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The Rediff Business Profile/ A M Naik

'For high growth rates, presence in multiple businesses is necessary'

Merit to the fore

A M Naik's appointment was preceded by an unseemly delay and constant speculation over S R Kulkarni's successor, earning for L&T bad press. There were reports of low staff morale.

However, news of his appointment has been well received not only by the staff, but by the stock markets as well. "Naik's engineering background has sparked interest in the L&T scrip once again," says Rohit Ajmera, vice-president, Prabhudas Lilladhar, a Bombay-based stockbroking firm.

"L&T's foray into several new industries was cause for concern since stock markets don't take very kindly to conglomerates. We believe in companies with a clear focus and L&T's strength lies in engineering. The company should capitalise on it," Ajmera adds.

The main criticism levelled against L&T is its apparent lack of focus. Although its foray into industries like leather was an admitted mistake, the company continues to have a presence in industries like infotech and cement which are not perceived as its core areas of operation.

Naik offers a rationale for the company's strategies. "We are in low-volume, non-export oriented businesses. If we decide to focus on one industry, we will see an annual growth rate of five per cent and not the current levels of 25 per cent which we have sustained over the last decade. For us to sustain this rate of growth we need to be in multiple businesses.

"What I intend to reinforce is information sharing and transparency which will be appreciated by the stock market. Each division will be shown up as a profit centre and the markets will be able to make clearcut comparisons with all other players in the industry which will enable them to decide on whether to hold or sell the stock."

The conversation veers to the market talk that a resurgence of cyclical stocks is on the cards. (Cyclical shares are those which rise and fall in price with the state of the economy or are affected by natural phenomena, of such industries as construction, automobiles, cement, engineering, shipping, aviation, tourism, fertilisers and tea).

Naik agrees L&T's presence in cement is significant, and that the development should augur well for the company under the circumstances. However, with the expected entry of multinationals, one can't help but wonder if L&T stands a chance of survival. "I welcome competition for one very important reason," he retorts. "It will help get rid of the smaller players in the industry.

"We have about 52 players in the cement industry at the moment. Most of them are doing very badly. I expect an economic upswing in the next 24 months. A process of consolidation in the cement industry should take place by then. Once demand picks up, the smaller players will just continue to pull along. Consolidation is essential and this will only be facilitated by external investment which will help push the smaller players with limited capacities out of the market."

Naik's plans span industries ranging from cement to infotech. He also plans to shore up the value of the scrip. "I plan to make L&T a Rs 250 billion company by 2005," he says. It sounds doubly impressive, coming from a managing director who, 33 years ago, thought he would be happy if he rises from a junior engineer to a manager.

Photograph: Jewella C Miranda

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