Larsen & Toubro (L&T) Chairman AM Naik (81) believes that India has huge opportunities but needs to focus on speed and scale to drive economic growth. L&T, with its many diversifications, is well-placed to tap these opportunities and has already created a base that will support growth and expansion for the next 20 years.
Naik, who was awarded Padma Vibhushan in 2019 for his contribution to business, is hanging up his boots as Chairman of the $23 billion-engineering major. On August 9, he will address shareholders at the annual general meeting of the company for the 25th and the last time.
Talking exclusively to Moneycontrol, Naik spoke about how he reinvented himself and L&T through these years, the many challenges he faced and why he is hopeful of the company’s future.
Also read: Why L&T’s AM Naik chose to be a manager and not an entrepreneur
Naik, who was the force behind many of L&T’s diversifications, also shares his advice for the government, L&T and startup founders. Naik will continue to be the Chairman of employees’ trust of L&T. He spoke about L&T after Naik, and Naik after L&T.
Edited excerpts follow:
Ten years ago, when L&T was celebrating your 50th anniversary at the company, you wrapped up your speech by singing two lines: jeena yahan, marna yahan, iske siva jana kahan. Are you now ready to retire?
L&T is my life, my home, my temple — whatever you want to call it. I am very happy. Why? Because I am leaving behind a platform from which the company can move up. We have designed a flag of L&T, which I will hand over to SNS (SN Subrahmanyan) to take it higher and higher.
The story of how you joined L&T is a legend now. The offer made to you was downgraded after the interview with the gentleman who later became your boss (Gunnar Hansen, Former Deputy Managing Director); he thought you were overconfident. When you look back, what has been the constant driver in your career for these 60 years?
I transformed myself every three years, depending on the situation. When I was a student, I would keep busy with all other activities. You will be shocked to know that I hardly attended classes. The professor used to taunt me in the class; he would say that there is one man who got a good percentage in SSC but that doesn't mean he will do well in college. He would say that and look at me.
But the day I walked out of the gate, I told myself that student life is over and now I must work on corporate life. I changed from a man who hardly attended classes to a person who never took a leave for 21 years and worked 15 hours a day from day one. I married early; my wife would be alone at home. Many times I would miss the last bus at 12 midnight. I slept on my office table.
Then Mr Baker, who recruited me, gave me a scooter after two years. He fought hard to get me a car early. All this happened because I made myself valuable to the company in whatever I do. I loved what I was doing; I wanted to build a platform which will help the country in nation building.
Just as you reinvented yourself, L&T has changed over the years. From a construction company to becoming a proxy for India’s infrastructure story, to its foray into information technology (IT) and new areas such as green energy and a big digital play. What drove you to reinvent L&T as an organisation into the conglomerate that it is today?
The infrastructure we did earlier was very elementary; now, we have the most complex infrastructure projects like building the statue of Sardar Patel, coastal road, a bridge over Brahmaputra, and high-speed projects. Earlier we would execute Rs 5 crore projects. Today, we don't do anything less than Rs 1,000 crore and our biggest project is going to be worth around Rs 25,000 crore.
L&T has transformed, we don’t even do road projects that we have done in the past because many others can do it. What people don't realise is that a whole industry has come up around L&T. Many infrastructure CEOs are from L&T; we have helped build the industry.
We have gone from working at a general workshop and making dairy tanks to becoming the number one heavy engineering complex at Hazira. Today, we make nuclear reactors and generators, aerospace equipment, and defence equipment. We have 60 processes where we are qualified; 40 percent of the production is exported. L&T is trusted outside and inside India.
L&T has a diversified business base. For the next big transformation, what would be the key targets that you would expect L&T and the new leadership to pursue?
I had a principle that I will not start anything unless it will give me $1 billion, at Rs 50 a dollar rate then. Secondly, the day I took over, I decided that I will get rid of non-core and small businesses. Either I will sell these businesses, or if they are in joint ventures (JVs), then we would either buy or sell the partner’s stake. We closed around 17 businesses and grew several businesses into several millions. I brought focus. Can you imagine we were also making shoes? We were about to enter manufacturing of bread on a mass scale. Fortunately, it stopped. We used to do a lot of things which were not connected. Those days, anybody could come up with an idea, and if they thought it had good prospects, they would convince the management and the company would get into the business. I had to clean it up.
Now, L&T has the manufacturing complex that is required. For the next 20 years, the land requirement, which we may have, is already in place. All the businesses have their manufacturing plan with an expansion for 20 years. There's a lot that can be done from the existing L&T verticals, they can be modified according to what’s needed in the world. There will be a lot of competition, like in green energy, and we must see how we handle it.
What you see as L&T today, almost 92 percent of it has been done during my time by our teams. What I inherited was 8 percent. We did not inherit tons of people, we created them.
What would be the key driver in the next phase of L&T?
In every vertical, we need to go to the next level and keep moving up the value chain. Take IT for instance, we talked about cloud 3-4 years ago as the next big thing. Then we talked about innovation and digital, we are now talking about the huge potential in AI (artificial intelligence). In the next five years, something else will happen…I can't even think of what that will be. Ideally, L&T would have good talent, leadership, and entrepreneurial thinking. When the opportunities come, we must know which one to pick. We should never do anything that will be less than $1 billion, even if it looks small now. Scale and speed will be important. You must create a size which is economically viable and make sure that you are ahead of the competition.
The new businesses that L&T is looking at, whether it is new energy, green or digital space, have competition at an international level. For example, L&T has a tie-up with Indian Oil Corporation and ReNew for green hydrogen but this is also something that countries across the world are chasing. How is L&T preparing and what more can the government do to support the industry?
For certain segments of green power, the government has to help industry. We are not getting into the production of power; we will get into building a power plant or building green power. If you talk about international competition, where have we not had international competition? IT is 95 percent international and we started from zero. Look at infrastructure, our hydrocarbon business is at least Rs 50,000 crore over the year which is outside India. Last four years in a row, we have been rated as the number one company in Asia, other than China. We have to have talent, which is so good and so devoted that they can transform the company in terms of the applied technology or creation of new technology. We need to have the right leadership.
Years ago, you had shared that one of the reasons why L&T entered IT services was also to retain talent because a lot of young talent was moving away from traditional core sectors; that bet seemed to have paid off well for you in the long term. The environment is changing yet again, from the gig economy to young people aspiring to be in professions like content creation. Will this be a challenge for a company like L&T to get the right kind of people?
That’s the biggest challenge for the road economy; everyone wants to go into research and make a tremendous amount of money. They know that if they work for somebody else, they will make, at best, a few crores and anything less than 10 crore is not worth going for. They're after startups; that is how India has become one of the centres in the world for many startups. There are new technologies in IT, like AI, digital automation, clouds and so on, they all want to go there. Then a lot of young people feel that banking is a good business. There is tremendous scope for building highways, buildings, complex infrastructure, hydropower stations or a tunnel in the Himalayas. But who will go for these? Even parents don’t want their son to go.
In this situation, how will this industry grow? It is needed for growth and nation building but it is a tough job. L&T depends on — training, training, and training. We have built our own institutions for management, projects, and manufacturing. We create our own people from mid-tier engineering colleges and not high flying engineers who will go to other industries. I was not an IIT graduate, because my father went to a village but destiny brought me to L&T. I believe the best students of second-level colleges are better than the bottom quadrant of the first-level colleges. So, we take them and train them well.
We have managed it well enough that the whole industry has sourced professionals from us, and they are becoming our competitors but that's a way of life.
In these 60 years at L&T, you spent more than half in leadership roles. What has been the most difficult phase for you as the leader of L&T?
I have gone through so many challenges; I can't even spend time to describe it. But the most difficult challenge was when we had a very small market cap, and we were susceptible to being taken over. For 17 years, the sword was hanging above our heads. When I became a CEO, I had to face that situation in 2003 when one industrial house wanted to take us over and they nearly took us over. That is a well recorded case study now. We saved L&T and formed an employees' trust like the Tata Trust. This employees’ trust is the biggest shareholder, and its value has grown to Rs 52,000 crore from nothing. We have ring-fenced L&T to the extent possible. That had been the most challenging time, day after day there were challenges which lasted for nearly 22 months.
That was the time I had to run to Delhi almost every fortnight. It also did good to me in a way that I could meet all the top political leaders. From being someone who has come from a village, who doesn't even know who was the secretary to ministers, I was suddenly lifted from here and taken to meet the Prime Minister (Atal Bihari Vajpayee), Deputy Prime Minister Advani ji (Lal Krishna Advani), and other leaders like the NDA Chairman, George Fernandes, Jaswant Singh, the finance minister, etc. It had been a very challenging time but I took everything as a hobby; I didn't carry any tension. I faced a tremendous number of challenges but at night I slept well even if it was for a few hours.
First time in L&T’s history, I launched a strategic plan in 2000, and from the strategic plans, we could emerge as the company we have come to be known as.
Also read : Naik to pass on the baton to Subrahmanyan but will still be involved with L&T
L&T’s focus has been infrastructure, which depends on government policies and government spending. You have interacted with different prime ministers over the years and different chief ministers. In fact, you worked closely with PM Narendra Modi when he was chief minister of Gujarat. How do you strike a balance with the political leadership in putting across the demands of the industry and managing within the framework put forth by the government?
We were building what India wants; I made sure everybody knew. People like you in the media also helped us do that by writing articles on what L&T stands for.
I was elated when Manmohan Singhji (former Prime Minister) referred to L&T as the national company. When Mr Modi came to power, he would call us a national company too. Manmohan Singhji used to say there are three types of companies — government companies, private companies, and only one national company L&T. Many ministers who had strategic roles said the same thing; I am satisfied by how we have positioned L&T. We are respected for the brand, and our honesty and we don’t get involved in anything relating to politics.
You were always open with your views about the industry and what needed to be done. In fact, many times you took a stand not just for L&T but also for the infrastructure and power sectors. You were among the first to consistently flag concerns about Chinese imports. Did that pose a challenge with reference to the political parties in power, or were they receptive to the ideas?
I have struggled my whole life with respect to government policies; there was always something or the other. There were forces which were stronger than us and they were able to get it done as a policy and we couldn’t, in some cases, change it. There have always been challenges, but I think as time has passed, and particularly in the current Prime Minister’s time, when he started talking about Atmanirbhar Bharat. What I was talking about alone, is now the voice of men. There are many corrections made in the policies and therefore the suffering has been less to an extent.
You have been raising issues around India’s dependence on Chinese imports for a very long time. The government acknowledges it is a matter of national security and has a clear stand on it. Do you think the industry has responded by investing to ensure we are self-sufficient and not dependent on Chinese imports?
When Mr. Nixon was president (of the US), and Henry Kissinger was in his cabinet, the latter made more than 20 visits to China to help it become a manufacturing base. The US would talk on technology and research and slowly, they went out of manufacturing in many cases and became dependent on China. China made very good use of this opportunity. Being autocratic, they could implement many things which in India we can’t as a democratic country. They built such a base that there are many things that only they do. Now, given the geopolitical tension in the world, everyone is talking about ‘China plus one’. That means they want one more major base. It’s a great opportunity for India if we straighten our policies and have a political environment that is conducive to really getting things done in a very straightforward and peaceful manner.
You believe that India has an opportunity arising out of ‘China plus one’ global strategy. Manufacturing in India has still not picked up significantly. You mentioned that the environment needs to be conducive; what advice would you give to the government to help spur investment in manufacturing?
It is not that manufacturing has not picked up. We are becoming the second-largest auto gear manufacturer, that's manufacturing. Earlier Ambassador and Fiat had one model that was manufactured in 1000s, now, we are manufacturing in millions. Even in steel, we are today self-sufficient. In consumer goods, we are self-reliant, we are not importing. In electronics, whether it is TVs or appliances, we make them in India. We are relying on other countries for aeronautical manufacturing but even there some beginning has been made with Hindustan Aeronautics.
I think India has not spent 50 years very wisely, we should have spent a lot of time on building manufacturing like China and becoming self-sufficient in defence. We are importing from the US, France, and Russia. A think-tank should decide when that will stop and when will India make a decision in lakhs of crores. While some indigenisation has taken place, a lot more must happen. The government has invested heavily in Hindustan Aeronautics. But the question is, why in the past 50 years, Hindustan Aeronautics has not been able to do what China did in less than that — manufacture planes, including commercial planes?
Aeronautics is very complex and highly competitive manufacturing. But why can't we compete on manufacturing of, say, smartphones with China? China manufactures 70 percent of smartphones. India has just started. But India still depends on China for components. We must have a strong ancillary base to support the final product.
Given this background, what makes you bullish on India?
I am bullish because things are happening. I am a restless man, I believe things should happen faster. There is a need for speed and scale.
You are stepping down as the Chairman of L&T but you will continue as the head of the company’s employees’ trust. What role would you play in L&T going ahead?
I am a well-wisher of L&T. I am highly satisfied with the way L&T has come up to this point. I will continue to be the chairman of the trust which is the biggest shareholder in the company. The trust is running many schemes to help retired L&T people as well as the current L&T people beyond what the company can do out of its own medical scheme. It is promoting sports and so on. A lot of creative work needs to be done at the trust, which I am doing. There is so much to do in the world; I am very busy with my charity and philanthropy, and I will do more. I will work on the larger cause of society and the employees’ well-being, I am working on a larger canvas. I am always a well-wisher of L&T. I keep talking to them. I will continue to talk to our chairman Mr S N Subrahmanyan. Being the Chairman of the trust, I am sure whoever is there will always be happy to talk to me.
Over the years you have added bits and pieces to L&T which have grown into big businesses making L&T the conglomerate that it is today. Did you ever think of starting your own venture?
L&T has been a tremendous support. When I decided to start an IT business, which was totally different from L&T’s core business, at the back of my mind I knew I had L&T’s backing. If I had to start it on my own, I would have to create a small startup. I am not mentally geared for starting anything small; anything less than a billion is not on my mind. That is how L&T from being a very small company, is now at $23 billion at Rs 82 a dollar.
Was there no hunger for ownership?
Not until now. And now, we have created many hospitals and schools.
The startup environment is thriving in India, many youngsters are working to build something on their own. What advice would you give to young people who want to make it big in business?
The advanced technologies and whatever they are trying to do in the modern world, I don't understand many of them. I am being honest that I am not competent enough to give them advice in many sectors. But in general, I want to advise them not to rush into anything just because you want to be another billionaire. Everyone doesn't become a billionaire; eight out of 10 may not succeed. They don’t succeed because they rush without proper study on what they are starting and how they can stand up to others who are anyway doing the same thing in South America, China, Japan, or the US.
You mentioned that you managed to sleep well despite challenges like hostile takeover bids. How did you manage that as a leader?
The most challenging times were 2003 and 2004. But did that make me sleepless at night? Maybe one or two nights would go sleepless but otherwise, I slept well. Why did I sleep well? Because I looked at every challenge as a hobby and I enjoyed it. If I have no challenges, I start wondering what to do. I lived with challenges. Without challenges, I am a little unhappy and I get more tense.
You have been awarded the Padma Vibhushan by the government, a very rare honour in business. You have received many awards and accolades. What kind of response have you got from your peers outside L&T? You stood for the industry many times; do you feel they respected you for that?
By and large, the entire industry has respect for me. That's what I feel from how they react when I go to them. You can ask my peer about it.
How is your family preparing for you after you step down as Chairman of L&T? It will be very difficult to take L&T away from you and for you to not go to the office every day…
I am here every day. (The interview is taking place at Naik’s home office in Mumbai’s Bandra suburb). Six hours a day from 12 noon to 6. There is not a day when I am not at work. If nothing else, I do my charity work. I plan all my charity, hold meetings — it is an institute by itself.
I am still the Consul General of Denmark until 2025. I have told the ambassador I can't continue beyond 25. I am still the chairman of both IT companies for one year. I am still the advisor of L&T up to 2025. I have decided that by 2025, I will give up everything and only run the trust and my two trust social work ventures.
You have often said that your wife never complained about not getting time because…
I would say without that I would not have been able to do what I did. As I told you, I slept on the table in my office many times. How many wives are going to tolerate that these days?
Will she get more time from you now?
Yes, and that is what sometimes I worry about! (Laughs)
Any last thoughts on what you want to see from L&T next?
It’s a great company, and I want to see it become greater. And I am hopeful of L&T’s future because it has a great leader; it will happen.
Are you planning a holiday to celebrate your retirement?
No, I have a wound which has not settled down for a year and it pains me when I walk.
Perhaps it’s time to give it a little rest?
Yes, I am enjoying rest also. Anything you do, you must enjoy it. I am happy.
My son has come back to India after 29 years, he did not take a US passport all this while. He has come back, and it gives me relief because he goes every week to our village for all the hospital related work. His wife goes to the Mumbai hospital and my sister’s daughter helps a lot in our philanthropic work. Like L&T, I have also set up an organisation here. All of them enjoy the work given to them.
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