BackI’ll step down as chairman in October: L&T’s Naik
The problem with India is China, on the one hand, keeps poking us at the border, and then they enjoy a $50 billion trade surplus with us, says L&T non-executive chairman A.M. Naik
PremiumMUMBAI/NEW DELHI : At infrastructure conglomerate Larsen and Toubro, a significant step in its succession plan will play out this year. Non-executive chairman A.M. Naik, who joined the company in 1965 as a junior engineer and rose to become chairman, turning the company into a formidable industrial behemoth along the way, will step down as non-executive chairman in October, making way for his successor S.N. Subrahmanyan, the company’s CEO and managing director, to lead the board as well.
In October, as the baton passes, Naik, now 80, will be designated chairman emeritus. He will continue to wield influence over the company’s affairs as he will remain chairman of the L&T Employee Trust, the company’s single largest shareholder.
Naik will have the satisfaction of relinquishing all roles after leaving his imprint indelibly over the company. Founded in 1946 by two Danish nationals, L&T today boasts a market capitalization of more than ₹3 trillion and is counted among the top five construction and engineering companies in the world. Some 92% of the company’s revenues today come from businesses started during Naik’s rein at the helm—he served in executive roles variously as CEO and managing director, chairman and group executive chairman between 1999 and 2017. In that period, the company’s market cap rose from about ₹2,000 crore to ₹1.7 trillion. Naik managed to fend off takeover attempts by larger conglomerates in the early 2000s, managed to secure substantial shareholding in the company for staff (to an extent ringfencing the firm from future takeover attempts) and expanded into a number of new businesses, including defence and IT services.
In an interview, Naik expressed strong views on a range of subjects. How is India letting China have a $50 billion trade surplus even as it tries to stare us down at the border, he asks. He spoke about Make in India, the secret behind L&T’s project delivery-on-deadline discipline, and other themes. He agrees that L&T Finance has some way to go but declares that in three years, it will be a transformed company. On his successor, known by the acronym SNS, he is pleased to have executed a smooth leadership transition. Edited excerpts:
What will be L&T’s role in the MoU it entered into with Norway-based H2Carrier to design and fabricate modules to produce green hydrogen and green ammonia, including electrolyzers? Will you make electrolyzers for the world?
We’ll first make it for India. There are many firms working on electrolyzers. Like H2C of Norway, they are going to go for the cheapest source. We need to have a global competition to bring the cost down. The biggest problem with green energy is that the cost of making green hydrogen is too high. We need to bring in a drastic reduction in costs. And for that, we are one of the participants in the Indian arena, to begin with. But it is the same way what we are doing in heavy engineering and defence equipment. We started with India. But today, 60% of what we do in process plant equipment, hydrocarbon equipment, reactors, and all that is for the world, and we are No. 1.
Will you look at becoming an energy provider in the renewable space?
We are not an energy provider but an energy equipment provider. We’ll make electrolyzers, but we’ll not make energy out of them. We’ll make and sell electrolyzers.
Several Indian business houses are in the middle of setting up mega-projects in green hydrogen, giga-factories for solar, etc. Is L&T involved in them?
I can only tell you that every project and every factory complex that Reliance Industries has embarked upon have been built by us, whether it is the project in Patalganga during the late Dhirubhai Ambani’s time from where the company started, and then the Hazira petrochemical project, the Jamnagar petroleum refinery and then the entire BKC complex, which has the widest hall without a single pillar obstructing the view. Mukesh (Ambani) had asked me, have you gone and seen the hall you (L&T) built? When I told him not yet, he asked me to check it out.
Of all of L&T’s projects and facilities, what’s the one that you’re most attached to or find the most impressive?
I’m most attached to the things that we promised to deliver and fulfilled our commitment. What I’m most excited about is that we must do things which will serve our nation better than anyone can serve their nation. And in every walk of life, there must be tremendous dedication and commitment and sustenance whether it is defending your territory, whether it is green energy or global warming or whether it is the balance of trade. The problem with India is China, on the one hand, keeps poking us at the border, and then they enjoy a $50 billion trade surplus with us.
Now even in electric cars, BYD is overtaking Tesla in terms of the number of cars manufactured…
In everything, they’ll overtake because the Western world is so expensive. In India, the same thing is happening that individuals like you and me want to save by buying cheaper versions. But in my house (bangs the table thrice) nothing … no product made in China is allowed. If you’re a nationalist, only one thing matters. That they are our enemies. How can you give them money which will be used to fight us?
What are your thoughts on L&T Finance? It is one company in the group that has not done well.
I completely agree. I was not involved in finance because I didn’t want to interfere in matters that I didn’t know well enough. The company started in 1994 when I was not CEO of L&T. It was started by our then-CFO. But, we have taken a tremendous number of actions in the last three years.
Some businesses in L&T Finance were divested, like the mutual fund business.
Yes, we sold the mutual fund business and, earlier, even the insurance business. Our retail business is only 30%, where the non-performing assets are the least. We had an exposure of 70% in wholesale (corporate loans). We have now pared the corporate exposure to 48%. Our idea is to bring it down to 25%, which we propose to do in the next three to four years. When the company (L&T Finance) was not performing, some board members asked me what I was doing to turn it around. They told me that we should have a greater influence on L&T in L&T Finance. So, I had to put SNS as the chairman. He understands how to run a business. He may not be a finance man. One by one, we have started cleaning up. In three years, you’ll see a different L&T Finance.
You handpicked SNS to be your successor and mentored him. What did you see that was different from his peers?
I don’t think it can be expressed in words. You have to feel it. One feels it while participating in meetings. What are his thoughts and the intellectual arguments he makes at these meetings. I met him for the first time in 2006 because he was in the southern region of ECC (engineering, construction and contracts division). He didn’t know anybody and nobody knew him. That’s when, along with him, I transformed ECC, and the sea change started from 2006 onwards. In 2006, it was ₹3,700 crore and it grew. In 2017, it was ₹60,000 crore—15 times bigger in 11 years. Kuch tho kiya hoga, (he must have done something). Why could others not do it? And the PAT was 3%. Today it is 5%, and I’ve given them a target of 7% by 2026. But I won’t be there. But if I am alive, I’ll pick up the phone and ask SNS. Many companies have problems. Most companies have sibling rivalry or father-son at the helm… Some end in a good wicket, but most end up fighting.
The Indian government is encouraging Indian business houses to make products that are now imported, like semiconductors, phones, and even green hydrogen. Will L&T enter any of those new segments?
L&T is already in 62 businesses, and we will not become a master in the world by entering new business segments. Over time, I reduced it to 16 businesses. But what we’ve divested, we’ve also managed to create 10 times more by getting into new adjacencies. Perhaps, we are the only company which has succeeded in creating from scratch the fifth largest IT company in India. Isn’t that creditable? … because Birlas did not succeed, Goenkas did not succeed, ITC did not succeed and Hindujas did not succeed in building scale to their IT businesses.
How significant is the IT business to L&T?
It is 35% of our market capitalization, and it contributes 35% of our profits.
What are your future plans?
In 2003, when I saved L&T from being taken over by the Aditya Birla Group, there was a lot of noise in the share market and in the annual general meeting that the name should be changed from L&T to LNT, Larsen Naik Toubro. In fact, a few people asked me, and I told them not to do that. L&T is a super brand. We don’t want to change that. That’s when they said you have to accept the post of chairman emeritus. In 77 years, there is only one chairman emeritus, but I haven’t used that (designation), because I’ve been a chairman. But this October, I’ll give up the non-executive chairmanship.
So you’ll be L&T’s chairman emeritus?
Plus, I’ll be the chairman of (L&T’s Employee) Trust. Finally, the Trust holds L&T. Ultimately, it is the apex body of the shareholders.
So who’ll take over as chairman?
We’ve already said it will be SNS, who’s our CEO. I mentored him for 8 to 10 years. I had sent him abroad to gain experience. He’s very good. And he does a fantastic job.
Do CEOs necessarily have to inspire a measure of fear among their subordinates to be effective?
Even I have not generated fear. I’ve generated discipline. I’ve been kind to everybody in their hour of need. That’s very important.
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