This is the irascible A M Naik’s eighth year at the helm of India’s most valuable engineering and construction company, Larsen and Toubro. In a freewheeling interview, Naik talks about the journey taken so far, and the
one ahead, in a three-hour conversation with Satish John.
Excerpts:
L&T’s core businesses have hit a sweet spot?
All my businesses are core. What was not core we sold. And the so called non-core businesses we have, will go eventually. But all the new verticals that we are forming are in the core businesses.
L&T will have 12 verticals, including engineering & construction, power and hydrocarbons, electricals, machinery business, industrial products, heavy engineering, technology and ship building. Thus nine of the verticals are mature businesses. Two are part of our mid-term and long-term strategy.
We have not given L&T Finance a status of a vertical yet. This business is a five year play which could turn out to be very important. Beyond 2011-12, these 12 verticals could go to 14 or 15, and then we will stop.
About 3-4 years ago there was a cover story in Businessworld that said L&T would be India’s GE? Is it a fair surmise?
I don’t think they said that. They only said that my style of working was like Jack Welch (legendary GE Chairman).
We have a GE type character -a conglomerate style of doing business. We are engineering driven after we sold our cement business. We (GE and L&T) don’t have anything much in common except electrical switchgears.
GE also has finance…
Our finance business is puny. We pushed our finance related businesses only in the last three years. One company does financing and debt, and the other invests in infrastructure projects by picking up equity. It is currently doing more than 20 projects. We have investment in Bangalore airport. We have investment in Kakinada port, several roads and properties.
Like Welch, you personally pitch for business from big clients?
I have done roadshows with 20 customers because L&T wants to become a Rs 50,000 crore ($12 billion) company in 5 to 6 years. If you want to bag huge projects in the private sector they go by faith and not tenders.Like the Delhi airport did not go for competitive bidding. It was their belief that only L&T could deliver. (The day after the interview, L&T also bagged GVK’s second Mumbai airport project.)
Otherwise you bring a multinational not used to working in India. In Hyderabad, Grandhi Mallikarjuna Rao (founder chairman of GMR Group) experienced it. We were only constructing there, the rest of the work was done by a multinational. They ran away or whatever. The promoters obviously didn’t want to repeat it again and so we got the order in Delhi.
We are bidding for huge power projects. In the next 5 years we want to develop turnkey projects of 8 mw to10,000 mw. That’s why we have the Mitsubishi joint venture for a super critical boiler plant. Our turbine joint venture is a toss up between Toshiba and Mitsubishi. (A week after the interview Mitsubishi was finalised.)
L&T fabrication experience may come in handy for ship building.
We are already doing naval ships and advanced ships. We have orders for 12 ships, without any foreign collaboration. As soon as I get my act together in three months in a new shipyard, I’ll get orders for building 20 ships.
Aren’t you looking for a ship building joint venture with a Japanese or Korean company?
Not at all. Why should I give my precious equity to someone unless I need the technology? Like in supercritical boilers or our proposed turbine venture. Otherwise I am not in favour of giving equity - the most prized possession — to anyone.
Would Mitsubishi have come without any equity stake?
They would have come with a smaller equity, but we said you come with 49%. The power
ministry and the NTPC felt that the supercritical boiler and turbine technology was so advanced, that they wanted me to have a “proper joint venture”. But we still retain 51% and the casting vote.
In my tenure I have never done any 50:50 joint venture. When we formed L&T Dredging International, we secured 51% for L&T and gave 49% to our Belgian partner. The reason - it’s a matter of time before foreign partners want control. They enter through the JV door, hire people through L&T or other Indian companies and create a good structure.
Then in three years, they say we can’t bring new technology unless you give us a majority.
Then why a JV for dredging?
The Belgium company is a dredging operator. Us mein technology kya hain? It is for leveraging our ports business. Secondly, in my own port this dredger will be busy. Thus, one dredger will be kept busy. For doing outside work we need more dredgers. Our biggest problem is that we don’t have enough dredgers for delivery.
Reliance and L&T are driving market sentiment today?
It’s all hype. There are no fundamentals in that sense for investors to give 45-50 multiples. Almost all stocks are trading at those forward multiples. The market has discounted the current year’s performance and perhaps even next year’s performance for many midcap companies.
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