L&T Infotech will double its size in three years: AM Naik
The engineering and construction major L&T’s subsidiary L&T Infotech hits the capital market with an initial public offer on Monday to raise Rs 1,200 crore.
The engineering and construction major L&T’s subsidiary L&T Infotech hits the capital market with an initial public offer on Monday to raise Rs 1,200 crore. “We felt that the baby (L&T Infotech) has grown and should be freed to stand on its own feet.
We will continue to support them in every way. If there is an opportunity for acquisition and they need more money then L&T is there,” Naik told ET in an interview. L&T Infotech posted a revenue of $887 million in the year ended March 2016. Its profit for FY16 grew 15.1% from a year earlier to Rs 922.3 crore in the year.
“L&T Infotech will double in three years with a mix of organic and inorganic growth. We think we will be able to grow to $1.5 billion organically and about $400 million will come through acquisitions,” Naik said.
He explained that the focus would be on building a larger portfolio of offerings and not on building scale. “In IT, we cannot become the largest because TCS started 30 years ahead of us, others are 10-15 years ahead of us. The IT industry is no more about size, it is about specialisation.”
L&T Infotech, which was the brainchild of Naik who is in his 51st year at the parent company, has not been able to build scale to match the big boys of IT.
In 2009, L&T made an aggressive move to acquire the scam-hit Satyam Computer Services, and having accumulated shares in the secondary market was also seen in the lead. The acquisition would have given L&T Infotech the scale it aspired for but Tech Mahindra snatched it away in a nail biting bid. “We lost Satyam because we were too eager to buy it. We started buying when the share price was going down.
We bought at Rs 125 but we didn’t realise how low it would go. Our average price was Rs 80 and when the sale process began we found out that its valuation would be at Rs 56 a year. We bid at Rs 47 to bring our average price to Rs 56, so we lost the deal.” “I regret losing Satyam but life has to go on,” Naik said.
Move to current times, Naik says L&T Infotech will play an important role in the group’s ambitious digitisation plans.“People ask me, you are a $17 billion company, why are you holding L&T Infotech. My answer is simple, I started this company not to build a business but to save the talent in L&T Group and it worked,” Naik said.
“Also, project business is highly risky. If out of 10 projects even one project of $ 1 billion doesn’t go well, we make losses of $100 million. In hydrocarbon business in the Middle East, we lost Rs 2,000 crore in four years but revenue from our services business softened the blow.”
“Services business, including Infotech, become very important to cushion the risk relating to the project business. Therefore, it is core to L&T.”
L&T Infotech’s strategy is simple. It wants to hit the ground running and would look at companies which already have a developed portfolio and market. “If I invest in startups now, I will lose three years. So now we will focus on niche acquisitions and integrating them and building the structure of the company. But in two- three years we could look at seeding startups, making small investments,” Naik said.