Larsen & Toubro plans to push into the software industry and engineering design services in a much bigger way, as part of a multi-pronged strategy it has crafted to polevault the engineering giant in the next five years into the list of India's top 10 private companies in terms of market capitalisation. L&T now ranks 19th in this list.

The Rs 10,205 crore (Rs 102.05 billion) engineering giant's plan is being brought to fruition with the help of the Boston Consultancy Group, which it once again hired some two and a half months ago.

BCG, which L&T had hired in 1999 (it had suggested that L&T divest some of its businesses), will submit its report in another six weeks or so.

Making it clear that the strategy is L&T's and not BCG's, JP Nayak, member of the L&T board and president, operations, explains: "We want to make it robust, realistic and to improve it."

Pressed as to where the rest of the growth in profits will come from, Nayak says that the strategy, which is being personally driven by L&T chairman and managing director AM Naik, has several other elements: cost cutting at all levels; setting annual goals for managers and supervisors and seeing whether these are met; hiring the best talent (compensation levels have gone up in the last two years and are now on a par with the best in industry) and retaining good people and the introduction of Six Sigma and enterprise value addition. In short, L&T is virtually reinventing itself.

The growth plan is an outcome of the experience of having had to live with AV Birla group chairman Kumar Mangalam Birla acquiring a 14.5 per cent stake in L&T some two years ago.

Nayak implies that L&T has, in fact, embarked upon an exercise to see that no Indian industrialist will ever again be able to buy a sizeable chunk of L&T equity.

L&T wants to make it too expensive to do this. So it is ensuring that in the years to come its market capitalisation of Rs 10,455.20 crore (as on September 14) will rise dramatically. The ideal figure here would be Rs 40,000 crore (Rs 400 billion), Nayak chuckles, but concedes that achieving that will be tough.

A company can't determine what its market capitalisation will be, however, that will only rise if perceptions of future profitability change.

Nayak acknowledges this. So L&T has drawn up a plan to see that its Rs 10,205 crore (Rs 102.05 billion) turnover grows by 20 per cent a year in the next five years and its profits (Rs 768 crore (Rs 7.68 billion) profit before tax in 2003-2004) grow by much more than 20 per cent a year.

That target is extremely ambitious -- L&T's sales and net profits grew by an average of 11.91 per cent and 3.96 per cent in the past five years before the de-merger of its cement division.

L&T's software business (Larsen & Toubro Infotech) is now small, with a turnover of roughly Rs 30 crore (Rs 300 million). Along with engineering design services, which L&T hopes to offer in a much bigger way, Nayak says that the turnover could soar 50 times, to Rs 1,500 crore (Rs 15 billion).

"L&T has domain expertise," he points out, referring to engineering design services.

Nayak also says that L&T will from now onwards grow both organically and inorganically at home and overseas.

L&T was in talks with three or four small to medium US companies on buying them or forming joint ventures with them, so as to fill gaps in L&T's technology.

For example, L&T has the know how for shallow sea drilling but lacks technology for deep sea drilling, he adds.

Multi-pronged strategy

Market cap
The engineering giant wants to make it to the list of India's top 10 private companies in terms of market capitalisation.

Software
The company has drawn up big plans for its low-profile software business, which has a turnover of roughly Rs 30 crore

Acquisitions
L&T will grow both at home and overseas. It is in talks with some US companies on buying them or forming joint ventures

Hiring
It is hiring the best talent. Compensation levels have gone up in the last two years and are now on a par with the best in industry

What spurred the scramble: The growth plan is an outcome of Kumar Mangalam Birla acquiring a 14.5% stake two years ago. L&T does not want a repeat