Page 147 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes L&T want to hit ` 30,000 crore turnover mark by 2010 and is busy restructuring, sniffing
new pastures, grooming new talent and projecting the new company credo – “It’s All About
Imagineering.” With the sole idea of creating several MNCs within, with footprints across
nations, L&T is shedding the old economy and embracing the emergent opportunities and
challenges.
stagnant revenues and low margins
Not everything went the L&T way. In the late nineties, the macro environment was not very
inspiring with stagnant revenues and low margins, and L&T’s core strength, its engineers,
were being constantly weaned away by the fast growing software sector. So, the general

comment around the bourses was about the credibility of the company, ‘L&T is a, good
company but its stock price, for some reason or the other, is fixed at the ` 140-210 band. So
the company had to change by keeping its core intact. As Senior Executive remarks, “L&T
was perceived to be un-sexy and we had to create a new buzz around the campuses.”
The metamorphosis must echo through a whimper, not a bang. Even before the company
divested its cement business in 2003, which accounted for 25% of its total sales, there were
years of incremental and low visibility organisational moves towards a new L&T.
At a 52-week high of ` 2400, the L&T scrip today looks dapper, a far cry from the nineties
when the stock price was in a state of flux. Much of the change started as a ripple way
back in 1999 when Naik took over as the CEO. He visited employees at all levels across the
organisation and asked them what it took to transform the company. The insights were
mapped and implemented. “None of our employees thought that we build shareholder
value. They thought we build monuments,” the chairman reminisces. The focus on people
became stronger and formed the basis of restructuring. It became the first old economy
company to provide stock options to its employees.
When Naik came to the helm, he set upon himself a 90-day transformational agenda.
Portfolios were reviewed and a vision clearly chalked out. He drew up a simple, brief,
‘L&T has to be a multinational company and it has to deliver shareholder value at any
cost. At the end of 90 days, between July 22 and July 24, 1999, the company launched
Project Blue Chip, which essentially fast-tracked projects. The moot point was to complete
all projects by February of the new millennium. Strategy formation teams were formed,
portfolios reviewed and structures were optimized. Young leadership was brought to the
fore and the business streamlining process kicked in.
Hiving off from 1999-2001, L&T went about de-bottlenecking its cement plants. They
were modernized and capacities were raised from 12 million tonnes to 16 million tonnes
annually, with minimum costs. The mantra really was to grow the business and then divest
it as cement fell in the non-core category.
So, in September 2003, L&T sold its cement business to the Aditya Birla Group, which
resulted in the company’s Economic Value Add (EVA), an important indicator of’ the
financial health of the Company, swinging from a negative ` 350 crore to a positive ` 50
crore immediately. The move, also, enabled L&T to reduce its debt-equity ratio from 1:1
to 0.2:1. Analysts took a positive’ view of the de-merger, and re-rated L&T as AAA from
AA+ in 2004.
From then on, began L&Ts transformation into a lean and mean machine. In 2004, the
company envisaged a growth curve for the next, five years. This marked the beginning of
Project Lakshya, which was centered on people operations, capabilities and new ventures.
The company set out with over 300 initiatives in hand, and also placed a rigorous risk
management system. For instance, any project above ` 1000 crore needed the signature of
the chairman, Project Lakshya is known for targeting and selecting the right projects.

Contd...

142 lovely Professional university