It is better to be careful with cash on hand, says L&T's S N Subrahmanyan

S N Subrahmanyan, Managing Director and Chief Executive Officer Larsen & Toubro | Photo: Kamlesh Pednekar
India’s largest engineering company, Larsen & Toubro (L & T), has been able to withstand the ongoing slowdown with a healthy order book growth in its core business, and its services subsidiaries in information technology and finance are doing well. S N Subrahmanyan, chief executive officer and managing director, talks to Amritha Pillay and Dev Chatterjee on how he sees growth across segments and verticals, and the company’s new initiatives in technology. Edited excerpts:


L&T is the market leader by miles. What has worked?


We have not done anything different. We have gone after the areas that we are well known for, and are continuing our business. The competition has problems because of their inability to perceive the costs, their debt and the need to quote properly to specifications. This may give us certain benefits, but this happens in business. We concentrate and stay focused on what we know best, which is our business.


How do you see services businesses contributing?


The company’s business is broadly divided into three baskets — engineering, procurement and construction (EPC) projects, manufacturing and defence, and services. The projects business, which is the biggest, will continue to remain the core.


The services basket which comprises of information technology (IT), real estate and finance , is something which I believe can grow faster. IT services should continue to grow at 15-16 per cent. Mindtree will be a bit slow this year, for various reasons including change of management etc, but it will come back. Services can grow faster than the rest of the pack, and also because of its spread across the globe, including the US, Europe and the Far East.


Do you see services being a dominant segment five years from now?


I don’t see services becoming dominant in five-six years, unless they grow at 30-40 per cent, which is not possible. These companies are growing at 15 -16 per cent, maybe you could make it 16- 17 per cent.

And then we have not told the EPC projects not to grow. The bulk of the leadership is again from that side. They have their own aspirations and ambitions. So, I’m sure by the end of five-six years the profile of the company is not going to change drastically. But I do expect services to have more weightage within the system and that means better profitability, better returns on investment and better market valuations.


Are you confident of double digit growth?


For order inflow, as we guided for it this year, yes. As I said, the orders are visible from hydrocarbon, water, power transmission and distribution. The EPC power segment has done well this year. We got orders from Buxar, Khurja and a fair amount of flue-gas desulphurisation orders.


What is the update on L&T Nxt?


We embarked on a digital journey within the company, wherein we have connected more than 11,000 assets and our work force, track and measure materials, use drones for geospatial investigations, etc. Now we want to take this experiment which we did within the company to the outside world. This set-up has already caught some traction within India, and the idea is to take these solutions out to the world.


How has it helped?


The idea here was to bring in transparency and objectivity in decision-making and to make ourselves more relevant as an organisation from an operational efficiency point of view, which we have managed to achieve. And instead of having a one-sided conversation as to why we are not doing well, the clients also see how we are performing. It will bring in operational efficiency and thereby improve productivity and progress.


What are the other tech initiatives that you are pursuing?


We have started two small platforms. The first is edutech, which is purely for skilling and employability. In L&T we have a lot of training programmes for updating our own employees. We are trying to put all this into a platform and then create a proper format which people can tap on to and educate themselves on specialised courses like piling, form work or trying to become an electrician or a plumber and pay some fees to educate and upskill oneself. This is to make oneself more relevant from a skills point of view.


The second platform SUFIN is where we have connected with 70,000 small scale industries which are part of our business for supply chain efficiency. We are trying to take this to the outside world for providing a place where you can buy and trade goods from many known and unknown small-scale industries and thereby bring them to the market.


The sale of electrical business to Schneider will bring Rs 14,000 crore. What do you plan to do with the proceeds?


The net amount after tax would be around Rs 10,000-11,000 crore. There are many options that are possible. Ultimately, the money belongs to shareholders. So when it happens, we have to see how to benefit our shareholders. We don’t have any major capital expenditure programme on hand, but in such times it is better to be careful with cash on hand and that is our thought process right now.

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