L&T plans to exit road, power concessions, incubate digital business

Engineering giant Larsen & Toubro (L&T) is looking to divest its exposure to road and power concessions and incubate digital and e-commerce businesses as part of its new five-year plan ending 2025-26 (FY26).

The base year for the plan is 2020-21 (FY21).

The blueprint, called Lakshya 2026, is intended to help the company exit sub-scale businesses, concentrate on high-technology (tech) manufacturing, construction and green energy projects, and increase its share from information technology (IT) and digital services.

The lending operations of the financial services business, meanwhile, will be reorganised, with focus on retail lending.

Divestment will include the sale of the Nabha Power project in Punjab, an exit from L&T Infrastructure Development Projects, which includes road concessions and where the company has 51 per cent stake, and de-risking itself from the Hyderabad Metro venture.

The company is also entering into the manufacture of electrolysers, which is equipment used to split water into oxygen and hydrogen.

In January, L&T had announced a partnership with Norway’s HydrogenPro to access its electrolyser tech.

At the same time, the company is eyeing advanced chemistry cell manufacturing and battery modules, which are storage solutions for electric energy, as part of its new five-year plan.

“Our focus will be to ensure sustainable growth through profitable expansion and execution in the current business portfolio and incubating newer businesses during this plan period.

"Cash generation during the plan period will be a function of improved profitability and lower capital employed.

"Further capital unlocking through the sale of non-core assets will also boost cash balances of the group,” said S N Subrahmanyan, chief executive officer and managing director, L&T.

The company is looking to scale up recently launched digital ventures SuFin (business-to-business marketplace for small and medium-sized enterprises) and EduTech (e-learning platform) as part of its strategic plan.

The company will set up a 2.5-megawatt (Mw) data centre plant on a pilot basis shortly.

Over the next five years, it will set up a 90 Mw-capacity data centre, for which it has signed a memorandum of understanding with the Tamil Nadu government.

All these initiatives are intended to help the company attain a revenue of Rs 2.7-3 trillion by FY26, from Rs 1.4 trillion in FY21, and ensure an order inflow of Rs 3.4 trillion, from Rs 1.7 trillion in FY21.

The company hopes to achieve a return on equity (excluding exceptional items) of over 18 per cent, from 10 per cent in FY21, by stepping up payouts to shareholders through dividends and buybacks.

The plan will also include capital expenditure (capex) of around Rs 10,000-11,000 crore for existing businesses, including engineering, procurement, and construction (EPC) projects, manufacturing, and realty. Around Rs 6,000-7,000 crore will be earmarked as capex for newer businesses, including data centres, green energy, electrolysers, and battery modules.

In fact, Rs 7,000-7,500 crore will be set aside for acquisitions in the IT and digital services space, with special emphasis on augmenting digital talent.

“People are our biggest asset. Engineering and people skillsets are the most valuable attributes across all our businesses.

"We will encourage and give young and energetic people all possible opportunities to grow,” said Subrahmanyan.

Analysts expect L&T to be aggressive with its hiring, given its new revenue targets for FY26.

Currently, the company employs around 195,000 employees, including its IT business, say analysts, and over 285,000 contractual workers across project sites.

In FY21, the company had derived 61 per cent of its total revenue from EPC projects.

It is looking to bring this down to 56 per cent by FY26, reveals a presentation to analysts.

The revenue plan with the IT and digital services vertical is to take its share to 27 per cent in FY26, from 19 per cent in FY21.

Manufacturing and realty will touch 8 per cent and 2 per cent each in terms of top line share in FY26, from 6 per cent and 1 per cent in FY21.