Tamco integration brings L&T success

While many overseas acquisitions by Indian companies have failed to deliver on the promise, Larsen & Toubro (L&T) has succeeded in integrating Tamco Switchgear Malaysia and making it a major revenue and profit earner for the $9.6-billion (Rs 47,000-crore) group.

L&T paid $107 million (Rs 500 crore) to Tamco Corporate Holdings Bhd to acquire its demerged switchgear business in March 2008. The unit, now part of L&T, has seen its sales turnover rise to Rs 677 crore in 2009-10 from Rs 507 crore in 2007-08. Further, Tamco is set to record a turnover of Rs 850 crore this financial year and to about Rs 2,000 crore by 2015, said R N Mukhija, president (operations) and director, L&T.

 

He said the achievement was commendable, given the global electrical industry was going through economic slowdown in the past two years, causing fall in profits and sales for most players.

Post-acquisition, L&T retained the Tamco brand, management, staff and employees and only four expatriates were sent from India to work for Tamco. Within six months, manufacturing capacity at the Malaysian unit was expanded with a new plant and the unit in Indonesia was moved to a newer quality facility. Tamco has manufacturing units in Malaysia, China, Indonesia and Australia.

The rationale of the acquisition was to power L&T's foray into the medium voltage electrical segment with an established brand, synergistic with L&T's strength in manufacturing of low-voltage switchgear products, said company officials. The acquisition also complemented L&T's plans to internationalise its business, mainly to West Asia and other Southeast Asian countries.

Tamco had a good list of clients in West Asia, mainly government-owned power utilities. L&T's alliance with Tamco helped it add clients in the region, such as Aramco of Saudi Arabia, Petrofac, Abu Dhabi Water & Electrical Authority and Meralco of Philippines. "We did due diligence and the acquisition was done within 90 days of identifying the target. The timing of the acquisition was perfect, as we realised India's power transmission sector was going to open up in a big way," said Mukhija, who heads the Rs 3,500-crore electrical and electronics business vertical of L&T.

Now, L&T is planning to make Tamco's Malaysia facility a "product research and development centre” for its global operations related to MV switchgear, to complement its new facilities coming up at Ahmednagar in Maharashtra. L&T plans to acquire more land to set up new manufacturing units in Malaysia, with another Rs 100 crore investment, eying future expansion.