Mumbai: US-based firm Gilbarco Veeder-Root is in the final stages of signing an agreement to buy Larsen and Toubro Ltd’s (L&T) fuel dispenser business for nearly $50 million (Rs243 crore), two people familiar with the development said.
Fuel dispensers are machines used to pump petrol, diesel or any other fuel at filling stations.
In June, Gilbarco had completed due diligence of the fuel dispenser business of L&T, India’s largest engineering and construction firm. Both parties are now looking to close the deal by July, one of the people said. Both the people with knowledge of the deal spoke on condition of anonymity.
North Carolina-based Gilbarco, which provides solutions and technologies for retail fuelling and adjacent markets, is being advised by Advani and Co., a legal firm that advises multinational companies looking to do business in India. L&T has an in-house merger and acquisition team headed by N. Sivaraman.
Losing out: An IndianOil retail outlet. L&T’s dominance has come under threat with the entry of both domestic and foreign competitors. Hemant Mishra / Mint
L&T spokesperson D. Morada declined to comment. Gilbarco did not reply to emailed questions.
Dispenser units made at L&T’s Coimbatore and Mumbai plants contribute 0.57%, or about Rs220 crore, to its annual revenues. The firm reported a net profit of Rs37,89 crore on sales of Rs40,480 crore for the fiscal year ended 31 March. Its electronics and engineering division, which includes the fuel dispenser business, had a turnover of Rs2,507 crore for the year. L&T has been making fuel dispenser units for 25 years. The business picked up steam at the turn of the century when the Union government allowed private sector companies such as Reliance Industries Ltd and Essar Oil Ltd to establish networks of fuelling stations.
However, L&T’s dominance has come under threat with the entry of Mumbai-based Midco Ltd and Aplab Ltd, US-based Dresser Wayne and Gilbarco, France’s Tokheim Corp. and Japan’s Tatsuno Corp.
For L&T, which has an order book of Rs70,300 crore, the imminent sale is part of a long-term strategy to sell non-core businesses and enter new business segments in sectors that were being opened up for private sector participation.
While its divestment strategy included the sale of its ready-mix concrete business to Lafarge India Pvt. Ltd, a subsidiary of Lafarge SA, for Rs1,480 crore, and an exit from its dairy business, the firm is now strengthening its presence in nuclear power, defence electronics, power, railways and water management.
About 82.5% of L&T’s revenues still comes from engineering and construction.
Misal Singh and Hiral Desai of Mumbai-based brokerage Edeweiss Securities Ltd said in a 5 July report that L&T management plans to invest Rs1,500-2,000 crore in fiscal year to March. The authors, who wrote their report after meeting L&T’s top brass, said, “We expect L&T’s stand-alone revenues and earnings to grow at compounded annual growth rate of over 18% between financial year 2009 and 2011.”