Lanco Infratech Ltd, which has interests in power, engineering, procurement and construction (EPC), infrastructure and natural resources, is cutting down its workforce by nearly 20 per cent.
This is part of the consolidation strategy to save cost, said L. Madhusudhan Rao, Executive Chairman of the 25-year-old Lanco Group. Lanco has been incurring financial losses on lower margins, capitalisation and soaring interest charges.
Lanco’s total loss in the first three quarters of 2012-13 is of the order of Rs 990 crore, shows data compiled by Bloomberg.
He, however, did not divulge any target to save cost by reducing employees.
The company is seen reducing its employee cost by 7-10 per cent every quarter. In the first quarter of 2012-13, employee cost stood at Rs 185.8 crore, which dropped to Rs 167 crore in the second quarter. It was further reduced to Rs 155 crore in the third quarter of the last fiscal year.
“We have been doing it for the past two-three months and probably will be completed in next two months. We are looking at consolidation of our businesses and putting a hold on projects that are not moving forward,” Rao told Business Line.
Till last year, the company had employed nearly 7,000. It has come down to about 6,000 and another 500-600 employees may face the risk of losing their jobs.
However, the Executive Chairman said that there has been no delay in salaries. “Earlier, there were some receivables at some of the Group companies. But, now it has been sorted,” he explained.
“Focus on core competence and gaining scale for profitable growth is expected in any industry with a large underserved market with possibility of a viable business model. The power industry is no exception to this,” said Pratik Kadakia, Principal at Roland Berger Strategy Consultants, India.
“Given the continued impetus to regulatory reforms initiated with the recent restructuring of distribution utilities, initiatives to debottleneck supply of coal, it is likely that power companies will look to consolidate and focus on their core for competitive advantage,” Kadakia said.
Non-core assets
According to reports, the Group is targeting to hive off some of its non-core businesses such as real estate. Rao did not comment on selling or valuation of the non-core assets.
The management is confident of realising Rs 4,000-6,000 crore from receivables and stake sale. Nearly, Rs 3,000 crore repayment is scheduled in one year, said Emkay Global Financial Services in its report.
Power projects
Lanco has power projects of 9,368 MW across 12 States. Of this, 4,732 MW is under operation and another 4,636 MW is under construction. “Each MW costs nearly Rs 5.5 crore,” Rao said.
The private firm has bagged two National Highways contract in Karnataka and another one in Uttar Pradesh. It has forayed into property development business by launching Lanco Hills in Hyderabad.
In the third quarter of 2012-13, Lanco’s power segment sales were up 14 per cent and revenues from resources saw a rise of 24 per cent year-on-year.
However, internal project continues to be slow, EPC revenues were down 70.3 per cent and solar segment revenues decreased 75 per cent year-on-year, Rupa Shah, analyst at Prabhudas Lilladher said in her report.