L&T plans to sell stake in some less-than-equal JVs

Three months after dividing its complex web of 64 businesses into nine independent entities, Larsen & Tourbo is shifting focus to joint ventures.

The Rs 45,000-crore (Rs 450-billion) engineering & construction company is reviewing the future of some of its manufacturing JVs.

It was likely to selectively exit JVs where it was not a majority shareholder, said people aware of the development, on condition of anonymity.

The process has begun.

The immediate focus is on two JVs under the machinery and industrial products division. L&T, according to these sources, is negotiating with US agriculture and construction equipment company Case Corporation -- renamed CNH after its merger with New Holland.

. . .

L&T and CNH have a 13-year-old 50:50 JV -- L&T Case Equipment Private Limited -- which manufactures loader backhoes, vibratory compactors and other earth moving equipment.

CNH's team has already studied the Indian market and the facility at Pitampur, Madhya Pradesh.

The legal work and talks over valuations are on.

L&T, said these sources, was likely to ask for Rs 200 crore-plus (Rs 2 billion-plus) for its stake.

The JV clocked sales worth nearly Rs 500 crore (Rs 5 billion) in 2009-10.

A review of the 50:50 L&T-Komatsu JV for hydraulic excavators and components is also imminent. L&T's JV with the Japanese company, too, is 13 years old.

. . .

However, it is still not clear what will happen to L&T's equal JV with Flowserve Corporation USA -- Audco India Limited -- which makes industrial valves at three facilities in South India.

This 40-year-old company is one of the oldest surviving JVs of L&T. Sources say it is likely to continue due to its strategic importance, even though L&T's unit in Coimbatore makes certain valves for power and nuclear sectors and other products that are not supported by the JV.

It is interesting that many of these JVs are under J P Nayak, wholetime director and president of Machinery & Industrial Products, a key architect of the corporate restructuring process along with chairman A M Naik. Nayak refused comment on the future of any specific JV.

. . .

An L&T spokesperson told Business Standard: "In the course of business, portfolio review is a constant process. We do not, however, wish to comment on any specific business till a decision is taken."

Sources said the trigger for the review was L&T's focus on high-end technology and protecting brand equity.

Komatsu and CNH have independent set-ups in India outside this JV. They are perceived to be leveraging L&T's brand equity in some quarters.

L&T has in the past realigned many of its JVs. In 2009, after 10 years of operations, it parted ways with Germany's Demag Plastics Group.

The 50:50 joint venture for making plastics machinery ended after Demag's new parent, Sumitomo, decided to go it alone in the Indian market.

In the same year, German engineering company Voith bought L&T's stake in Kolkata-based Voith Paper Technology.

. . .

More recently, L&T bought out Messer Electric and Castolin Group of Germany from its equal JV, L&T EWAC Alloys, a market leader in welding solutions.

L&T also exited the Bangalore airport project, in which it held a 17.5 per cent stake.

Sources said from now on L&T would insist on majority control in strategic JVs, a trend that is clearly visible in ties with Mitsubishi Heavy Industries for boilers and turbines, JVs with Kobe Steel and the defence JV with EADS.

"Even though we may have control of operations, an equal JV can lead to conflicts," said a senior L&T official who did not wish to be quoted.

This strategy will dovetail into L&T's target of achieving an annual revenue of one billion dollars for each of its nine business entities.

The small, non-core businesses that do not earn Rs 500 crore (Rs 5 billion) by March 2013 will be put on the block, say officials.

These are likely to include medical equipment and tangel businesses.