After much speculation that Larsen and Toubro (L&T) was likely to differ it's restructuring plan, the management of the company, in a hurriedly called conference, confirmed that the cement division of the company was to be hived off. It also stated that the infotech subsidiary go public by 2001.
L & T is the largest engineering, procurement and construction (EPC) company (58% of total revenues) in India. The company also has major business interests in cement (24% of total revenues, capacity 12 mtpa), and software.
In an attempt to increase the return on capital employed to 20% from the existing 11%, the company has decided to implement the following strategies:
Hiving off the cement division. Increasing cement capacity by over 6 million tonnes.
Telecom to be a new thrust area.
The newly formed subsidiary - L&T Telecom, will provide Internet and network services.
Core business focus (which will contribute 60% of sales) on EPC, heavy engineering and electrical and electronics.
Introduction of a new corporate structure.
The restructuring has been long overdue mainly due to the diversified and varied nature of the businesses that were being carried on by the company. The restructuring exercise will enable L&T to focus on core activities even as its subsidiaries focus on the businesses of cement, software and Internet.
The pressure on the company's cash flows would considerably reduce, as expansions in cement capacity, a cash guzzler, would then be taken up by a subsidiary. The restructuring exercise will also help unlock the value of the company's EPC division.
Larsen & Toubro (L&T) has announced third quarter results of financial year 2016-2017 (3QFY17). The company has reported 1.7% YoY growth in sales while profits have grown 38.9% YoY. Here is our analysis of the results.
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