L & T Buys Caterpillar Stake
Larsen & Toubro today announced that it has bought over the 50 per cent shareholding of its equal joint venture partner Caterpillar USA in Tractor Engineers, making it a wholly owned subsidiary.
However, the company has in a letter to the national stock exchange (NSE) communicated that "it is making efforts to reduce its exposure in this business and in the process had closed down their manufacturing unit in Thane recently".
Corroborating an earlier Business Standard report that it is planning to sell its stake in Tractor Engineers, L&T added that it "proposes to take steps over a period of time to change its product lines and/or take any other appropriate action to reduce the overall exposure".
L&T has, however, not disclosed the cost of acquisition of Caterpillar's stake. Tractor Engineers has a paid-up capital of Rs 6.8 crore.
According to industry sources, both the joint venture partners have been trying to exit from the joint venture in view of the severe competition faced by them from some of the Italian players in the same segment.
In fact, L&T had recently made a presentation to financial institutions and leading investors, wherein it had said that it was looking for ways to reduce its exposure in the company and "redeploy resources". It added that "substantial progress has already been made", but did not divulge more details.
Meanwhile, restructuring at L&T gathered pace with the company deciding to phase out the fund business after having identified it as a non-core area this year. Its finance arm -- L&T Finance -- will now fund only the parent company's clients.
Shankar Raman, general manager finance at L&T said: "We have basically substituted the client profile. The agenda is to remain central to L&T and help the parent company develop its own business."
The company is engaged in funding construction businesses, hire purchase and leasing of equipment. Initially, the L&T-related customer financing was as low as 5 per cent, which has now increased to 70 per cent. "We are in the process of phasing out all the mid-size (3-5 years) corporate contracts and would not renew them," he added.
L&T Finance was floated in 1994 under the non-banking finance company (NBFC) model. At that point of time, the capital market was booming and a slew of capital-hungry mid-sized corporates came into the picture. But gradually, L&T realised that the model was not sustainable in the long run. "So we decided not to take further exposure," Raman said.
The NPA level of the company is close to 2.5 per cent of the total assests of the company which is around Rs 400 crore. Last year, the finance arm restructured its operations to focus on fund-based activities and accordingly hived off it fee-based services into a subsidiary-- L&T Capital Company. The turnover of the company is Rs 100 crore and it made a profit of Rs 9 crore during the last year.