L&T’s 3 threats: China, Re & Bangalore Club

Company may have to sell five units

MUMBAI: Engineering and construction major Larsen & Toubro (L&T) has hit a ‘sweet spot’ and is often described these days as a default India infrastructure story for foreign investors interested in India.

While L&T is sitting on a mountain of orders, worth about Rs 48,000 crore, and the orders continue to pour in, chairman and managing director A M Naik is angry.

The Chinese and the rising rupee are his major threats.He’s also angry at what he calls the ‘Bangalore club’, meaning the IT firms. Now, Naik wants to make up for lost time. All he wants is a level-playing field.

In an interview with DNA Money, Naik admitted that, Chinese competition, coupled with a rising rupee, may force his company to sell at least five units in the country. “Everybody knows that it (yuan) is 35% undervalued,” he said.

Businesses from China are protected by their government through subsidies and the yuan is artificially pegged low to the dollar by the Chinese government.

“And we are the champions of free economy. So, we allow our rupee to float, so that it has appreciated and tens and thousands of people are out of jobs. The small units are helpless,” Naik said.
 
“L&T’s five units are put up for sale because of the appreciating rupee and the competition from China,” he said.
It’s a double whammy. The five L&T units are less competitive as they are small in comparison with their Chinese peers and even by L&T standards.

“Now, if China allows a level-playing ground by floating its currency, I am very confident that I can fight back. But they have to float the currency,” said an exasperated Naik.

What has further upset the applecart is how L&T and other Indian manufacturers are encouraged to build infrastructure but browbeaten by overseas competition.

It has signed two JVs with Japanese Mitsubishi for super-critical boilers and turbines. But, along the way, the government allowed some Indian companies to buy the same equipment from China.

“The government said you should put one more boiler plant and one more turbine plant. The supercritical Mitsubishi boiler and turbine plant is the world’s number one. On the other hand (Naik whistles), 4,000 MW boiler plants are being imported. So, before I am born, I am being killed. This is our nation.”

Naik is also upset with the ‘Bangalore club’ as he prefers to call Wipro, Infosys and the slew of other IT companies. He despairs at the way they hire engineers to write code and alluded to their grouse of poor infrastructure in Bangalore as a creation of their own making.

Who asked them to hire civil engineers and mechanical engineers? he asked. BComs and BScs would suffice for writing code, he says.

The least that the politicians can do is to stop cutting ribbons in the outsourcing industry. There are more than 75,000 engineers working on design in India for foreigners.

They are the brains, and there are 1,50,000 other engineers working in the IT industry, who are non-computer science engineers. Then the Bangalore club complains that the infrastructure there is cracking.

Arrey, tumko kisne bola tha 1,00,000 engineers leke aao Bangalore mein? (Who asked you to hire 1,00,000 engineers and bring them to Bangalore?) Secondly, who asked you to recruit civil engineers? There are no civil engineers available to build infrastructure.