Engineering major Larsen & Toubro (L&T) is likely to divest some of its road and power projects
as it focuses on its core business. These projects generate revenues of less than Rs 1,000 crore, and many of them make losses.
In an interview with Business Standard
, L&T Group Executive Chairman A M Naik said the company was open to selling its loss-making power and road projects.
He, however, did not specify the projects, or if other businesses might also face the axe.
L&T’s portfolio includes 15 road projects, with project cost of Rs 16,100 crore and two power projects
with capacity of 1,499 megawatt (Mw) and project cost of Rs 11,200 crore.
Naik said the businesses that were generating less Rs 1,000 crore in revenue would be sold off. “We have already sold off our two ports in Dhamra in Odisha and Kattupalli in Tamil Nadu. We are looking to sell all those businesses which are non-core. We may lose sales of close to Rs 8,000 to 9,000 crore. We plan to make up for it by increasing revenues from our core businesses,” he said.
Across industry, more than 20,000 Mw of power projects
and 40-50 road projects
are currently up for sale, thus making it a buyer’s market.
Apart from L&T, GVK, Reliance Infrastructure, and GMR
are also planning to sell their road projects.
The infrastructure sector is facing a crisis of sorts, with high interest costs, land acquisition delays, and regulatory clearances blocking the progress of projects.
According to statistics collated from L&T’s annual report, the company has many subsidiaries which are losing money.
These include road projects, steel forging business, and even shipbuilding business, which made a loss of Rs 348 crore in fiscal 2017 (see chart).
L&T Special Steels and Forgings made a loss of Rs 254 crore in 2016-17, but considering that it is making special steel to be used in nuclear and other strategic sectors, L&T may not sell the company or offer it to another public sector company, said an industry analyst.
Apart from selling these companies, L&T is planning to participate in the government’s divestment plan to buy companies
in the defence and infrastructure by spending Rs 5,000 crore to Rs 10,000 crore in the coming years.
Industry analysts said L&T was likely to pick up government’s 26 per cent stake in BEML, which reported sales of Rs 2,834 crore in 2016-17 and a profit of Rs 85 crore.