Larsen & Toubro (L&T) is betting on its information technology (IT) subsidiaries, LTI Mindtree (LTIM) and L&T Technology Services (LTTS), as well as new businesses such as semiconductors, data centres and green energy, to drive the next phase of growth as the group looks to rebalance its project-heavy portfolio, chairman S N Subrahmanyan told Moneycontrol in an exclusive interaction.
“In my mind, LTIMindtree is also at an inflection point…More than 300 plus AI platforms are being written within the company. Quite a bit of it to be implemented within the company, quite a bit to be taken outside also,” said Subrahmanyan.
He acknowledged that LTIM has the potential to rise further in the industry rankings.
“They can enter the top four. The top three are much higher and much bigger than us. To necessarily give a target on that is not rational… but there is an ultimate aim to become the top four, and they’re on it.”
On LTTS, the engineering services arm, he commented that the company has performed quite well in a difficult industry.
“They have done well, because, you see, to get an engineering contract is not easy. Something which is core… we’ll do it ourselves. That LTTS is able to go to the world, to the top many Fortune 500 companies, to get their core work out and to do work on autonomous vehicles, on E-vehicles, on embedded software, on plant engineering, on connected devices… credit to the management team there. They’ve done well.”
The growing importance of these services businesses is part of L&T’s broader effort to diversify its portfolio and strengthen its balance sheet.
“Still today, projects dominate 75%… manufacturing is about five to 7% and the services are now nearly 15%... The idea is not to reduce projects, but can the services grow faster? That’s what we’ve been attempting. So, the semiconductor, data center and realty business being pushed up is to push up the services,” said Subrahmanyan.
He added that if these services businesses grow at a healthy rate, then “hopefully in the next five to ten years, the contribution of projects to L&T’s overall business could even come down to around 65 percent, which will be better for the group’s balance sheet.”
“I feel it is healthier from an overall balance sheet point of view. So, the profit weighted average, profitability would be better. Cash Flows would be better. Working capital would be thinner. I think that helps in the overall scheme of things, and that's what we are attempting,” he noted.
As the company seeks to reduce dependence on projects, it is also investing in new businesses to sow the seeds of future growth.
“As the company evolves, we are also conscious managers. We see that some businesses have got commoditized, or it’s not our cup of tea anymore… so we also tend to close down businesses. At the same time, we should also look at the future… and sow the seeds of something for the future,” Subrahmanyan said.
That forward-looking approach has led the company into three emerging areas. “So that is how we have gone into the following three or four businesses. One is the semiconductor design. Second is the data center and cloud services. Third is the green energy business,” he explained.
On the green energy front, L&T has already begun making electrolyzers and is participating in India’s nascent green hydrogen and green ammonia ecosystem. “We made India’s first electrolyzer plant, 8.5 megawatt… and recently won… one of the largest green hydrogen plants in the country, 100 megawatt power for IOCL, Panipat. That’s a big step forward. We have formed a company called L&T Green Energy Limited, which is pushing all this. I think that will be a very good investment from a future point of view,” he noted.
The company is also weighing listing opportunities for some of its consumer-facing verticals.
“The other service company that we have is L&T Realty… this part of the organization will be taken out to the public at some point of time. I cannot predict the time, because the way you go about it is that revenue must be sustainable, predictable, and there has to be sufficient signed-up properties with you to continuously keep on the development mode. And that takes time. We need to be careful about it, and we cannot rush into it,” he said.
When asked whether the green business could also be listed in the future, he was cautious.
“Too early. We must think about the sustainability of the business, the environment in which the business operates, the kind of people that you have there, all that goes into consideration before you list, and the kind of fund infusion that is required as often as possible. L&T Green is nowhere near all that,” said Subrahmanyan.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
