Larsen and Toubro planning Rs.2,000-crore PE fund

CHENNAI - Engineering and construction group Larsen and Toubro (L&T) is planning to launch a Rs.500-2,000-crore private equity fund as part of a strategy to become a financial supermarket.

“We are in the process of putting the pieces. We have to synergise on the skills that the group currently possess. We will start with a fund size ranging between Rs.500 crore and Rs.2,000 crore. The corpus will be domestically raised,” Senior Vice President (Financial Services) N. Sivaraman told IANS in an interview.

He said the group can provide expertise in evaluation of opportunities in the principal business and the organisation. “The financial evaluation will be done by an independent professional team.”

Sivaraman said the group is progressing at a steady pace to have its hands in every sphere of the financial services business.

The L&T Financial Services group today consists of two non-banking finance companies (L&T Finance and L&T Infrastructure Finance Company), L&T Mutual Fund and L&T General Insurance Company.

At the apex, there is L&T Finance Holdings, the parent for the finance outfits which is awaiting regulator’s nod for a Rs.1,500-crore public issue.

Interestingly, L&T Finance apart from the usual retail and corporate finance business is into micro-finance segment.

For the engineering and construction group till 2005, financial services was not a major business with L&T Finance having a book size of Rs.700 crore.

“It was in June 2008 the group decided to focus on the financial services segment and L&T Infrastructure Finance came into being,” Sivaraman said.

The book size of the finance business is now around Rs.11,500 crore.

The group got into mutual fund business when L&T Finance acquired Chola DBS for Rs.45 crore in 2009. Post-acquisition, the assets under management has now grown to around Rs.3,700 crore, up from around Rs.2,890 crore.

On the other hand, L&T Finance’s investment in Federal Bank and City Union Bank is considered strategic.

Is the group aspiring to be another ICICI or HDFC? The major pieces that are missing in the building blocks are life insurance and banking business.

“The two groups are good inspiration for others. In the finance field products can be replicated. Our idea is to make the customer experience first the L&T’s service. Over a period of time we will add further lines of business. We want to be sure that whatever we have started are on a strong foundation. Not going to get distracted with everything else,” said Sivaraman.

“There is no time line specified for us to become a financial supermarket. The vision is to have broad-based multiple verticals. We are not in a hurry. We want to be a meaningful and not volume player. What is important is the value of business,” he added.

A chief executive of a leading NBFC, when asked about L&T’s financial sector foray, told IANS that the group has several contractors and vendors. “It will be mainly captive business for them.”

Responding to that, Sivaraman said: “No business can sustain itself for long with captive business as the risk and return cannot be measured effectively. Our exposure to parent

L&T’s ecosystem is less than five percent.”

On the rationale for listing the holding company instead of the operating companies, he said: “We don’t want multiple entities to be listed in the market and parent company to have an independent identity.”

Ruling out merger of NBFCs with the parent company, he said: “There are reasons for companies to be separate. L&T Infrastructure is an infrastructure finance company and it has to lend 75 percent to core sector.”

According to him, out of the Rs.1,500 crore proposed to be raised from the public Rs.1,200 crore will be given to the two NBFCs (L&T Finance and L&T Infrastructure) and the remaining will be used for other business.

(Venkatachari Jagannathan can be contacted at v.jagannathan@ians.in)