S.N. Subrahmanyan interview: How L&T started some businesses, sold others, and navigates a stormy world

How much risk do you think the international business is under, considering the US tariffs and the general volatile global environment?

Some of these issues are too big for me to understand or discuss. The way you need to look at it is, where you are, are you able to get business? And do you have a positive outlook? Wherever we are, we seem to be doing good, and we seem to be having a positive outlook. In some of the businesses, due to various reasons, there are supply chain, logistics and trade issues we are facing today. I have a feeling that in the end, rationality will prevail and many of these things will get sorted out. Because the world has to do business, and economies have to find their own fundamentals.

Besides the geopolitical issues, there are other big shifts happening, including the advent of AI. How is L&T navigating these?

So, this is an opportunity, right? Some years back, when digital happened, it was an opportunity we spoke about in the same tune as we speak today of AI. And luckily for us, at that time, Mindtree happened. When LTI and Mindtree came together, we had a fusion of traditional knowledge with a fairly far-reaching knowledge of Mindtree, that has done remarkable wonders. Similarly, AI today is in the same sphere. More than 400 algorithms are being written today within the company on various forms of AI or agentic AI. About 37 have already been implemented within L&T, and many are being written to get implemented. Some of it is being written from the client's point of view.

Would you look at a Mindtree-like acquisition for AI capabilities?

There is a leadership there (to take a call on this). IT M&As are not easy, right? It's like merging two HR companies. With Mindtree, we were lucky, because LTI was in certain sectors, like banking, insurance, oil and gas, manufacturing, et cetera, whereas Mindtree was in retail, high-tech, travel, hospitality, airlines and others. So, there was no major resource displacement.  Even with that kind of situation, it required a lot of energy and effort to put it all together. What I would encourage them to look at is tuck-in acquisitions. There's always a technology, a client, or specialized people you can acquire. We keep doing it quite often, and we'll continue to do that. But looking at any major acquisitions, I don't have anything in my mind, and I don't think my colleagues there also have anything in their mind right now.

What does your new five-year strategic plan consist of? Will there be a major makeover of L&T?

So, this is the last year of the previous strategic plan. It was a four-year plan, because of covid. We seem to have done good. On almost all parameters, we are exceeding the strategic plan. So, that gives us a lot of confidence, looking at the coming five years. I cannot comment much because the new plan is not concluded yet, and we have to take it to the board, get it approved, and then we'll announce it. We’re extremely positive. People are just raring to go. Brilliant ideas are coming out. We're not diversifying too much, but within the areas that we are in, a fair amount of investment is going through. We're looking at both India and the Middle East extremely positively. Maybe there'll be another geography.

You are entering new businesses like green hydrogen and semiconductors. What’s the strategy here? When do you see them stop being cost centres and contributing a lot to the bottomline?

As the company evolves and as the market develops, some of the businesses that we have get commoditized or face intense competition. There is also the possibility that somebody can do it better. So, as we go along, we are also moving out of some of the businesses. For example, we moved out of industrial electrification. We moved out of material handling. We put filters within businesses-we do not do jobs of particular sizes in certain areas.

At the same time, as we close down some businesses, for us in the senior management, it is very important to sow the seeds of something today which could become a business of some value tomorrow. Therefore, we have four important lookouts. Number one is the realty business. It was started more as an ability to monetize our own land. Then the idea came, why don't we make it into a business? So, if this business grows, that’s a business for the future.

Second is semiconductors-we've been prudent and careful of how we look at it. My idea has always been to grow the services business slightly faster than the engineering, procurement and construction (EPC) business, including manufacturing. The EPC margins are slightly lower for the simple reason that it includes raw material and stuff that I don't make; I can't buy somebody's cement and make 20% on construction. It doesn't work. So, EPC margins are always at 5-6% and services are 15-17%. Keeping that in mind is how we entered semiconductor design. We do not have the deep pockets to enter into making foundries and chips and all that. And therefore, within our means, I think design was a good bet to take. So, let us see how it goes, still early days, and if it does well, that is a good addition for the future.

Third is, if you look at L&T, across decades, it’s been an energy company. And therefore, if we have to restructure ourselves and look into the future, one of the areas is green energy. We didn't get into solar energy for various reasons, and now it's too late to get into that business. So we said, we'll concentrate on a few areas of green energy. So, we chose electrolyzers, because we are traditionally manufacturers, and we felt we could make efficient electrolyzers. We made India's first electrolyzer, which is of 0.5-megawatt capacity. Now we made another 1-megawatt one, and shortly before September, we will make another 4-megawatt one. In between, the government of India came out with this policy to direct all the hydrocarbon companies, especially the refiners, to look at green hydrogen in a substantial manner. So, IOCL Panipat came out with the first tender, which we were lucky to win. And now, we are going to put up one of the world's largest hydrogen plants.

The fourth area that we're looking at very seriously is the data center business. We were making data centers for other companies. And the idea came up that with all of our knowledge, why don't we look at data centers ourselves? We decided to look at data centers plus cloud services on top. We have done two data centers, a small one in Mumbai and a slightly bigger one at Kanchipuram. And then, towards the cloud service businesses, we invested in a company called E2E, which is a GPU cloud services company.

In terms of technological capabilities, how do you compare L&T with, say, a Chinese company?

See, technology-wise, we are at par, or a little better also. But our execution is still not that good. Our productivity levels are not that good, whatever be the reasons. You cannot blame the staff and workmen alone. There are many, many factors. The right of ways, the clearances, the right thing being available, the perfect planning, as you call it. And some of these things will also come with volumes. So, in my opinion, as the economy develops and more such opportunities come, I think all this will fall into place. I've seen it myself. If you do one thing, it takes a long time. If we do the same thing 100 times, suddenly all the productivity factors, the way everybody works, the planning, the scheduling, the logistics, the supply chain, everything falls into place.