The restless visionary who changed the face of L&T- Engineering-Ind'l Goods / Svs-News By Industry-News-The Economic Times
The restless visionary who changed the face of L&T
15 Jan 2009, 0109 hrs IST, Kausik Datta, ET Bureau
MUMBAI: It was 1964. A certain AM Naik, then all of 22, walked into the Larsen & Toubro office in Mumbai for a job. The young lad was excited and was keen to say all
the right things at the interview. When reminded by his interviewer — a Scotsman — that his rise in L&T may not be as smooth as in his first job, Mr Naik, who grew up in Surat and spoke little English, wanted to say that he would try his best to live up to the company’s expectations.
Gripped by anxiety, he ended up saying: “Who knows? Time will tell.” The rest is history: 35 years later, Mr Naik became L&T’s chairman & managing director.
The goof-up may sound prophetic today, but it wasn’t so then. The Scotsman — Mr Baker — offered him an assistant engineer’s post with a monthly salary of Rs 760, but the then general manager, a Mr Hansen, wasn’t amused with his faux pas and considered him ‘overconfident’. So, his offer was downgraded to a junior engineer’s position with a salary of Rs 670 a month.
Mr Naik can regale you with many such nuggets. He remembers, for instance, every twist in his brilliant academic career — the marks he scored at every stage, the combination of subjects, etc. A movie buff, he was a regular in the front-row seats in cinema halls — the son of a village school teacher, he didn’t have the money for the more comfortable seats at the back. For the record, the Dilip Kumar-Vaijayantimala-starrer Madhumati is his all-time favourite. He has watched it no less than seven times.
Soon after engineering school, the Gujarati lad joined Nestle Boilers, a Parsi-owned firm in Mumbai, and resolved “only to work”. He didn’t take a single day off, and launched himself into a life of hard grind.
It is this passion and grind that catapulted him to the job of the chairman of India’s largest, and arguably most respected, engineering company, L&T. The rise may be meteoric for the once junior engineer, but Mr Naik feels it wasn’t fast. “L&T was a semi-government organisation where seniority mattered the most for promotion. I have done away with the system now,” he says.
When Mr Naik took over as the managing director in April 1999, the lack of vision was the biggest challenge faced by L&T — founded in 1938 by Danish engineers Henning Holck-Larsen and Soren Kristian Toubro. The economic landscape was fast changing, and L&T would also need to, and fast, he figured.
Together with Boston Consultancy Group (BCG), he prepared a five-year plan (within 90 days), made presentations all around on how L&T would look like in the future and resolved that L&T would be a multi-national corporation in five years. As he attached great importance to people — “they are the front wheels of the growth vehicle” — he interacted with employees in 38 locations, co-opting them into his vision.
It wasn’t just the vision thing. Mr Naik quickly got down to get the numbers to make it real. When he took over the reins in 1999, L&T had a profit of around Rs 342 crore on revenues of Rs 7,474 crore — admirable for a pure-play engineering company. But Mr Naik wasn’t satisfied and believed the Indian economy had large untapped areas with big potential.
He thought the existing business model had to be rejigged and called in BCG for consultation. Following a ruthless review, new areas were identified and some businesses were dumped altogether. The gamble paid off. Last year, L&T posted Rs 2,325 crore in earnings on revenues of more than Rs 30,000 crore. Its market capitalisation has jumped manifold.
The visionary in Mr Naik remains restless. Recently, he kicked off a new restructuring at L&T by creating a dozen operating companies, with a central board of directors providing them guidance. The move will transform L&T into an umbrella organisation to look after the overall performance of all businesses under the overarching L&T brand.
Observers say the move will help L&T unlock shareholder value by listing all these operating companies as and when they reach critical mass. It will also help L&T, always seen as a vulnerable takeover target due to the absence of any single promoter group, ring-fence itself against hostile bids. L&T is no stranger to hostile bids. The Ambanis of Reliance had coveted the firm.
In 1999, when Mr Naik was overseas, Kumar Mangalam Birla called him to say that Hindalco had launched an attempt to take over L&T. The Aditya Birla group had bought Reliance’s L&T stake and launched an open offer. However, Mr Naik managed to hold that by hiving off L&T’s cement business and selling it to Mr Birla, and in the bargain managed to keep L&T’s core business and identity intact.
In fact, Mr Naik feels that his biggest achievement in L&T has been to save the company from the Birla bid. He recounts the slog he had to endure to make that happen.
“I knocked on almost all doors, visited all ministries who matter to L&T. I showed them the pictures of the company’s production facilities like submarine units which were strategic in nature. I asked them whether they wanted the company to go to a private fold. Most of the ministers said ‘never.’ The employees also opposed the Birla bid.”
The hard-won battles made Mr Naik’s ascension to the chairman’s role easier. In fact, he thinks that the Birla bid may have helped L&T implement his vision plan of 1999, which had clearly indicated that L&T should get out of the cement business. L&T also got a good price from the sale — Hindalco paid Rs 1,400 crore for L&T’s cement business at a time when the company’s total market value was only Rs 4,000 crore. The sale also dramatically improved L&T’s debt-equity ratio.
Challenges have always chased Mr Naik, only this time it is of a different kind. The economic slowdown in India and across much of the developed world is casting its shadows on L&T. Mr Naik is aware of it, and is ready for the challenge.
The slowdown could result in a drop in infrastructure spending, and L&T is consolidating its energies. It has stopped bidding for real estate projects. It plans to focus on sectors such as power, railway and shipbuilding to offset losses that other segments may incur. But Mr Naik firmly believes that its diversification into new business areas and recent forays into new geographies will help L&T flourish. As for India, he says it will continue to grow, albeit somewhat slowly at around 6.5%.
Despite heading one of India’s leading blue-chip companies, Mr Naik is a firm believer in simplicity. He says he has three suits, eight shirts and four ties. He is actively involved in social work, and is developing an educational institution set up by his father in Kharel, Gujarat. The place where it all began.
