L&T and the growth of a self-dependent India after 1947

AM Naik, former executive chairman, Larsen & Toubro Image: Courtesy Larsen & Toubro Ltd.
 
On a drizzly July afternoon, AM Naik is at the head of the table at his office-cum-residence in the ‘High Trees’ bungalow in Bandra’s leafy Pali Hill in suburban Mumbai. Behind him three flags —two Tricolours and the Larsen & Toubro (L&T) bright yellow flag with the logo in bold black at the centre—lend the room a hue that embodies what the 82-year-old chairman emeritus of the engineering and infrastructure colossus stands for: Passionate commitment to country and company.

“Today I am happy for what I have done for my country. I am happy for creating the new L&T. And now I am happy that I am helping people,” says the man who joined the company as a junior engineer almost 60 years ago, and who now spends most of his time on his pet philanthropic projects in education, skill-building and health care.

If Naik is synonymous with the ‘new L&T’, 1.0 dates to pre-Independence when two Danish engineers, Henning Holck-Larsen and Soren Kristian Toubro, started the partnership company in 1938 out of a cubicle in the then-commercial district of Bombay, Ballard Estate. As R Gopalakrishnan and Pallavi Mody write in How Anil Naik Built L&T’s Remarkable Growth Trajectory (Rupa, 2020), “Little did they know then that they were making this hot, humid and dusty foreign land their karmabhoomi.”

What started as an equipment and machinery import business—beginning with dairy—turned into an opportunity to manufacture once World War II broke out in 1939; imports from countries like Germany, Denmark and Norway (the last two were invaded by the Germans) were banned. Repairing and refitting war-struck ships also became a prospect, along with replicating machinery that was hitherto imported. “Engineering and innovation were the two pillars on which the partners took their first baby steps,” write Gopalakrishnan and Mody.

The bigger opportunities for growth came with Independence, with L&T by then becoming a company with a Danish name, but “wholly and Indian company in equity, emotion and inspiration”. In 1948, 55 acres of undeveloped marsh and jungle land in the central Bombay suburb of Powai were acquired to create the main manufacturing hub, by when offices had come up in Calcutta, Madras and New Delhi.

With import substitution at the heart of India’s industrial policy, L&T began producing machinery and equipment for core industries like cement, steel and power. L&T, write Gopalakrishnan and Mody, also emerged the best choice for supply of equipment when Dr Verghese Kurien drew up his blueprint to set up Amul Dairy as a milk cooperative in Gujarat’s Kaira district.

Meanwhile, in November 1964, a 22-year-old engineering graduate from one of Gujarat’s oldest and reputed colleges replied to an L&T recruitment ad. The son of a Gandhian and freedom fighter, the young Anil—alien to Bombay, to the English language and to a company known to hire mostly from IIT—got the job. A baptism of fire followed. As Priya Kumar and Jairam N Menon write in The Man Who Built Tomorrow (Harper Business, 2024), one of his interviewers, a workshop foreman called T Baker, told Naik on his first day: “Since 1958, I’ve recruited 41 engineers and sacked 38. I don’t want you to be the 39th.”

Naik more than survived. He galloped ahead, out of AC offices and onto the grease and grime of the Powai shopfloor. In two decades, he was at the forefront of transforming marshland of Hazira in Gujarat into a mega engineering complex. This would be the site out of which India’s first hydrocracker reactor with the Made in India label was manufactured in 1989-90. Close to a decade later came the nuclear reactors. And then the making of the hull of India’s first nuclear-powered submarine, INS Arihant.

“Whatever we did, we did with zero imports. We created technologies ourselves that have been admired by the world,” says Naik. “We were atmanirbhar (self-reliant) a long time ago.”

L&T’s modular fabrication facility at Hazira, Gujarat

The New L&T

There are leaders who yearn for the corner room for the prestige and power that comes with it. And then there are those leaders who hunger to be CEO to be able to implement a vision. To drive change. For Naik, that change wasn’t going to be gradual and incremental. “We had to clean up to build up what L&T is today,” Naik tells Forbes India.

The clean-up involved selling 16 businesses that were either not core to L&T, or too small for the managerial and technical bandwidth they called for, and yet didn’t make a profit. Among these were businesses that were entered into during the Licence Raj because they didn’t call for a licence, like shipping, as well as a motely bunch that included footwear and bottle-making.

For Naik, cement too was non-core. “We are in the very specialised business of building dams, coastal roads, undersea tunnels… cement is a commodity,” says the chairman of the L&T Employees’ Trust, which is the largest shareholder in the company with 14.18 percent.



The new L&T also involved exiting joint ventures, with construction equipment makers like Komatsu and Case, and dairy equipment maker Niro. “We kept the workshops of Case and Nairo, and the land of the L&T Komatsu opened the doors for a real estate play in Bengaluru,” Naik says.

The build-up involved scaling up the infrastructure business from just one cluster to five: Water, clean fuel, electrical installations, buildings and factories and heavy civil, which includes building underwater oil storage for reserves to be used in emergency and submarine business. And several new businesses like IT services, aerospace, defence, real estate, nuclear, heavy engineering and hydrocarbons were started, as Naik puts it, “from zero”.

Naik says when he took charge of L&T, the market cap was roughly ₹4,000 crore. Today, at the group level, it is upwards of ₹7 lakh crore.

Also read: FILA 2023, Lifetime Achievement Award: AM Naik - The old-world leader and crisis man

The sustained value creation helped ring-fence a company that was a tempting target for corporate predators. “Between 1987 and 2004, we were under the constant threat of takeover,” says Naik.

L&T thwarted a takeover threat from the AV Birla group in the first half of the 2000s, with the Birlas at one point owning 16 percent. It was a high-stakes slugfest with the Vajpayee government also getting involved. While the perception was that L&T was a relative newbie at lobbying with government and would hence finish on the losing side, Naik went to New Delhi wearing his national credentials on his sleeve in full splendour.

A passionate Naik succeeded in convincing then Finance Minister Jaswant Singh and Defence Minister George Fernandes that L&T had to stay independent because of its total commitment to nation-building. That broke the stalemate, and each side got what it wanted: Birla the cement business of L&T, and Naik an entity now even more focussed on engineering and construction.

The cement demerger also benefited employees, who got stock options in L&T. That plus five bonus issues between 2006 and 2019 helped create, estimates Naik, “6,000 millionaires (only in L&T), and at least half of them would be crorepatis, if they haven’t sold their shares yet”.

Over decades, L&T has proven its world-class credentials, by getting 40 percent of its business from outside India, making it distinctively a true-blue Indian multinational that is a treasured national asset.



Job done, and with the baton passed to a seasoned management led by CMD SN Subrahmanyan, Naik now spends most of his time on philanthropy. Health care, education and skill-building are his focus areas, with much of the initiatives in rural Gujarat; Naik’s father believed that India lived in its villages, and the son is determined to improve their lives and livelihoods.

Naik was chairman of the National Skill Development Centre for four years, during which he trained some 1,400 instructors at Industrial Training Institutes in Madhya Pradesh and Goa. “A skill learnt is a life transformed,” he says. Along with the schools he has built in rural Gujarat are the Anil Naik Technical Training Centre and the AM Naik Education and Skilling Centre, where less-privileged boys and girls can pick up technical and vocational skills to become auto mechanics, beauty and wellness providers and IT/IteS workers.

Naik says in The Man who Built Tomorrow: “One life is too short a time to do so many things.” The founders of L&T too would have felt something similar decades ago; but if they do have a ringside view of L&T, they would be smiling at how far their entrepreneurial efforts in pre-Independent India have stretched.