Our revenue will double in 4 years: AM Naik

Interview with executive chairman, L&T Group

L&T Group Executive Chairman AM Naik is confident of the performance of L&T Technology Services. In an interview to Sheetal Agarwal--along with P Ramakrishnan, chief financial officer, and Kumar Prabhas, chief operating officer - at the company's IPO, Naik said L&T Technology Services was targeting $525 million revenue in 2016-17. Edited excerpts:

On the group's expectations from L&T Technology Services

Naik: Till now we do not have a dividend policy. We will form it now and it will be a very prudent policy, similar to that in L&T. We are not anxious to take away dividend, we would like the company to grow.

On the guidance for L&T Technology Services

Naik: We are now a second-rank brand in IT. In two years' time you will see tremendous improvement in the company through new-age technologies. We are at $460 million revenue and we are targeting $525 million this year. Over the next four years our revenue will double, which will include $150-200 million revenue from acquisitions. We have faith in this business, and we will continue to invest in it.

On the timing of the IPO when IT stocks have been depressed

Naik: There is overwhelming support for the IPO.

On group companies going to the market as a combined entity

Naik: Our IT customer is the chief information officer, while the engineering customer is vice-president, engineering. If L&T Technology is doing engineering for one customer but there is no IT in that company, he will introduce IT to that customer. At least to start with, they do not have to struggle to open doors.

On de-risking L&T Infotech's portfolio

Naik: Our top customers are in different verticals and we are significantly de-risked. We want to focus on the top 30 clients, such as UTC and Rockwell Automation in industrial products, and Scania and Caterpillar in transportation. We work for some leading German and Japanese automobile makers.

Last year we shut down 81 accounts that had revenues of less than $1 million and were not growing. We closed accounts worth $24 million in revenue last year. We could have closed these accounts after the IPO. It cost us top line.

On the company's net debt

Ramakrishnan: The net debt is roughly Rs 200 crore, largely working capital loans. Around Rs 100 crore is in technology services and the rest in the US entity LCC. We can retire the debt if we do not pay dividend.

On sustainability of other income

Ramakrishnan: Consistently 1 per cent of our net interest margin comes from hedging. That is intrinsic to the business. We have a proactive hedging strategy that has allowed us to isolate our bottom line from currency fluctuations.

On the digital business strategy

Prabhas: We provide smart services, operations and manufacturing. We have 20 offerings in these three segments. The L&T group provides us the platform to build some of these internally and then take them outside.