How L&T fared in a year after S N Subrahmanyan took charge as MD & CEO

The beginning of October marked the completion of one year since engineering conglomerate Larsen & Toubro (L&T) saw its top man A M Naik step down from an executive to non-executive role. It is also a little more than a year since S N Subrahmanyan took charge as the group’s managing director and chief executive officer. In this period, there have been a handful of significant developments while a lot remains unchanged.
 
Officials working with the firm as well as analysts tracking the company agree there have been small changes and some noteworthy developments. “There is definitely a change in strategy where the focus seems to have moved from not investing heavily in the infrastructure sector or chasing infra jobs. Now, the focus is on new businesses like IT services. Could this be a break away from Naik’s strategy? Key decisions like share buyback, focus on the retail segment for financial services, and sale of the electrical and automation (E&A) business, hence reducing the size of the balance sheet can be attributed to new leadership,” said Nitin Bhasin, managing director and head of equities research of institutional equities, Ambit Capital.

 
An email sent to L&T to share the new CEO’s role in major developments in the past one year remained unanswered. 
 
In the series of events that have unfolded at L&T since July 2017 to date, the company’s announcement for a buyback offer is one, which significantly stands out. There is unanimity in the view that this decision goes completely to Subrahmanyan’s credit and is seen as a step to increase share value. Subrahmanyan assumed his role in July 2017; the buyback was announced in August.

 
“The share buyback did come during Subrahmanyan’s time, talks for sale of E&A division was around for years,” said Dhirendra Tiwari, head of research, Antique Stock Broking, who agreed the final push to complete the sale came after Subrahmanyan’s assumed the post. In May, L&T agreed to sell its E&A division to Schneider Electric for Rs 140 billion. “There has been no drastic change in the organisation. They have been pursuing a good strategy and that will continue,” Tiwari said.
 

Naik, who meticulously chose and mentored Subrahmanyan, said he was still around to guide the organisation. “I am still there and I am still the group chairman. I am planning the future leadership and mentoring. There are two important projects that I want to straighten and then handover to him (Subrahmanyan),” he told Business Standard in September. Naik stepped down as executive chairman on September 30, 2017, and since then he has been associated with L&T as non-executive chairman and will do so for another two years. On Subrahmanyan’s performance, Naik said, “He is a good man and is doing a good job.”
 
According to the officials at L&T, one addition that Subrahmanyan has made to is on the digitisation side. “There is a new thrust on digitisation in the company,” said an L&T official, who did not wish to be named. In terms of strategy, he said, “There is definitely more focus on speed and scale (revenue size).”
 
Part of this focus is the formation of a 15-member L&T Digital Council and a 16-member Advanced Analytics & Technology Council, both formed in May. “It has been decided to form an Advanced Analytics & Technology Council, which will identify areas amenable for cost reduction through advanced analytics as well as for synergy, sharing of best practices, discuss need for common platform, and initiate necessary action, adopt data management policy,” Subrahmanyan said in a letter in May.
 
Minor changes have also been made in how the group classifies its multiple business segments. Effective from June, L&T has reclassified its metallurgical and metal handling business under the infrastructure vertical, from its previous classification under ‘others’ segment.  The company’s defence business has been carved out from heavy engineering vertical and has been reclassified as defence engineering.