IT sector and manufacturing unit are going to be a strong pillar for our growth in future: AM Naik, L&T

Anil Manibhai Naik, Group Chairman, Larsen & Toubro (L&T), speaks about his hopes from 2019, the impact of 2019 election, business opportunity from international market and growth drivers of L&T among others during an exclusive interview with Swati Khandelwal, Zee Business. Excerpts: 

What is your expectations from 2019 for L&T as this year is going to be an important year for India due to the general elections scheduled to be held in mid of the year?
I think you are right as this year’s election is going to be a different one as the Prime Minister Narendra Modi, who is a tuff taskmaster with great capabilities and supported for his truthfulness, is being pressurised from all sides, opposition, who don’t like his style of working.

The current situation is Modi vs All, thus this election is going to be tuff one for Modi. That’s why I feel that the election results must be a good one and Modi retains his power. Or else things will nosedive, and we have experienced a condition twice where the Prime Minister has been changed in six months. In the second condition, the Congress, which can win maximum 100-125 seats, will have to form a government in support of 12-15 parties, which is not good for the country. 

Do you think it is going to have a negative impact on growth?
Yes, it is going to have a negative impact. 

Let’s talk on the economic growth front. Do you think that we will be able to meet the target of growing our GDP by 8 per cent?
I don’t think that we will be able to grow by 8 per cent in 2019. But, our post-election efforts, if put together for 7-8months, can help us to reach 7.75 per cent in FY21 and 8 per cent in FY22. Apart from this, 

Secondly, drought conditions do prevail within the economy of 3-5 states, like Maharashtra and Karnataka among others. Several districts are also facing water shortage problem, which is an additional burden. On the other hand, the opposition parties have made everything free, but are not even aware of the source from where the money will be sourced to finance these freebies.

Even the centre’s financial health is not that strong, at present, that they can approach it for the funds. How will you source money for development? Modi talks development but there are projects that are lying ideal for past 5-7 years and has remained untouched due to the lack of resources. China has a reserve of around $4-trillion, which can be used to fund almost everything, but we lack in it.

Have a look at the big infrastructural projects like the trans-harbour link project, which has been completed with the support of Japanese fund. Similarly, the high-speed railway can come into existence only if Modi returns to power or else it will be dropped. 

Is the ongoing liquidity crunch, which is creating a pessimism or negativity, is a matter of concern for you?
I have told my senior leadership team to go for cost-cutting and be competitive and look for opportunities, within and outside India, where we can increase our presence. As the Indian conditions are going to be worrisome for next year. But, this year is going well for us and I am cautioning my team for the next fiscal. I am asking my team to bring an ample amount of orders so that we can survive ourselves in the next fiscal. 

There is a slowdown on the defence front. 
There is shut down as our factories, seven, are under loaded and thus, we don’t have anything to do in defence front. 

But, what about business opportunities in the international market?
Unable to find anything in the defence sector. And, that is a reason that the facilities in these seven units are bring used for non-defence activities. 

What is going to be the growth drivers for the next 2-3 years for each of the verticals of L&T?
We are focused on services, specifically, as our financial services have grown by 50-60 per cent on an annual basis while technology and informational technology (IT) sector has grown by 20-25 per cent and we are pushing it because its growth story is not dependent only on Indian economy but on the global economy. Thus, we are increasing our presence on IT front and you may get a chance to see our presence in the IT sector in next 2years. 

Thus, IT and financial services are going to be strong pillars for growth for L&T. 
It is going to be a strong pillar of our growth. In addition, manufacturing unit (heavy industry), which constitute only 6 per cent of the company, is the second pillar due to the order book that it has at present, in fact, it didn’t have had such an order book in the segment in last five years. Its order book is full for next 18month.

Fortunately, hydrocarbon project will play a pivotal role for us this year as we have a number of projects, national and global, in our list. In fact, we had a budget of Rs20,000 crore but can secure an order book of Rs28,000 crore. This means that H1 of the next financial year will remain sound for us. But, there is a question on funding on infrastructure segments that is the biggest constituent of our business.

But why such a question mark on funding at least when the banks are ready to lend to good companies?
It is not for us but for the government, who needs to come up with projects as we can execute them. We have sufficient work which can last up to the first half of the next financial year, but I am talking about the second half. 

Do you think that these glitches that are slowing down the economy can have an impact on your five-year strategic plan that will end in 2021?
Yes, it can have an impact, but, I feel that this will not happen as we are well covered up to 90 per cent, which means we will have to push ourselves to achieve the remaining 10 per cent. 

What is your outlook on the growth of the company at least when the way to do business is changing across the world?
We will look towards the new age technology, like artificial intelligence and Internet of Things (IoT), and areas of its application. We will put our hands on the segment only if it can have a contribution of minimum 1 billion to our business. Our minimum is ‘All efforts should go to make a billion’.

And, you would have seen that the IT has turned up to be a 2 billion business for us. And, interestingly, the services sector has a contribution of almost 50 per cent in our net profit, that is, if we earned a profit of Rs9000 crores than the service sectors had a contribution of Rs4,500 crore to it. We are eyeing on the next generation of technology in services with an aim to turn it into a 1 billion unit. We are working on a prospective plan on that front. 

You have said that you want to offer a return on equity of 18 per cent to your shareholders. Are you on course to achieve it or can better it?
We are on course and will try to better. 

Earlier, you have said that you will be exiting from the non-core assets, which are not of any use for L&T. 
The market is in bad shape and that’s why no one is ready to buy them. But, in the recent past, we have sold a small business at Rs43-crores. And, right now, we want to sell additional four-five units in 2019 even by reorganising them. It will help us in utilising our resources and talent on something that we want to do in future.   

What is your outlook on financial services at least when the financial sector is going through turbulence?
We are an NBFC and I think that there was a need for being more balanced and now, we have realised what to push and what to reduce. I would not like to talk a lot in that front but will make sure that we are will try to reorganise that company in a way that the company will grow even stronger in the next 2-3 years. Today, we are much stronger anyway. 

You have been appointed as a chairman of National Skill Development Corporation (NSDC). Update us on employment prospects in India? What is your view on it as a chairman of NSDC and how you are working towards it?
NSDC is not responsible to generate employment but has a responsibility to make young generation employable. For that, I can say that I try to do my best on all frontiers that comes on my way and that’s why we are working very hard on it and every day I spend at least 2 hours on it. I have a meeting on January 8 and January 11, 2019, on NSDC in Delhi. Then I will be going to Bangalore and with three sectors.

There are 38 sectors in NSDC and 10 stakeholders like CII, ASSOCHAM, FICCI, for skill development. They are 5.1 per cent each, totally 51 per cent, that’s why it is a private organisation and 49 per cent is the government. 10 board members are from 10 sectors, 4 are from government and 15th is me. So, it is an autonomous organisation with a character of a private and you can do it only if you do a good job, otherwise who will listen to you. They will say that you are worse than the government.

So, I must motivate, inspire, and I think that I have succeeded a little bit. The 250 employees of NSDC has a feeling that AM Naik will bring something good with himself. 

You have donated your personal wealth into a charity and we can see that you spend ample time towards it. 
I spend one-third of time into charity and have completed 11 projects in it. In addition, I will be opening four hospitals and a school in the process, which will continue for next 3-4years. Then, I will look forward towards other things. 

What inspired you?
My grandfather and father did a lot for poor people for 80years and I saw 40years of that with my own eyes. So, I was always concerned that what will I do, as I am an engineer and they are a teacher, who can make them learn. During my college life, I used to think that I will be able to do something on this front if I will get an opportunity to work with L&T. Therefore, I wanted to come to L&T and my destiny moved me this way. 

Are you eyeing on some new avenues of business, where you are seeing an opportunity? 
We have created a different team for the prospective planning of 2026 and they are engaged in creating new ideas that should be done. In fact, there has not been a single year in the past 20 years when we haven’t done something new at L&T. And, 88 per cent of things happening in the company at present were started from a blank sheet.

So, this is also bothering us that what we can do on this front and that’s why have constituted a 3-4 committee on the matter, who reports to SN Subrahmanyan. I have also participated in one of their meetings. In fact, they are meeting once in every 2-3 months. I feel that by March 2020, we will have a rough blueprint on the issue. So, that we can prepare a strategic plan from the perspective plan by 2021. 

What are your plans for this acquisition and let us know about the areas of opportunities?
We are looking towards the service sector like IT and engineering services. We have removed all manufacturing units, which were not hi-tech in nature and the remaining units are available only with 4-5 companies across the world and none of them is functional in India.

Slowly, we will bid goodbye to commodity projects like ordinary road and highway development projects and will move to big and complex infra projects like development of Statue of Unity, the 17-km long underwater highway between New Bombay to Bombay, coastal road and a bridge on the Brahmaputra. 

Do you think that you should participate in government’s schemes like affordable housing or housing for all?
If seen from a perspective of complexity then we must not be there, but we have certain social responsibilities and that’s why we have decided to participate in affordable housing but will enter into it only if we get a chance to build 1 lakh houses. 

Will you continue to bid in airport projects or not?
Airport is very good as well as complex business and thoroughly integrated. That means multiple systems works simultaneously and is critical from safety angle that’s why we will keep participating in it and hope 2-3 airports will be added to our portfolio soon.