L&T to restructure, gain focus

15 January 2000

Larsen & Toubro, the leading Indian construction and engineering group, is preparing for some major restructuring. The company’s board has accepted a report by Boston Consulting Group to turn the company into a focused group with clearly defined business areas that will help it become a Rs 25,000-crore group in five years.

At the outset, the plan moots the creation of a separate division for the company’s cement business, stock market listing for infotech subsidiary L&T Information Technology, and an initial public offering in mid-2001 and reducing equity exposure in two subsidiaries. The company will enter the telecommunications sector with a subsidiary, L & T Telecom, with an initial investment of Rs 450 crore. This company will become an Internet service provider and will target a turnover of Rs 2,000 crore by 2005-2006.

The report has made a clear distinction between core business areas and thrust areas for the company. While businesses like cement, information technology and telecom will be its thrust areas, the core business will continue to be construction, E&C projects, heavy engineering, and electrical and electronics-related activities.

The objective of the restructuring, in the words of managing director and chief executive officer A.M. Naik, will be to increase shareholder value and take returns on capital employed to 20 per cent, from the current 11 per cent, in the next five years. This will be achieved through identification of core business areas and thrust areas, spinning off or selling non-core businesses, and a realignment of the portfolios of the companies in the group fold.

The plan consists of four key areas: shape and structure of the overall portfolio; value creation plans for each business; corporate and organisational structuring; and internal value-based management processes.

L&T has already merged the businesses of two subsidiaries, LTM and Audco, with its heavy engineering division. It has decided to reduce its exposure in two other subsidiaries.