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It's tension time, but I pray that it's short term: K Venkataramanan

Interview with Managing Director and Chief Executive Officer, Larsen & Toubro

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K Venkataramanan, 65, has been a passionate engineer since he graduated from the Indian Institute of Technology (IIT), Delhi, 43 years ago and joined Larsen & Toubro (L&T). A triple blue at IIT-Delhi in tennis, table tennis and basketball, he says sports taught him how to bounce back. Today, with the and India’s largest engineering and construction conglomerate up against a range of challenges, Venkataramanan refuses to shed his positive outlook. In his first freewheeling interview after he took over from A M Naik, he talks to Katya B Naidu and Abhineet Kumar on how L&T is planning to drive slowing demand. Edited excerpts:

The economy is slowing and companies are postponing investments due to high interest costs. Do you think intervention by the would have helped revive growth?
Monetary review is just one part of the whole business environment and the Reserve Bank of India (RBI) has to also think of inflation pressure before a rate cut. What I am hoping for is total acceleration by the government on clearing some of the roadblocks, such as allowing land acquisition, since projects are getting stuck because of that, and coal linkages to power companies, without which you cannot grow at eight per cent.

I think the whole package is what will make it happen; just one rate cut by itself is not going to be enough. An even more important part is restoring foreign investors’ confidence that there won’t be any more discussion on retrospective changes in law. We also need more directional steps to encourage manufacturing. Today, you can’t move the vast mass of people from agriculture straight to IT. They have to move through manufacturing, otherwise we will have chaos in India.

Today the despair in the industry is palpable. Do you see a silver lining?
I can see the government at the top level is making the right statements and forming the right sort of sub-committees. Notwithstanding the fact that coalition governments take more time, I hope it will move in the right direction, as everybody today understands the seriousness of the problem.

The general feeling is that things have reached a level from where they can only go up. I sincerely believe that there has to be a clear direction on reducing or controlling the fiscal deficit and current account deficit and improving the climate. That will attract inflows from foreign institutional investors (FIIs) and those, in turn, balance out the weakness of our currency. Everybody knows this, so I think they will take steps to improve things. Given the democratic coalition, it is just that it takes more time.

Companies are scaling back their ambitions to synchronise with lower GDP growth expectations. Is this, in turn, going to affect your business as a leading capital goods supplier?
I don’t think five to six per cent growth will happen on a sustained basis; we’ll have to weather it for a couple of years. There is a war room kind of atmosphere in all companies to manage cash, inventory and headcount. It is tension time, but I pray that it is for the short term.

At L&T, we look for the long term to make the company less complex and more focused. We have structured the company under nine verticals, so each vertical is a focused company. When these verticals will become very large, they will have potential to unlock value by becoming independent companies. We are a Rs 65,000-crore turnover company now and expect to be over Rs 1 lakh crore by 2015-16. Then some of these nine verticals will be ripe for listing.

In that way, we are trying to be more manageable and provide an international perspective to each business. The new HR structure that we have is also linked to the performance of the vertical for employees right up to board level. It is a very challenging time for everybody, including L&T.

In 2009, L&T said railways, shipbuilding and defence would drive growth. After the Mazagon Docks joint venture and customs duty on imported equipment, are these coming true now?
These are all positive steps. In India when you are a private company, you have to struggle much more. Perseverance conquers all hurdles. We at L&T believe in this and are used to this. When equipment is earmarked for something, it takes some time for the private sector to have it brought in. When it finally arrives and performs well, it becomes an accelerated opportunity.

So, those opportunities are taking off now?
Yes, but in a small way. They will take off in a bigger way in the next two years. It will take a certain amount of incubation.

In the results conference, you said power will take off in FY14. What is the update?
The issue of coal supply has to be resolved. Already what has been ordered and 23,000 Mw of power capacity that has been built have been stranded for lack of coal. India needs 75,000 to 80,000 Mw of power to be installed once every five years. China installed 100,000 Mw a year. It will happen. We are well geared for it.

For the next two years, however, we really need to walk the tightrope in terms of managing cash and costs. The crisis is also an opportunity. For instance, we would have gone into the global markets at 40 miles an hour, now we will be going at 80 miles an hour. Because now we have the ability to do it, and we also need to do it. If there was a strong domestic market, we would have done it with less energy and passion.

So what will be L&T’s key drivers over the next decade?
These will be technology, great innovation and internationalisation. We are a barometer of the Indian economy. So India will finally have to grow; it is our destiny. The whole world wants us to grow. We have passed through some turbulent times; I am sure we will come out. L&T is truly the India story. You remember that movie starring Anil Kapoor? We truly believe we are “Mr India”.

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