MUMBAI: In the next eight years, Larsen & Toubro hopes to list at least eight of its wholly owned units in a bid to unlock shareholder value.
Highly placed sources revealed that among the first lot of subsidiaries to head towards the stock bourses are its infrastructure subsidiary L&T Infotech, which is growing at a compounded annual growth rate of 60% per annum.
On conditions of anonymity, an L&T company official said: “The company will list at least eight subsidiaries in the next eight years.” The predominant criterion to list is when the subsidiaries attain a sizeable scale.
According to the official, the listing of its infotech subsidiary could be as early as October 2007. It has set a target year of 2015, to list the eight subsidiaries.
Confirming the strategy, Y M Deosthalee, CFO and member of the board at L&T, told DNA Money: “Apart from L&T Infotech, which is slated to list by the year—end, the company is considering three more subsidiaries to list over the next three years.” The list also includes its financial subsidiary, Deosthalee indicated.
The three fastest-growing subsidiaries in the L&T stable are - L&T Infotech, L&T Infrastructure Development Projects (L&T IDPL) and L&T Finance. It can easily command a combined value of more than Rs 8,000 crore, said analysts tracking the company.
The sum of parts of the three subsidiaries account for about 18% of L&T’s total valuation of Rs 47,100 crore as on March 2007, analysts said.
The services vertical — comprising L&T Infotech, L&T Finance and L&T IDPL — will account for 15% of the group’s business by 2009-10, up from 8% at present.
Larsen & Toubro has planned a capital expenditure of around Rs 2,500 crore for the 2008 fiscal and its order backlog at end of March 2007 stood at Rs 35,333 crore, 52% higher on a year-on-year basis.
The move to list subsidiaries follows a trend set by peers that have listed subsidiaries successfully once it achieved traction in growth and scale of business. In the recent past, Mahindra & Mahindra has replicated a successful model by incubating subsidiaries through the initial gestation period. Mahindra Systech, Mahindra Finance, Tech Mahindra are successful examples of a similar strategy, an analyst said.
A listing will free the parent from funding the subsidiary’s next phase of growth as the businesses gain a size and scale to become independent and self-sustaining. It also has a reservoir of fresh funds that have accrued through an IPO, even as the parent concentrates in growing its core business, the analyst added.
A M Naik, chairman and managing director, L&T, said: “The company’s leadership position in the construction, projects & manufacturing-led businesses holds good potential for growth. With a healthy order book at the end of the year, the company is confident to sustain the growth momentum both in terms of sales and profitability in the near to medium term.”
The company is gearing up to take advantage of the huge investments coming up in the country’s power sector. The company is investing around Rs 500 crore on facilities for the manufacture of boilers for thermal power projects for which it signed a JV agreement with Mitsubishi Heavy Industries of Japan in November 2006.
Larsen & Toubro is a technology-driven engineering and construction organisation, and among the largest companies in India’s private sector. It has additional interests in manufacturing, services, and information technology. L&T has announced a major capacity expansion at Hazira. It plans to invest Rs 1,000 crore on increasing its shipbuilding capacity from 15,000 dwt (dead weight tonne) to 2-3 lakh dwt and is setting up manufacturing facilities at Coimbatore, West Asia and China.
On the rate hike, R N Mukhija, president (operations) and member of the board, told DNA Money: “The rate hike could make an impact on their overall profitability but possibly will not affect the order book size.”