For engineering conglomerate Larsen & Toubro (L&T), the deal signed on Tuesday with Schneider may mark the end of non-core divestments for some time, according to company officials. However, analysts remain hopeful that there is scope for more.
“At some point of time, if some asset gets matured and does not fit into the core, then we unlock the value and invest further in something else. At present, after this transaction, we do not see anything going forward. As and when there is we will keep you informed,” said S N Subrahmanyan, chief executive officer and managing director for L&T.
Analysts agree the sale of the electrical and automation business was the biggest divestment to look out for. However, they do not rule out more non-core divestments. In fact, the company may even be looking to monetise some of its core assets such as its infrastructure investment trust (InvIT). They also anticipate the further action of the sale of a powerful asset. “The Rajpura power plant could see some development towards 2HFY19-FY20,” analysts Renu Baid and Nayan Parakh wrote in an IIFL report on L&T. However, it may be challenging to find a buyer for the unit in the current market scenario, where huge thermal power capacities lie stranded.
As of March 2017, L&T had a consolidated debt Rs 939.76 billion. Though the management on Tuesday did not share any plans for the utilisation of proceeds from the deal, analysts from IIFL add proceeds may be used to deleverage and to make tech manufacturing business acquisitions for L&T’s capabilities in defence and aerospace. “Debt will be high if one operates in businesses like infrastructure, ideally one should look at only the core debt excluding the financial services and development assets. This was Rs 200 billion at the end of December and by the end of the March we expect this to come down to Rs 170 to Rs 180 billion,” an analyst added.
In addition, L&T is yet to complete and receive full proceeds from its sale of Kattupalli port to Adani Ports and SEZ. Though undisclosed, sources pegged the value of this deal at Rs 22 billion. In the past few years, L&T divested from several non-core assets including the Dhamra port to Adani Ports.
Some of the smaller divestments L&T undertook between 2011 and 2017 include EWAC Alloys ESAB Holdings for Rs 5.2 billion, L&T Cutting Tools to a Berkshire Hathaway-owned entity for Rs 1.74 billion, L&T Plastics Machinery to Toshiba Machine Co for an undisclosed amount, Coimbatore Casting manufacturing unit in 2016 for $24.16 million, Case New Holland Construction Equipment India for an undisclosed amount, L&T General Insurance and a couple of real estate related assets. The total disclosed value of the six of the nine assets, sold between 2011-2017 was more than $1.72 billion. The deal announced on Tuesday is valued at around $2 billion.
