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September 14, 2009

Profile of L&T's strategic investments

What's common to Kalindee Rail Nirman, Astra Microwave and City Union Bank? Answer: They have a common strategic investor: engineering conglomerate L&T. Extract from the Business Today article on L&T's investments:
The big imponderable, of course, is how ‘strategic’ are some of these purchases; do L&T’s ambitions stop at the vendor-relationship level, or would it consider going the whole hog and acquiring a majority stake in any one of these companies? Consider Kalindee Rail Nirman (Engineers), for instance, which executes signalling & telecom and gauge conversion projects for the railways. L&T’s stake in this company, via subsidiary L&T Capital Co, is precariously close to the 15 per cent threshold, at 14.9 per cent. L&T, meantime, has been sharpening its focus on the railways, and in the recent past has bagged major orders in track-laying and electrification. An acquisition of Kalindee will prove a perfect fit, and also assist a quick ramp-up in this relatively new business.

..Rather curiously, L&T has also acquired just under 5 per cent in two private banks. Does L&T, which has a non-banking finance company (NBFC) in L&T Finance, expect banking regulations to be liberalised in the near future, which would allow for corporations to have banking operations? That may be jumping the gun a bit.

Deosthalee explains that it’s only about exploiting existing synergies and not much more. Here’s how: L&T’s NBFC finances purchases of construction equipment; buyers of such equipment need services like bank guarantees, and personal loans for this purpose. That’s where the banks come into the picture. “Our objective is to have a complete offering and exploit the synergies,” says Deosthalee. By buying stakes in three southern banks—City Union, Federal and Catholic Syrian—L&T is in a position to guarantee customers services it can’t otherwise provide— like working capital and bank guarantees.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in