On The Cover/Top Stories *Engineering Marvel* Anuradha Raghunathan, 06.22.09
*Forty-four years ago Anil Manibhai Naik got off to a rough start at Larsen & Toubro, India's largest engineering and construction company. With just two years of experience and a degree from a little-known engineering college in the western state of Gujarat, he was trying to break into a blue-chip firm that usually hired from premier universities. And the final job interview was getting sticky.* Asked how many people he was then supervising, he said, "About 350." The interviewer noted that Naik couldn't dream of getting that kind of responsibility at L&T for a long time. Thinking aloud, he replied, "Who knows? Only time will tell." Aghast at what he perceived as Naik's overconfidence, the interviewer downgraded a tentative job offer, cutting Naik's starting salary. Today even Naik, 67, is surprised at where he has landed. As chairman and managing director of L&T, he oversees 50,000 employees. The Mumbai company's revenue has grown to $8 billion, for the year ended Mar. 31, up from just $3.3 billion for fiscal year 2005. Profits are way up, from $241 million to $745 million over that period. *No surprise then that L&T has made FORBES ASIA's Fab 50 list of the best public companies in Asia-Pacific for each of the last three years. And after ten years at the helm, and just three years before he reaches L&T's typical retirement age, Naik isn't done yet. He's counting on the company doubling its annual revenue to $16 billion in the next four or five years*. In India Naik is Mr. Infrastructure, building everything from roads and runways to hotels and hospitals. That's a good title to have, even as the economy slows--from 9% growth for fiscal year 2008 to a still fast 6.7% in fiscal 2009 and an estimated 5.8% for this year, according to Morgan Stanley. But government spending on public works figures to boost growth to 6.8% in 2011, the firm says. And with the Congress-led coalition sweeping the recent parliamentary elections, business leaders see India's pro-business policies and public works push continuing. Even a slower economy could help L&T. Said Morgan Stanley in an April report: "Its record of gaining market share amid slowdowns over the last 15 years should stand it in good stead over the next few years." (The firm does business with L&T.) Unusual for an Indian business leader, Naik sports an Indian flag on his suit jacket. He sees L&T as a vehicle for serving India, and no wonder: It gets half its revenue from government contracts. Over the years it has built the world's longest liquefied gas pipeline, from western to northern India; the country's highest railway bridge, in northern India; and the world's longest cross-country conveyor system, which carries shale and limestone from northeastern India to Bangladesh. "Nobody has the project management capabilities that L&T has," says Misal Singh, an analyst at Mumbai's Edelweiss Securities. "It has been central to India's infrastructure development." Naik is now pushing into areas such as defense, nuclear power, aerospace and railways. L&T is building India's first monorail, in Mumbai, for $520 million, and is developing a $750 million shipyard-and-port complex in the southern state of Tamil Nadu. Meanwhile, Naik has been expanding overseas, setting up engineering and project-management centers in Abu Dhabi and Sharjah, a fabrication plant in Oman for building offshore oil-and-gas platforms and a switchgear-manufacturing operation in China's Jiangsu Province. In 2007 L&T took over a Malaysian switchgear manufacturer, Tamco, thereby gaining a presence in Malaysia, Indonesia and Australia. L&T expects international sales to go from 19% of its revenue today to roughly 25% over the next five years. Much of that growth will come from the Middle East. Just last month L&T bagged orders worth $109 million for power and other public works projects in Oman. Naik doesn't believe in embarking on projects abroad just to diversify L&T's revenue; it's also a business imperative. "I have to expose my people to global competition," he says. "If they don't benchmark themselves against the best in the world, we will lose the battle on our own home ground." Behemoth that it is, L&T has multiple rivals in each of its sectors. In construction it faces off against Hindustan Construction and Gammon India; in power Bharat Heavy Electricals, Alstom and General Electric; in electronics ABB, Siemens and Schneider. *But when it comes to building India's roads and bridges, the number of players is less important. "In a country where we need to build so much infrastructure, you'll not feel the competition even if we have ten companies of L&T's size," says Ajit Gulabchand, Hindustan Construction's chairman.* Naik, the youngest of three children after two sisters, started school in Mumbai, but by sixth grade he was attending classes in a rural area to the north. His schoolteacher father, moved by the assassination of Mahatma Gandhi, had decided to uproot his family to Gujarat to dedicate himself to serving poor villages. For Naik it was quite a transition. Gone were the comfortable benches of city schools. Instead there were floors padded with cow dung. Then came his engineering degree at BVM Engineering College in Gujarat. Naik recalls skipping class to go to the movies. "I watched 100 movies in my first year in college," he boasts. He says he still manages to see six movies a year in theaters. "You can question me on the actors, actresses, directors and producers," he laughs. Early in his career Naik's biggest challenge was the English language. When he applied for his first job he made six mistakes on an application form. Asked to improve his language skills, he picked up audiocassettes and set about learning English in earnest. Naik, who still spouts a lot of Gujarati, takes pride in his journey from village boy to corporate leader. "People ask me, 'Are you a Harvard man? Are you a Wharton man? Are you from iit [Indian Institute of Technology]?' " His response? "I am a poor man from a village who could not even speak English." He says he became more focused after he joined L&T, which was founded by two Danish engineers, Henning Holck-Larsen and Soren Kristian Toubro, in 1938. He put in long hours, not taking a day off for more than two decades. (He's married, with a son and daughter now in their 30s, who live in the U.S.) He became the youngest manager at L&T when he was 29. His career graph continued to skyrocket, but "then, slowly, L&T degenerated into a seniority-driven company," he laments. In 1999 Naik became chief executive, and the first thing he did was to get rid of the seniority system and make the company more merit-driven. He doled out stock options to employees. "We were forgotten in the stock market," he says. "There was no orientation to market cap. The orientation was toward creating engineering excellence, even if you lose money." His philosophy was that you need engineering excellence, but you must simultaneously create value. (L&T's market cap rose from $1.4 billion when Naik took over to its peak of $33 billion in November 2007. It has dropped 43% since then.) Another of his big successes has been in bringing focus to a sprawling conglomerate. At one point L&T was engaged in everything from shoes to cement to tractors. Over the past decade he has left those businesses and turned his attention to L&T's core. Nearly 80% of the company's revenue now comes from engineering and construction. Naik also divided L&T into 12 units, ranging from heavy engineering to information technology. The idea was to make each unit a mini L&T. In line with this strategy he tried to raise the value of his infotech business by bidding for Satyam Computer Services. He thought it would catapult L&T Infotech into a different league. L&T took a 4% stake in Satyam in December and then an 8% stake after Satyam's then chairman, Ramalinga Raju, confessed to cooking the books. But in April L&T lost its bid to Tech Mahindra and Naik says he's happy just to hold a stake. Naik's term as chairman and managing director ends in 2012, and a search is already on for his successor. His will be a difficult act to follow. "Naik is extremely demanding--he wants to achieve a lot in a short period of time," says Y.M. Deosthalee, L&T's chief financial officer. "He's a man in a hurry." That's something that certainly hasn't changed since that first job interview. Big Builder A sampling of Larsen & Toubro projects under way around the world. PROJECT LOCATION ($MIL) Reactors Kuwait $421 Dam and diversion tunnel Bhutan 247 Mosque, hotels, apartments Oman 245 Manufacturing plant for Indian Railways Bihar 242 Water mains Hyderabad 118 *Source: Larsen & Toubro.* * * ** * * ** ** --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en -~----------~----~----~----~------~----~------~--~---
