Nobody can stop entry of private sector in defence: A.M. Naik

Nobody can stop entry of private sector in defence: A.M. Naik

In 1965, Anil Manibhai Naik joined Larsen and Toubro Ltd as a 23-year-old junior engineer and, shortly after, became the youngest manager in the history of India’s largest engineering and construction company. In April 1999, he took over as the CEO and managing director of Larsen and Toubro . Since then, he has helped boost the company’s turnover and market capitalization manifold. Mint reported on Wednesday how Larsen and Toubro is now planning a significant restructuring of its businesses, floating five businesses as independent entities.

In an extended interview, Naik also outlined his new plans for Larsen and Toubro as well as his views on the Indian government’s lukewarm response to the private sector’s entry into defence manufacturing as well as the removal of subsidies for shipbuilding which, he says, will kill the industry. Edited excerpts:

You’ve been talking about the restructuring of your organization...

Larsen and Toubro is highly complex to manage because of its innumerable businesses. We have around 62 different businesses. Adding complexity to the current structure will not bring best governance and best talent to the company. If all the top officials want to be on the board, Larsen and Toubro ’s structure cannot provide for everybody to be on the board because it is one company which is equivalent to 18 companies.

We need to bring in certain degree of focus in what we do to maintain our diversity in portfolio and geography. We will spin off our existing business from Larsen and Toubro in those areas where we are making new investments. Since we already make around Rs500-700 crore of turnover in the power sector, we will start our restructuring exercise with power. We are looking at 11 or 12 verticals within Larsen and Toubro . Each one will work like a separate company and spinning them off will take another three-five years.

Tell us more on how you are restructuring the power vertical.

Larsen and Toubro Power Projects Ltd will be the holding company for all our power businesses. So Larsen and Toubro Mitsubishi boiler (51% owned by Larsen and Toubro and 49% by Mitsubishi), our turbine-making company and sales and marketing for these products, will all be under this company, which will be a wholly owned subsidiary of Larsen and Toubro . The boiler unit will be either in Tamil Nadu or Gujarat—whoever gives us land first. We are also looking at having our turbine-making unit in either of these states.

Could you tell us more about your hydropower project plans?

Hydropower is highly civil-oriented and, therefore, it will be under the engineering construction and contracts (ECC) division, and hydro is headquartered in New Delhi. We will be looking at the Himalayas for hydro projects. We are already developing 70MW of hydropower projects. We are looking for more. But first, I need a power development company.

You’ve been talking about entering shipbuilding for a long time. Will it also be a big business for you in the near future?

We have already started building ships. We have 80 acres of land in Hazira. We have orders for $300 million (Rs1,200 crore) worth of ships. It will be a fully owned subsidiary or 95% owned by us, just in case the government wants to own the rest—then we will give them that stake. Shipbuilding in Hazira will be part of that company. However, I would like to make one thing clear that if the government stops paying subsidy to shipbuilding units, we may not go ahead with our plans.

You also have some plans for the railway sector. Will this also become another vertical?

In railways, we work on small projects—like we do light signalling, railway electrification and civil work. We will combine all these to form one integrated railway group. We also want to run high-speed railways, mono-rails and merry-go-rounds in the mines, and metro (rails). So far, we have not concentrated on railways because nothing was happening. Our idea is to create private sector mix of Indian Railway Construction Co. and Rail India Technical and Economic Services.

Larsen and Toubro believes in eyeing engineering and technology which gives strength to our position. Railways will be part of the Larsen and Toubro transportation sector that currently builds highways and bridges. Recently, I made a very serious speech in the railway ministry to change their style of execution. If they want to create Mumbai-Delhi freight corridor, once it is financially closed, it should be divided into three-four parts and given to the best companies. I am not saying that Larsen and Toubro should be given the work, it can go to anybody. We are also interested in rolling stock manufacturing for railways. We would like to start manufacturing railway locomotives and wagons.

Will you also bid for second phase of Mumbai Metro?

We will bid. That is (for the) development, which is part of Larsen and Toubro Infrastructure Transport Co. What we are trying to do is to (also) work on construction and turnkey projects like we do for airports. For instance, despite GMR winning the entire Hyderabad airport, we worked for it. We will work for New Delhi and Bangalore airports. We are confident that we will work for Mumbai airport as well. It’s important to build capabilities. People can win projects, but can’t build. My first preference is to build and own. Larsen and Toubro believes in building capabilities around building our nation.

Are you looking at forming alliances?

Our people are looking at the best (companies) to form alliances. But even if we do form an alliance, we need to have projects to work on. There is unlimited demand from power and shipbuilding. The picture is hazy right now. What if I form a separate company and railway does not go ahead with their plans?

How about your plans for defence manufacturing?

It will take time. The government has not yet announced Raksha Udyog Ratna (RUR) status for Larsen and Toubro . I want the government to declare RUR. Every month, they defer the decision. Once it happens, we will have opportunities.

As of now, it is largely controlled by the government. In the long term, if defence spending becomes big enough, then we will have a separate division. Right now, India does not have the appetite to spend heavily on defence. The last major defence programme was 17 years ago when Bofors guns were bought. Not a single procurement has happened after that. Sometimes, I wonder how our army is able to fight with these kind of outdated weapons.

What specific areas are you looking at within defence?

We are already working on projects for the navy. We are working on defence firing systems, missile launchers and electronic warfare systems. Then, we are interested in some programmes for the Army—weapons modernization and upgradation.

Would it be right to say that you have the capabilities and you are waiting for the government nod?

I would say we are building capabilities. No company can ever claim that they have the capabilities because it is a hi-tech field. Electronic warfare is such a hi-tech field that even the most capable companies continuously upgrade themselves. Larsen and Toubro is still in its infancy.

When is RUR likely to come?

If you ask me the same question next month, I will give you the same answer: I don’t know, but it’ll come some time. There is too much resistance from public sector undertakings and defence ordnance factories. They don’t want any private sector company to come in. But nobody can stop the entry of private sector into defence—they can only delay it.