L&T to hive off electrical & automation business

MUMBAI: Larsen & Toubro will hive off its electrical and automation business as a part of its restructuring, the company said on Tuesday.

According to analysts, the move is a step towards selling off the business. The sale has been widely anticipated for months, with Francebased Schneider Electric and NYSE-listed Eaton Corporation believed to be in the race to acquire the business. ET's business channel, ET Now, reported on Tuesday that L&T is close to sealing the deal with Eaton for around $1.5 billion (around Rs 6,682 crore).

Eaton Corp declined comment. "We do not comment on speculations or rumors. When we have any news, we will use the regular channel to communicate to the media," Eaton Corporation said in a response to ET's query. Earlier, Larsen & Toubro said in a note to its shareholders: "Considering the challenges of operating the electrical and automation business as a part of the business portfolio of a predominantly project and construction company, it is proposed to restructure the business by transferring it to a subsidiary company and/or an associate company or any other entity."

"This restructuring of business is required so that it is able to realise its full potential and participate comprehensively in the growth of the industry," the company said. Shares of L&T rose 1.6% to end at Rs 1,706.80 rupees on the Bombay Stock Exchange on Tuesday, reacting to the company's decision to spin off the business into a separate subsidiary.

"This in our view is part of L&T's move to exit businesses which are dilutive on returns, where it doesn't have clear leadership and re-allocate capital. L&T is set for. 613 billion of capex in infra development businesses, which needs. 184 billion (assuming 30%) as equity," Bharat Parekh, analyst, Bank of America-Merrill Lynch said in a report.

The proposed company would include L&T products and solutions in the electrical distribution and industry automation space. The division clocked sales of. 3,675 crore in 2009-10 (April-March ), with an operating profit of. 390 crore. It accounts for around 7% of the company's total turnover. After the retirement of the division's president RN Mukhija last year, the division has not had a representative on the board of the company. As a strategy, L&T has in the past sold its non-core businesses such as petrol pump vending machines and cement businesses.

It has also exited joint ventures such as L&TCASE Equipment Private and Voith Paper Technology India. "As a part of our strategy, we are continuously looking at our portfolio to determine what action we should take," JP Nayak, wholetime director and president (machinery & industrial products), told ET in a recent interview. "Our objective will be to have a portfolio in those areas where growth and profit potential is better, and try to get out of those areas where it may not be worthwhile for us to spend our valuable resources," he had said.

Deal Street

L&T wants to restructure biz by transfering it to a subsidiary or associate company Schneider Electric & Eaton are believed to be in the race to acquire the business In the past, L&T had sold its non-core businesses such as petrol pump vending machines and cement businesses.