Mumbai: Larsen and Toubro Ltd (L&T), India’s largest engineering and construction group, said it expects to sell its electrical unit and spin out its road assets trust by March 2018, a sign that funding for plans to acquire more companies in information technology (IT) will soon be in place.

Schneider Electric SE is in exclusive talks to buy the electrical unit, valuing it at around $2 billion, people familiar with the matter said last week.

Due diligence is underway, as are talks with investors on an initial public offering for some road assets, L&T chief financial officer R. Shankar Raman said in an interview on 20 November.

The airports-to-submarines maker has been pruning non-strategic and sub-scale businesses under a plan to spur growth through acquisitions in information technology, where margins are higher.

The push into IT is urgent, said Raman, as L&T must contend with bigger, more entrenched rivals including Tata Consultancy Services Ltd and Infosys Ltd.

“We don’t have time on our side and we need to jump start for bridging the gap," Raman said. “Acquisitions would be one of the ways to do that."

He declined to identify any deal targets, though he said the company is looking to buy businesses that can’t scale up on their own.

The firm is looking at Silicon Valley and India for deals valued at between $20 million and $100 million, Raman said. “Whether it is analytics, mobility, cloud or artificial intelligence, they are all opportunities for us to draw closer to larger peers," he said.

The L&T Technology unit acquired US-based Esencia Technologies Inc. in June for $27 million, it said in a filing.

Earlier this month, the L&T Infotech unit said it plans to acquire Luxembourg-headquartered Syncordis SA for €15 million ($18 million).

“Focus on new age technology acquisitions is a good idea," said Rohit Natarajan, an analyst with IDBI Capital Markets & Securities Ltd, who has an ‘accumulate’ rating on the stock.

The needle on Larsen’s return-on-equity, a measure of profitability, will only move if its acquisitions are large enough, he added.

L&T’s return on common equity was at 12.8% in the year ended March 2017, from around 10% in the previous financial year and 19.4% in the 12 months through March 2011, data compiled by Bloomberg shows.

In comparison, returns for Larsen & Toubro Infotech Ltd and L&T Technology Services Ltd—both listed last year—were at 37% and 46% in the year to March.

“If we are successful in unlocking capital in the parent company, then we’d like to invest in areas that enhance L&T’s ROE (return on investment)," said Raman.

In October, the company sold its unlisted arm EWAC Alloys to UK-based ESAB Holdings Ltd for $80 million and in August it sold a cutting tool unit to IMC International Metalworking Companies BV, an arm of Berkshire Hathway, for $27 million.

There are also some machinery manufacturing businesses that could be considered for divestment, Raman said.

“The reason we are stepping out of these profitable but sub-scale businesses is that we don’t see them becoming a billion-dollar-plus revenue generating businesses," said Raman. “We just want to conserve the time and management attention that goes into such businesses." Bloomberg

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