L&T's construction arm to leverage size, technology

With a change of guard, Larsen & Tourbo's Construction Division is moving into its next phase, one in which the company hopes to more than double its turnover in the next four years.

“What we are trying to do now is to leverage our size and the technology content within the company by getting into more complicated, bigger projects. Which as a by-product will result in larger turnover and thereby better returns and margins,” says Mr S.N. Subrahmanyan, who took over as the head of the construction division on July 1 from Mr K.V. Rangaswami.

According to him, the next phase will be about “innovative profitable growth,” for the division to achieve its internal targets.

The Construction Division (formerly the ECC Division) contributes to a little over half of L&T's turnover and will continue at that level even when its own turnover doubles.

As part of a restructuring exercise, L&T internally carved out its businesses into nine independent entities, each managed by a board to give them greater operational freedom. The ECC division has been restructured into four companies — buildings & factories, infrastructure, metallurgical and mineral handling, and power transmission and distribution.

Mr Subrahmanyan, Member of the Board & Senior Executive Vice-President (Construction), L&T, believes that there are enough opportunities within the country and in select overseas markets for the division to achieve its targets. It hopes to more than double its turnover from Rs 24,000 crore in the last financial year to Rs 50,000 crore in 2015. “All four companies will contribute to this growth,” he says.

Huge opportunities

The overseas business, mainly in West Asia and North and South Africa, contributes to 15-20 per cent of turnover and it will remain at that level. The domestic market itself is growing. There is demand for high-end residential constructions, large-sized office premises, factories that need to be put up within tight time schedules, hydro-electric projects, road projects and the like, all of which L&T feels it is best suited to exploit. Besides, there are huge opportunities in West Asia, North and South Africa for power transmission and other infrastructure projects.

The 51-year-old Mr Subrahmanyan, a civil engineer with a post-graduation in management, will be the fourth Indian head of the construction division. C.R. Ramakrishnan, who took over from P.H. Mortensen, was the first, steering the division from 1975 to 1991, when its turnover increased from Rs 17 crore to Rs 400 crore. Mr A. Ramakrishna, who succeeded him, grew the business to Rs 5,000 crore by the time he retired in 2004. Mr Rangaswami, who retired in June-end after nearly 46 years in L&T, saw the business growing to Rs 24,000 crore.

Stabilisation phase

Mr Rangaswami, who is now Adviser to the Chairman, described C.R. Ramakrishnan's tenure as the stabilisation phase, followed by the growth phase and his own tenure as one when the company concentrated on improving its profitability. “From 6 per cent, it touched 11 per cent PBT. That in my opinion is creditable for an EPC (engineering, procurement construction) company.” Domestic and international peers have a profitability of 5 per cent, he said.

According to Mr Subrahmanyan, challenges in the form of attracting and retaining talent and increased competition remain, but the company has built enough capability over the years to meet these and achieve its targets. This growth will also see its staff strength increasing from about 17,500 to close to 30,000.

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