L&T pushes IT and engineering arms to accelerate growth beyond 15%

Larsen and Toubro is focusing on raising revenue growth in its services arms, LTM and LTTS. Currently, these companies grow at about 10-11 percent per year, which needs to increase. The management highlighted the importance of scaling up their services and accessing new markets. The recent AI-led disruption may help achieve this growth by leveling the playing field among competitors.

Mumbai: Larsen and Toubro is focusing on accelerating revenue growth in its two services arms, LTM and LTTS, to over 15 per cent from 10-11 per cent at present, a top official has said.

While there have been some successes amid the changes brought about by the artificial intelligence-led disruption, companies like LTM and LTTS, which are mid-sized players in their respective industries, need to accelerate their growth, R Shankar Raman, the president and whole-time director for finance, told reporters a few days ago.

"Services has to pick up pace; we are growing at about 10-11 per cent on a year-on-year basis. For a mid-sized firm, that rate needs to go up," Raman said.

There is a need to accelerate the growth to over 15 per cent per annum for both LTM and LTTS (L&T Technology Services), which are engaged in IT services and engineering services, respectively, he said, adding that "our focus is also now to see how we can scale up the services business".

Both the companies will have to find new markets and new businesses, Raman said, acknowledging that the demand is much more in the US and Europe and not in India.

A large company registering revenues of USD 5 billion or more per quarter can grow at single digits per year given the large base, but a mid-tier player needs to grow at higher levels, he said.

There are a few tailwinds helping the two companies on this agenda, including the AI-led disruption, which takes away an entrenched company's advantages by creating a more level playing field, and also layoffs at some of the players, which give the two companies access to hi-tech talent, he added.

Both LTM and LTTS have had some initial successes on the AI front, which is seen in their profit margin expansions, he said, stressing the need to keep the momentum going.

Stating that both the companies are "lesser disadvantaged", Raman said, "The advantage of disruption is that it brings everyone on the same level. The lead that the traditional leaders enjoy sort of reduces when a disruption occurs".

In such a scenario, deploying the right talent with the requisite skills becomes important, he explained, adding that the layoffs by peers who hired aggressively during the COVID pandemic may be turning into an advantage.

"During COVID, companies added people like there is no tomorrow. They are all getting resized now. We are picking up now," he said, adding that these employees get domain expertise which the company may not otherwise possess.

In the financial services business, there has been a realignment to focus more on retail lending business, he said, adding that the riskier parts have been exited now.

The company is deploying a lot of technology in its operations, which makes it look as if it is an IT company providing finance, he said, pointing out that a big tech backend helps the business.

The parentage also helps L&T Finance access funds at competitive rates, which can be of help while expanding the margins, Raman said.