L&T Hydrocarbon: Making the Most of the ‘Spin off’
- Krishnamurthi Venkataramanan, CEO and MD, L&T

The exercise ‘Lakshya’ – undertaken to simplify company’s portfolio by forming independent companies – turned out be a substantial move for corporate giant Larsen & Toubro Limited (L&T), especially when it formed L&T Hydrocarbon Engineering Limited (LTHE) as the arrangement indeed brought attention, autonomy and accountability to this 100 per cent subsidiary that in a recent development bagged ` 5076 crore order from Kuwait Oil & Gas Company (KOC). CEW interviews Krishnamurthi Venkataramanan, CEO and MD, L&T, to seek more insights into the development within the company.

Under the able guidance of its Chairman A M Naik, L&T had executed the idea to create a separate wing to tap global opportunities at the right time, and the move later got a boost with the appointment of Krishnamurthi Venkataramanan as the new Chief Executive Officer and Managing Director of the company. KV, as he is profoundly known in the company or rather in the industry, is believed to ‘bolster the company’s international presence’ by forming ‘a dedicated International Business Development Cell.’

The company is all set to compete with some of the biggest players in the engineering and construction domain as it sets up its international headquarter in Sharjah to grab its own piece of the pie in West Asia, a region that is witnessing a boom in hydrocarbon. And as some of the analysts believe, with a proven track record and necessary infrastructure in the region, the company is reasonably capable of capturing a remarkable market share.

Mission - L&T-2: Replicating Indian Success Story
K Venkatramanan shares his views on these development and states, “Middle East’s hydrocarbon market is much bigger than Indian hydrocarbon market. L&T has already invested hugely in the region namely in a heavy fabrication shop and an offshore yard in Sohar, Oman, an automation factory and a control panel factory in Jebel Ali and Saudi Arabia, respectively and plant and machinery in Sharjah. Besides a robust manufacturing infrastructure, we are also building a strong management team – a combination of local and Indian professionals – to accelerate the growth of our business in the region.”

“We have named this project as L&T-2, and under this project, we are determined to replicate our Indian hydrocarbon success story in the region,” Venkatramanan reveals. He clarifies that though Middle East (ME) is a very open and cash-rich market, perhaps the best in the world, it is equally competitive and challenging, and thus it is not easy to register extraordinary success here quickly unless a company is very sharp in execution and has mastered the methods to control the cost.

“When you are new to customers, they are somewhat apprehensive of your capabilities, does not matter how efficient you are. It thus takes time to build a rapport with the clients. It is not easy to work abroad unless you have a vision and a sustainable plan,” Venkatramanan states. “Infrastructure is not all that you need but at the same time you must have a team that understands local geography, local working conditions, people who have got the soft skills and understand nuisances pertaining to the business. And more importantly, you must be willing to invest hugely in the initial period. As soon as you complete one or two projects, you find it easy to build a relationship with the customers. With every new project, we are learning more about these geographies. Customers’ expectations vary dramatically and you really got to be quick in grasping their expectations,” he explains further.

Expanding Horizons
Venkatramanan did not deny the possibility of expanding company’s business horizons to South East Asian countries under L&T-2, and said that the company may surely focus on countries other than the ones in Middle East. “About 60-70 per cent of our focus under L&T-2 project is on Middle East, and 30-40 per cent is on South East Asian countries namely Indonesia, Malaysia, Singapore, etc, and to some extent on Vietnam. We may also expand our business to Kazakhstan and Azerbaijan in future,” he informs.

When asked how different it is to work in the Commonwealth of Independent States (CIS) and South East Asian countries, Venkatramanan says that each country has got its own set of regulations. “Most of the CIS countries emphasise on engaging local labour. They want investors to do a substantial part of the manufacturing locally, especially if you are into construction, you need to involve local people to some extent. And actually it is good to start connecting with local sub-contractors as soon as possible because when you plan to work in these countries for a longer period of time, your associations with local players help you execute the project faster,” he adds.

The conditions are somewhat similar in South East Asian countries, where you are supposed to build partnerships with local utilities. “Malaysia is one such country where the government has a clear objective of promoting local manufacturing regardless of the fact that the company is owned by a domestic player or a foreign player,” Venkatramanan elucidates.

The company’s international business, in the last three to four year has already gone up by 25 per cent, and as Venkatramanan says, the company is trying to double its global presence in next 3-4 years.

Speaking about the US Market, Venkatramanan shares that as far as project business is concerned, the company is not very keen to spread its wings over the American market right away and is concentrating on the Middle East and other markets like South Asia and Africa. However, L&T is very much looking at supplying heavy engineering products to the US market which is gearing up for new investments and riding high on the shale gas sentiment. It will take some time for the company to build its presence in the sphere of project management in the US.

Standards and Margins
“You cannot compromise with the standards at all,” he proclaims, “Especially when you are working in a market like Middle East, where already a number of foreign players – including some of the well-known companies from Korea and China – are present.” He reveals that if a company is not known to enhance the project management standards, it will not be allowed to participate in a bidding process in the first place.

He further explains, “As far as L&T is concerned, clients are already aware of our capabilities. They have seen this company growing year after year and that is the reason, we have been able to bag some of the esteemed projects in Middle East. On the other hand, we, leveraging on our experience, understand clients’ requirement to the tee.”

Venkatramanan is of the opinion that when a contractor works with a nationalised company it can always earn good margins. “But more importantly if a contractor knows how to do a job right, has a deep understanding of its business, understands the risks involved and pays attention to safety concern, it can surely earn profits in any market across the globe,” he avows. While highlighting the significance of ‘safety’ Venkatramanan says that “safety culture of an organisation is reflected by the employees’ approach.” He further shares insight into the Safety Innovation School at L&T Hazira.

On Union Budget 2014
He also expresses his views on the union budget 2014. “It is indeed a good budget. The government seems to have allocated a good amount of fund to some of the ailing sectors. But now it needs to implement things that have been announced, and we are positive and hopeful that the government will actually get the ball rolling in days to come.”