L&T's engg services arm set for next step

After establishing itself as an independent company earlier this year, L&T Technology Services, a fully-owned subsidiary of Larsen & Toubro (L&T), is set to explore inorganic growth.

Late last month, the Mumbai-headquartered company took a controlling stake in Thales Software India , a Chennai-based captive software arm of Thales, the French defence major. It has now set its sights on acquisitions in client countries. The company is looking at strengthening its presence abroad by acquiring companies with niche engineering skills, aiming to establish a local face.

“Hopefully, we are going to have one more M&A (merger and acquisition) soon, though this time it would be a complete buy-out. It will be a multi-geography acquisition, which can give us not only experienced engineering talents but also local interface, since we have to show local faces in places where we are doing business,” Keshab Panda, chief executive, told Business Standard. "If everything goes well, we can do it quite quickly."

While the acquisition of Thales Software India is expected to strengthen the company’s avionics business, the new joint venture will now be able to participate in offset opportunities with L&T as the Indian partner. Under the offset clause, defence suppliers are required to re-invest a certain percentage of overall procurement costs in India.

L&T Technology Services owes its origin to parent L&T, which in 2010 transferred its integrated engineering services business to the former. This was followed by transfer of the telecom and high-tech product engineering services business from L&T Infotech, in January this year, as a part of which around 1,800 engineers were transferred. The company now has 9,500 people, with a compound annual growth rate of 37 per cent during the past four years. The annual revenue is presently estimated at $400 million (Rs 2,400 crore).

Panda said they'd look at acquiring companies which will be easy to integrate. “I strongly believe that 75 per cent of M&A fails because of integration issues. So, we won’t acquire anything which would be difficult to integrate. I also believe any M&A we do should not be more than $50 mn in valuation,” he added.

In a media interview in June, L&T group executive chairman A M Naik had said the company was looking at listing its technologies subsidiaries, L&T Technology Services and L&T Infotech. The process would start from July 2016, he'd said.

Declining to comment on this plan for an Initial Public Offer, Panda said his objective was to make the company the leader in India's engineering services space.

“We are trying to create an organisation which is going to stand out, where people will be excited about what they do, and one which creates value for all stakeholders,” he said.