L&T chairman casts doubt on India's economic revival

Questions govt's pledge to build up to 30 kilometres of roads a day when less than a dozen highway projects had been put up for tender

The chairman of one of India’s biggest industrial groups, Larsen & Toubro, sees little sign of a recovery in Asia's third-largest economy, with some of his factories running far below capacity and facing a dearth of new orders.

A M Naik, executive chairman of the 77-year group, often viewed as a bellwether of the economy, said Prime Minister Narendra Modi's reform agenda had failed to boost business among its core engineering, construction and infrastructure  customers. “In terms of economic revival, it is not happening on the ground,” Naik told Reuters on Wednesday at his office.

India matched China as the world's fastest growing major economy with seven per cent growth in the past quarter but economists have pointed to other indicators like capital investment to suggest the picture is not as rosy.

Naik said a recovery in private sector capital expenditure remained at least a year away, as corporations wrestling with hefty debts hold off investment even as New Delhi pumps billions of its own money into new road and rail schemes. Several of L&T's factories ready to build defence equipment for Modi's "Make-in-India" campaign are waiting for orders, Naik said. He also questioned how the government could deliver on a pledge to build up to 30 kilometres of roads a day when less than a dozen highway projects had been put up for tender.

L&T, a sprawling group with a market capitalisation of $21 billion, has disappointed investors in recent quarters with worse-than-expected revenue growth amid a slowdown among Middle Eastern oil and gas clients and continued weakness in India.

To revive performance, Naik said L&T, which has revenues of over $15 billion, is looking to sell some assets including roads and infrastructure projects and dilute its stake in non-core subsidiaries to revive performance.

"I am trying to reduce the smaller businesses and sell them. If I can do something about heavy asset companies, some of it we could exit or sell, our return on equity will improve," he said.

L&T, whose manufacturing portfolio includes infrastructure for metro trains, submarines and parts for nuclear reactors, will also appoint individual unit chief executives and individual boards to encourage independence and boost returns among its more than 70 businesses, Naik said.

Under Naik, L&T has been selling stakes in some of its subsidiaries over the last 18 months and looked at listing others on the stock exchange.  Bain Capital has agreed to buy 10 per cent of L&T Finance Holdings, its financial services arm. Last year, L&T agreed to sell a chunk of L&T Infrastructure Development Projects to a Canadian pension fund.