Change of guard at L&T: Size, scale key challenges for S N Subrahmanyan

Larsen & Toubro’s (L&Ts) outgoing chairman A M Naik’s highest point at the organisation was successfully fighting a hostile takeover of the company in the mid-2000s.

Cut to 2019, L&T was on the buyer side of the table of a hostile takeover of tech company Mindtree. L&T’s journey from target to acquirer also spells out what Naik’s successor SN Subrahmanyan’s (pictured) — or SNS’s as he is known — opportunities and challenges would be — size and scale. Beginning October 1, Naik will step down as chairman of L&T, passing on the baton to Subrahmanyan, who will begin duties as chairman and managing director of the company.

In keeping with Naik’s larger-than-life persona, the change of guard is expected to be marked by an event at its Mumbai headquarters, including a performance by Bollywood singer Sonu Nigam. “Charisma is what differentiates SNS from Naik,” said a former L&T employee, who has had an opportunity to work with both the leaders, adding that Naik is a 

“people’s person.”

“SNS is more business focused, open to new tech and quick with decision making,” the former employee said.

Multiple L&T insiders agree that Naik has done a great job in mentoring SNS for the role. “I am super comfortable working with both of them,” said another senior executive at L&T.

To be fair to the incoming chairman, attempts to maintain the legacy are evident. SNS’s address to the media and shareholders in the last few years has been peppered with lighter comments.
 

A famous one in 2019, was when he stated that the Mindtree takeover will be accomplished with “pyar.”

Another tag, employees attribute to Naik is that of being a ‘micro manager’, with a positive connotation.

L&T’s chief financial officer (CFO) R Shankar Raman listed ‘Micro managing, when it comes to implementation of plans, entrepreneurial, importance of shareholder value creation,’ as some of the aspects the company’s employees have imbibed from Naik.

Naik has spent the last six years as non-executive chairman, further mentoring SNS.

Case in point is L&T’s takeover of Mindtree. According to insiders, while SNS and the team initiated the deal, Naik is said to have negotiated the price.

During previous interactions with Business Standard, Naik said he sent SNS overseas for a year to work on technology-related expertise.

The company, in its profile of SNS, adds that he ventured into untapped geographies like the Middle East, Africa & the Asean region to establish L&T’s credentials and presence. Also, building long-term relationships came easy for him.

During the last six years, SNS’s impact on both these counts is evident.

As of March 2023, L&T’s total revenue was Rs 1.83 trillion, of which 22 per cent came from the IT and tech business. As of June this year, a quarter of L&T’s Rs 4.12-trillion order book was from the Middle East market. This huge scale is a big challenge for SNS, in terms of execution and working capital management.

SNS, in his previous interactions with the press, had highlighted labour availability as a major concern, to keep pace with the growth rate in the country’s infrastructure.

Add to that, SNS will also need to face the same challenges that anyone at the helm of a capital goods company in India deals with — maintaining growth rates, tackling policy changes and commodity cycles.

The challenges for capital goods companies include need of a more sustainable trend in recovery of private capex, said Anupama Arora, vice-president and sector head – corporate ratings, ICRA. she added, "Profitable execution of order book while managing commodity headwinds and working capital cycle,” are other challenges.

To be sure, Naik is not expected to completely divorce himself from L&T. He still remains at the helm as the chairman of L&T Employee Trust, which is the largest shareholder of the company. As it is often echoed within company circles, Naik and L&T remain inseparable.