L&T cement spread on ice over ownership crisis

Anil Manibhai Naik, managing director and CEO, Larsen & Toubro, has stayed away from the media glare ever since the A V Birla-owned Grasim Industries Ltd made an open offer for the engineering and cement major about six months back.

Naik finally broke his silence last week and spoke to Arijit De and Rumi Dutta on a range of issues. Excerpts:

L&T has been facing a demand slump in the engineering business. Now it is facing an ownership wrangle. How has this impacted the company?

Operations are going on as normal. We are a professionally managed company and it is only some people in the corporate office who are trying to address the issues. We have not allowed it to percolate to the second line of management.

So where do things stand now?

We have mandated Icra Ltd to advise the board on which demerger model to accept. Till the report is submitted, I would not like to talk on the issue.

L&T and Grasim had formed a taskforce to work on operational synergies in cement. Is that plan still on?

Well, if someone gives us a proposal to lower our operational costs, we will of course examine it. We are open to all such ideas which have a direct impact on the bottomline. The taskforce is still in force.

But you also had some major expansion plans cut out in the cement sector. Are you still pursuing them?

No. We had plans to take our cement capacity to 25 million tonne by 2006-07, but that is on hold till we resolve the current crisis of ownership.Our initial plan was to go up to 17 million tonne through de-bottlenecking. We now have a 16.5 million tonne capacity which would go up to 17 million in the next few months. We had envisaged another three million tonne by putting up a new production line at the Tadapatri or Hirmi units, while the balance could have come through acquisitions.

We were hoping to fund all this by divesting a 37.5 per cent strategic stake, which would have seen the cement subsidiary getting between Rs 1,000-1,200 crore (Rs 10-12 billion). Since the funds flow has been affected, we have had to keep the expansion strategy on hold.

There has been some concerns about L&T's net worth once the cement business is demerged. How critical is this factor while pitching for big engineering projects overseas?

Yes, this is an issue of serious concern for us. We have already explained our position to Icra and the impact the mode of demerger can have on the net worth. We hope they will take this into account when tabling their report to the L&T board.

It is very obvious that if the demerger of the cement business is done through a vertical split, the remaining engineering business of L&T would face a blow in terms of a reduced net worth. That is the primary reason why the L&T management made the proposal on the structured split.

One has to keep in mind that, because of the domestic recession, we are very actively pitching for contracts overseas. Of late, we have been very successful on that front and have bagged two large contracts of almost Rs 1,000 crore (Rs 10 billion) from Qatar and Tanzania. This is in addition to the over Rs 1,650 crore (Rs 16.5 billion) of international projects that we already have.

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