L&T's Satyam stake buy lacks transparency: Ajay Srivastava

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS L&T hikes stake in Satyam; stk at 52-week low L&T clears air on its move to hike Satyam stake ALSO READ See latest News about Larsen See previous management interviews See what other Experts & Brokerages are saying about Larsen Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty? Other Stocks in this news Mahindra Satyam |

After Larsen & Toubro yesterday came out in the open to clarify its stance on its Satyam stake, the infrastructure major has been under the spotlight.

 

Ajay Srivastava, CEO of Dimensions Consulting, has been somewhat critical about L&T's move. According to him, a publicly-listed company like L&T should have laid out a dialogue on what path the company should take. "He [L&T Chairman AM Naik] went ahead and invested in Satyam, which was an unimaginable decision. One would love to look at a board member asking what transpired at the board meeting, which allowed him to put Rs 500 crore in a discredited company at Rs 180 a share."

 

He further said that the L&T's Satyam stake buy lacks transparency."It's an autocratic organisation at the end of the day. So all the good things it did in the past, built over fantastic franchise - for his vision of megalomania - is getting destroyed for a no shareholder franchise."

 

Here is a verbatim transcript of the exclusive interview with Ajay Srivastava on CNBC-TV18. Also watch the accompanying video.

 

Q: Any change of heart that you have had or you remain quite critical of L&T's latest move?

 

A: It's not a question of change of heart. I think there has been a clear breach of faith if one were to use the word because the whole investment fraternity has invested in L&T on the basis of being an infrastructure company - that's the whole theme of it and has got the government contract, the defence contract, construction and so on. We just thought L&T Infotech and the finance division were a bit of a sideshow.

 

Now suddenly in this whole world where nobody wants to be in the infotech business and the financial services business, the Chairman of L&T comes without shareholders mandate and says, "We are a conglomerate and we want to be in finance and IT business as a whole." Who has given them the mandate? It's a publicly listed company; he is not a promoter shareholder, there has been no dialogue on what path company should take. He went and invested in Satyam, which was a decision which is unimaginable. One would love to look at the board member to say what transpired during the board meeting to allow him to put Rs 500 crore in a discredited company at Rs 180 a share.

 

It's an autocratic organisation at the end of the day now so all the good things he has done in the past, built over fantastic franchise - for his vision of megalomania - he is destroying everything and for a no shareholder franchise? One is talking of transparency? There is no transparency in this.

 

Q: It is not just Satyam, Larsen & Toubro (L&T) also has other investments like NIIT Technologies, Federal Bank, Union Bank which the management classifies as strategic investments. Do you think L&T investors would buy that line?

 

A: Not at all. How can they be strategic investors? Are you going to take over these banks, are you going to take over these companies? It is just the guise to hide the losses on the share price in the balance sheet. As more and more disclosures are coming out that is exactly why I had said - we would love to see what the board of L&T has been doing, what authority has given to the Chairman to take decisions, when the decisions were taken what was the background? We are talking of illegality. If you look at Satyam either he took a decision of portfolio manager then you will love to know as to what did he investigate, who gave him the report to invest Rs 200 crore? If it is a takeover, the Securities & Exchange Board of India (Sebi) law says very clearly that intention to take over is as good as takeover in which case you are disclosed to the market and do a public offer. If the intention was to buy out Satyam or do a takeover, he should have disclosed upfront. You cannot make a portfolio investment in the guise of saying I will take over then disclose it to the market, the law requires that.

 

Q: As an L&T investor, are you feeling more comfortable or less comfortable with the fact that they have actually hiked it all the way to 12% and yesterday in that concall indicated they could go as high as sub-15%?

 

A: It is simple. Week or ten days back we have decided to exit on a gradual basis and the share prices are also not doing any wonders. He has put his head into it, now he needs to extract the best out of it and I think there is no comfort because end of the day the Satyam saga - no matter who takes it on - has got the issue of litigation in the US - litigation possibly in India at the end of the day claims which are not verified. P/E funds can generally go to its board today and said that with these risks I will take Satyam on board and I will buy it out but can an L&T, which is a public company where there is no identified promoter take this risk? So it doesn't give me comfort because the liabilities attached to Satyam are unlimited, unspecified in nature. I don't know the acquisition cost therefore.

 

Q: Even if you were to leave aside the entire Satyam episode, how are you feeling about the company itself because there are concerns about how the order book is going to flatten out quite a bit heading into elections - they don't report their forex losses but that might happen both on Satyam and on commodity hedges, what about the core business?

 

A: We had lot of comfort in the core business for two reasons. One was that whenever we have a revival in the infrastructure story in this country, L&T was and should be on the forefront. Secondly, we expect substantial business to come out of the defence sector. Third is the power sector. So if you look at the core businesses of L&T, infrastructure, power, defence, construction are pretty strong viable businesses and having seen this correction in the market, their cost structure would have also become much more comparative, employee cost, raw material cost. So going forward, in spite of the falling order book flattening out, one would tend to believe that the whenever the revival starts they would reap the benefits of it barring distraction that we have been talking about. I wish he had gone ahead and acquired five more companies in the infrastructure sector around the world or in India and put a corpus around it or taken up projects. I wish he had done those because those are with the core business, here he has gone and fitted the money away. So in a way it is linked. Satyam is a diversion at the end of the day, here your core business is under the threat, your order book is down and instead of focusing on that you have created a big diversion for Satyam, you have created a big diversion called investments and where will the management bandwidth goes in.

 

Q: The other thing which the market noticed yesterday was Mr. Naik's statement that he was privy to more information than general shareholders because he was in constant touch with the board and the government. Do you think some allegations of insider trading could be levelled on such a disclosure?

 

A: I do not know what information he had because he went and bought a lemon at Rs 180 so I do not know who he was talking to and maybe it was he was talking to the guy who took him for a ride, maybe it was the financial institution wanted to offload the shares and they found a willing buyer in L&T - thanks to the management of Satyam. I think that's what has transpired. They convinced him to buy the shares and the FIIs offloaded from the shares which they wanted at Rs 180 a share prices and they have found a willing sucker in L&T. I think that what has happened. I think its insider trading in reverse - he got jacked for that.  

 

Q: How do you think the market will deal with statement that L&T is no longer a focused infrastructure company but a group which has various interests and should be regarded as the Tata Group example which has many interests which is a statement which came from the management yesterday?

 

A: I think the reaction is negative absolutely. He has mandate to make L&T a conglomerate out of multiple interest as he deems fit; I think that's the one. He needs a shareholder mandate to say even he is part of the board resolution, shareholder resolution to say, "Am I allowed to be in five businesses in the same measure and allocation of capital." He is not a promoter to decide.

 

Ratan Tata has different businesses; TCS does not do infrastructure, Tata Motors does not do software so they are different companies in different works. Here we are talking about one company doing various works.

 

So his model has failed around the world doesn't succeed anywhere in the world; there is no rational to this model, there is no approval to this model, there is no presentation to say how this model is going to work and why is it required in the first place.   

 

Q: Some people are lightening this to a reverse of what happened with Satyam and Maytas where this time round its an infrastructure company that's gone and bought or is looking to buy an IT company. There was a lot of shareholder activism that time and this is a stock that has held pretty well by institutions. Would you expect to see some kind of shareholder action on L&T as well and of what nature it might be?

 

A: L&T was considered to be very respectable company, MR. Naik is still considered very respectable person so therefore you see let of brouhaha in the market in terms of intensions. Maytas and Satyam were more killed on intension as well as fundamentals. Here we may not talk about too much of intensions but the end result of what he is doing today is disastrous. People like us at the end of day would say, "We lost money." You just walked out of the stock and forget about it because you do not have time and energy to chase this company up and down there are 100s of things happening in the market.

 

I guess that is what is going to happen to L&T; people are going to move on instead of wasting the time and till the board of L&T and that's an important point. What is the board doing? Mr. Naik is running the company. What the board be on all these things. We do not hear these things. Is it an independent board then what are they doing about it? So the question is what investor has today. What does he do today? He writes to SEBI that's all he can do today - nothing else and one knows what will happen. Nothing will happen, the letter will correct dust and that's the end of the story. So where does he go. So might as well sell the stock and do something interesting in life.              

 

Q: Share your thoughts on the market with us. Where do you think it is going?

 

A: I think we are feeling lot more comfortable. There is little more confidence in the system, little more confidence in the people's ability to buy and we are definitely seeing steering if not full revival of demand coming in, some confidence coming in. I wish RBI had been little more active yesterday to support this initiative maybe it will do so in the next 30 days or so but there is definitely that the mood of pessimism and disaster we saw in October-December is kind of lifted; we are looking well, things are looking little better than what they were. So more confident about the market than what we were in October-December.