Mumbai: The country’s largest engineering firm, Larsen and Toubro Ltd (L&T), is looking to sell its fuel dispenser business—which makes the meter reading machines at fuel stations—as it tries to shut some of its struggling non-core operations, two company executives familiar with the matter said.
Key driver: L&T has been in the fuel dispenser business, which makes meter reading machines, for at least 25 years. Ramesh Pathania / Mint
One foreign company keen to enter the business in India has recently approached L&T with a proposal, but the two firms haven’t been able to agree on the valuation yet, one of these executives said. He declined to name the potential buyer at this stage.
The foreign company, he said, is represented by its lawyers and L&T is acting on its own.
The dispenser units made at L&T’s Mumbai and Coimbatore plants brought in Rs200 crore for L&T in the first nine months of fiscal 2009, less than 1% of the group’s total revenues. In that period, L&T’s flagship engineering and construction division made Rs18,709 crore, about 75% of the total revenues. The electrical and electronics division, which includes the fuel dispenser business, contributed Rs1,809 crore.
L&T executives did not reply to an email questionnaire sent on 17 February.
The company has been trying to sell non-core operations that it doesn’t consider viable any longer. Last May, L&T sold its loss-making ready-mix concrete business to France’s Lafarge SA for Rs1,480 crore, as part of the same strategy to sell its non-core businesses. It had earlier sold its bottle plant in Nasik and its dairy equipment business.
L&T has been making fuel dispensers for at least 25 years. The automation of fuel stations was a key driver for the business as both state-owned and private oil companies started expanding their retail outlets from 2000.
The run ended in 2006. State-owned oil firms that dominate the market started slowing plans to add new retail outlets as private firms marked their entry, hurting the fuel dispenser businesses of L&T and its rivals such as the Mumbai-based Midco Ltd and Aplab Ltd, the US-based Dresser Wayene and Gilbarco Veeder-Root, France’s Tokheim Corp. and Japan’s Tatsuno Corp.
The private companies, however, couldn’t compete with the state-run firms, which sold fuel highly subsidized by the government. Reliance Petroleum Ltd, which had 1,400 petrol and diesel stations, and Essar Oil Ltd, with 600, eventually had to close their outlets.
The state-owned Indian Oil Corp. of India Ltd (IOC), Hindustan Petroleum Corp. Ltd, and Bharat Petroleum Corp. Ltd too slowed their expansion plans and instead decided to focus on replacing old fuel dispensing units.
“In the first six to seven years of the current decade we commissioned more than 1,000 retail outlets every year primarily to combat competition from private sector and to take the first mover advantage in urban and virgin rural markets,” said N. Srikumar, IOC’s executive director-corporate communication, branding and advertising.
As the market got saturated in the past two years, IOC scaled down its expansion plans to 500 outlets a year or less, he said, adding that future investments in retail outlets would be more prudent.
IOC would need up 2,500 units over the next few years to match its expansions, Srikumar said.