0Share on Google+0Tweet about this on TwitterShare on LinkedIn7Pin on Pinterest0Email this to someonePrint this page

A major point of pain has been the forging shop as it has not delivered the expected returns. The company has spent close to Rs 3,000 crore in building a nuclear forge shop to become the super hi-tech company of India. However, the tsunami in Japan in 2011 changed the outlook for nuclear power plants. that things could improve from 2018 because many nuclear reactors are coming and some forging will be made here. So from virtually 20% proper utilisation, it will go to 70 %. On photo India’s biggest open die hydraulic press (9000 MT) with 150 MT manipulator (Credit Photo @ LT Heavy Engineering)

Over the last couple of decades, L&T has entered several new businesses and geographies to grow topline. But not all these business lines have delivered the kind of growth anticipated. While some legacy businesses date back to the pre-liberalisation days, some later-day investments like the forging shop too have not delivered returns. Outgoing boss AM Naik is doing his best to resolve these issues before he retires, but it’s inevitable that the company’s new CEO SN Subrahmanyan (SNS) will inherit some of them. As technology changes, one of
the key challenges before the company will be to transform some of the businesses to keep pace with sweeping changes. The technology services businesses will be at the centre of this shift. SNS will also have to keep discovering the new and core and sell legacy businesses. The company has laid out its new five-year plan and in times to come, Subrahmanyan will have to discover a new core and let go of some non-core businesses. In an exclusive interview to Moneycontrol, Subrahmanyan said that there is no going back on this one. He said: “There is an adage, sell to grow and grow to sell and that we will follow to the core and see how to take it forward and that is the way it will be. So, there is no question of any second thoughts or any rethinking on this. We need to do this, maybe we need to do it on a more accelerated pace and we will continue to do that.” Talking of legacy businesses, Naik in his own time has sold at least 11 businesses. Explained Naik, “A lot of small businesses, they are not created by me or anyone but they have been with us historically. I have got rid of 11 of them. We still have to get out of 9 of them. I am trying my level best that, by September, 3-4 are out. We are working on it but there are a few more which will have to be sold off but that will be done together with the CFO and Subrahmanyan to simplify a little.” A major point of pain has been the forging shop as it has not delivered the expected returns. The company has spent close to Rs 3,000 crore in building a nuclear forge shop to become the super hi-tech company of India. In 2006, “I got a telephone call from the Prime Minister’s Office (PMO) and they said there is only one Bharat Heavy Electricals (BHEL) for manufacture of power and you have to think about it plus you are the only nuclear reactor manufacturer. They came up with a tender for partnering joint venture on making nuclear great forgings that was 2007,” said Naik.   However, the tsunami in Japan in 2011 changed the outlook for nuclear power plants. The world was looking to put more than 100 nuclear reactor in US and elsewhere, but brakes were put on it. When L&T entered the segment, there was a boom but it collapsed when the forge shop was not even half ready. L&T has been losing money on this and a resolution will have to be found. While Naik admitted that it was a legacy which Subrahmanyan will have to deal with, he was optimistic that things could improve from 2018 because many nuclear reactors are coming and some forging will be made here. So from virtually 20 percent proper utilisation, it will go to 70 percent. To that extent, there will be no more losses. Till then the management will have to work hard to bring diversified forging orders to keep the factory going. Infrastructure Development Projects is another legacy issue that the new CEO will inherit. Naik claims that a lot of action has been taken already and, “I would say certainly by September it would be reorganised, restructured where we were losing Rs 600-800 crore is going to be less than Rs 100 crore.”

Read more at: http://www.moneycontrol.com/news/business/exclusive-lt%E2%80%99s-am-naik-aims-to-conclude-some-asset-sales-before-oct-1_8415261.html?utm_source=ref_article

Posted in merger & acquisition.

Leave a Reply

Your email address will not be published. Required fields are marked *