Engineering giant L&T reluctant on its electricals arm sale

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L&T Chairman and Managing Director, A.M. Naik, says that the news of the sale of its electrical arm was just a rumour. “There is no truth in these rumours. We are not selling the division. Various world majors present in similar kind of business have started spreading these rumours, as some of them have vested interests like taking away our clients, employees. The rumours started in the first place because we wanted to make the division into a separate subsidiary and ballot voting was asked for. The formation of the subsidiary is in line with the strategic plan we outlined some time ago, that various businesses will be autonomous and will have to withstand market competition," he said.

The company is now planning to release a minority stake of the electrical arm. It has entered into an arrangement with Eaton Corporation of US. This move can make the company lose the premium it would have gained on sale of the entire stake in the electrical arm. The company had earlier this year announced to make its divisions into different listed companies.

It is to be believed that the company wants to concentrate in its core business, that is engineering and construction. The company may release the entire stake over a period of time. The electrical sector is facing a tough competition, due to high input prices and minimal demand from the Gulf. Eaton thinks very different on this, and foresees India as a major growing market for electricals.

Again, it is to be believed that no company would buy a minority stake in the electricals arm, unless provided a minimum of 26% stake. A.M. Naik"s vision of creating different companies and subsidiaries out of the L&T Group, with capable governance, seems to disrupt a little. However, the quarterly results seem to be going in the right track, with the company"s net profit rising by 17% for Q4, FY"11 compared to the corresponding quarter.

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