Investor Issues
L&T shareholders would gain from spinoffs

More than three years ago, L&T CMD AM Naik had assured the media that the company has plans to unlock value for its shareholders by spinning off many of its operations into independent companies. However, nothing has really happened since then. Spinoffs would be of great benefit to shareholders
In the last Annual General Meeting (AGM) in Mumbai, held on Friday (24 August, 2012) Larsen & Toubro (L&T) chairman and managing director, AM Naik showed serious concern against the Chinese inroads in the supply of cheap power equipments to India.
Apparently, his views are also shared by others, notably by some German consumers who fear that they will themselves be losing their capability to produce top quality wares for the power generation if they continue to import these from China.
It may recalled, that in these very columns, we had also raised similar sentiments and had sought the government intervention in imposing at least a 20% duty on such imports from China, so that indigenous manufacturers like BHEL do not lose their edge. (Protection Vs power) It is gratifying to note that the GOI has now levied a 21% import duty on such power generating equipment which are said to be inferior in quality and the life cycle uncertain.
Set against this onslaught, Indian power equipment manufacturers have distinct disadvantage of delivery schedule due to their heavy domestic commitments. However, if they really wish to stop this Chinese intrusion, they would do well to augment their production capacity and set up expansion plans in new locations so that the growing demand can be met, instead of necessitating imports, regardless of origin, Chinese or otherwise.
In the meantime, L&T is now firmly set with its L&T Finance which has more than the adequate capital base, substantial business on hand besides vast experience.  If and when RBI decides to issue new banking licenses chances are that L&T Finance will have a head start and be able to stand on its own feet in a short span.  L&T companies have been successfully operating various businesses for a several decades now, and their new financing arm will have enough to work on.
 Now comes the question of future plans of L&T as a conglomerate. More than three years ago, in one of the many interviews that CMD AM Naik gave, he assured the media that L&T has plans to unlock value for its shareholders by spinning off many of its operations into independent companies, with L&T as the apex body. Indeed, a very great and workable idea.
However, nothing has really happened since then. Except, of course, a much awaited bonus issue. Even when L&T Finance came up with its IPO, it did not give or make any special provision for allotment for L&T shareholders. There was no preferential treatment.
With this in the background, one has to take the news of unlocking value in the infrastructure firm and Dharma port with a pinch of salt.  It may be noted that Dharma port is a 50:50 joint venture with Tata Steel.
A few years ago, when Reliance was split between Anil and Mukesh Ambani, the shareholders benefited greatly, as they were allotted shares of the newly formed units. Each one of these Reliance units are making headway in different areas, with varying degree of success.
As for L&T, having chosen AM Naik to continue to be at the helm of affairs for the next five years, time is ripe for him to make good his promise and create the independent units by effectively spinning off several of the units in the L&T umbrella. Such a move would probably give these units the freedom to expand and bring forth more profits for the group.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US. He can be contacted at



Nem Chandra Singhal

5 years ago

It seems that Mr. AM Naik is too busy in managing his company's affairs and don't mind to talk, talk, and big talks like a politician. The share price are at low. The profitability of L&T is not improving. He may be waiting for some trigger to take some action on his promises. Let's hope for the best. Thanks.
Nem Chandra Singhal.

R Balakrishnan

5 years ago

Screw the shareholders. This helps cronyism. Helps put retired cronies in to multi crore salaried positions in newly created entities. So much for "Professional Management"

Open letter to RBI governor D Subbarao

RBI governor Dr D Subbarao recently said, “Inflation is a regressive tax for the silent poor”. Despite the RBI’s efforts, inflation refuses to come down. Moneylife columnist, in his open letter to the RBI governor, suggests ways to mitigate the miseries of the large majority of India’s poor

Dear Dr D Subbarao,

At the outset, thanks for championing the cause of the poor and the downtrodden of our country. Your statement at Tiruvananthapuram makes a refreshing departure from the stand taken by the powers that be in the government, who are voicing their concern over the slow growth of the economy due to high interest rates, unmindful of the galloping inflation causing havoc in the life of a large majority of people of our country.

You were right when you said “Inflation is a regressive tax for the silent poor.”

You are perfectly right in saying “Powerful and resourceful corporates may protest high interest rates, but there also exists a vast majority of silent poor who suffer worst from high inflation.  Unlike in the former’s case, their voice is not heard in the media…”

We salute you for airing your views boldly and firmly and for not relenting under pressure from the industry bigwigs coupled with the media.

On behalf of this large majority living below the poverty line in our country we compliment you for your statement that bringing down inflation within the comfort zone of 5% is RBI’s priority and we hope and sincerely pray for the success of your endeavours.  
But despite all your efforts, inflation is stubbornly refusing to come down, putting more pressure on you to bring down interest rates without any corresponding effort by the government on the fiscal and supply side to contain inflation.

Time and again it is observed that the government always try to appease the rich and the wealthy while doling out small favours to the poor by way of subsidy, out of which 90%, as admitted by one former prime minister, is eaten away by the middlemen and only 10% reaching the beneficiaries. With this experience, we have a lurking fear that the government may bulldoze you to follow their directives.

Against this background, we submit this open letter to you with a few suggestions mentioned below seeking your indulgence to consider implementing them, in earnest, which will go a long way in mitigating the sufferings of the large majority of our country’s men and women, and save the nation from the potential chaos and anarchy.

1.    Credit subsidies directly into the bank accounts of the beneficiaries
The first and the foremost priority for the banking industry is to gear itself to the task of crediting the subsidy amount due from the government directly into the bank accounts of the beneficiaries, thereby eliminating the middlemen completely. This requires a two-pronged effort.

Firstly, banks have to ensure financial inclusion of all those below the poverty line. This is a huge task as on rough estimate there may be more than 200 million people who might be eligible for subsidy under different schemes of the government and most of them may be outside the banking net at present. To bring them within the banking system will be a herculean task and the banks will have to face this challenge with utmost grit and dexterity.

The second step would be the logistics of extending the banking facilities to unbanked rural areas. The banks will have to be ready with robust infrastructure and technology to credit the subsidy to the beneficiaries’ account seamlessly and perfectly with out any hitches. This will be in the interest of the banks themselves, as it would bring in the much desired savings deposits on a continuous basis from the rural population, which will benefit the banks in the long run.

If the RBI takes the lead and galvanize the banking industry to meet this challenge as well as push the government to implement this project, it would plug the leakage in the subsidy disbursement and eliminate rampant corruption existing in the system at present.

2.    Fiscal relief to the bank depositors
Over 300 million bank depositors' savings, mostly middle class, have got eroded due to rising inflation for more than last three years. If and when you reduce the lending rates of banks, either by persuasion or by force, it will have a cascading effect of bringing down deposits rates as well, which will be a double whammy for the bank depositors, as they have to pay income tax on interest earned on all their deposits, bringing down their real rate of return to less than 4% against the consumer price inflation at near 10% prevailing at present.  

The only way to provide some relief to the middle and the lower middle class who form the bulk of the deposit base is to exempt the interest earned on the bank deposits from the income tax net, at least to the extent Rs2 lakh per annum over and above the basic exemption. If you can prevail over the finance minister to effect these changes in tax laws before bringing down lending rates, it will be a great service to the public.

In the good old days, bank depositors had a deduction of Rs12,000 under section 80L.This was suddenly withdrawn for no valid reason and nobody, including the RBI, raised any finger against the move.  Last year, mercifully, a tiny rebate of Rs10,000 was allowed on interest earned on savings bank accounts, which is not only ridiculous, but an insult to the captains of banking industry, who appear to be least concerned even when the household savings in financial assets has gone down to 10% for the first time in 13 years, as per the August 2012 report on the Economic Outlook for 2012-13.This is the direct result of negative return obtained on bank deposits.

3.    Abolish TDS on interest earned on bank deposits of senior citizens
The Finance Act 2012, passed by the Parliament earlier this year has very graciously exempted senior and super senior citizens of this country from payment of advance tax and permitted them to pay the appropriate tax. But this solves only half the problem, as the authors of the enactment have conveniently forgotten to exempt the senior citizens from the rigmarole of tax deduction at source on interest earned on bank deposits, which is the most obnoxious part of the tax laws in our country.                       

If the tax is deducted at source from interest, it obviously serves as advance tax and will defeat the very purpose of exemption granted from payment of advance tax to senior citizens. Though there is a provision to submit Form No 15H to seek exemption from TDS, more often than not, these forms are lost in the humdrum of daily routine in banks or not properly recorded. This results in tax deduction, causing stress and strain to the senior citizens for no fault of theirs. It would be an invaluable service to nearly hundred million senior citizens if the RBI could persuade the government to exempt TDS on interest earned on bank deposits of senior citizens, who will be more than grateful to you for your benevolence.

4. Offer preferential rate of interest on bank deposits to disabled people on par with senior citizens
All commercial banks at present offer a higher rate of interest up to 1% over the normal rate on all fixed deposits accepted from senior citizens. But one special class of depositors who deserve such a preferential treatment are the disabled and physically/mentally challenged people, who form about 2% of our population as per 2001 disability census.


The need to support the cause of disabled hardly needs to be emphasised. If commercial banks are allowed to offer preferential rate of interest to this special class of people—irrespective of their age—on the lines of senior citizens, it will serve as a helping hand in making their lives easier as well as an ideal way in which the banks can play their role in meeting their corporate social responsibility. It is by empathising with them that we can appreciate the problems encountered by them in their daily life, This is an area where the RBI has an exclusive jurisdiction and your favourable decision will be a game changer in the life of the disabled people of our country.

This letter is written on behalf of millions of hapless poor, middle class, lower middle class and the disabled people of this country, in short ‘aam admi’, whose voices are rarely ever heard and thus suffer silently.

We thank you for your time and attention, and with warm regards,

Yours sincerely,                                          


Voiceless, faceless, powerless people of India.

(This open letter is by conceived and authored by our columnist who writes for Moneylife under the pen-name ‘Gurpur’)



ashok sen

5 years ago

What wonderful ideas.
You should let these suggestions be forwarded to major dailies , as letters to the editor, so that more Indians see them.

Since the RBI governor has let his views on the suffering of the poor due to inflation being more on his mind than the high interest rates on industrialists,your suggestions should pass muster.
More thoughts on this from you or your readers should be welcome, because inspite of 60 odd years of independence, we still have most of the poorest people in the world, with little succour in the days to come.

nagesh kini

5 years ago

On TDS -
Last year taking off from Gurpur's "Tedious TDS", the MoneyLife Foundation's memorandum to the RBI Governor evoked very favourable response by way of appropriate Directions to Banks.
Sincerely hope he reacts to this open letter favourably too.

NDTV Vs WPP: A battle for Public Opinion

WPP has hit back at NDTV’s allegation that TAM ratings are flawed with a cleverly planned counter-attack. Will it now be a battle of wits, strategy and dirty tricks?

After two weeks of silence, the mighty WPP Group has hit back hard at New Delhi Television (NDTV) for its $1.3billion lawsuit against incorrect TAM (Television Audience Measurement) ratings, with chairman Sir Martin Sorrel leading from the front. The crux of NDTV’s lawsuit is the allegation that TAM ratings (controlled by WPP), which are the main basis of deciding advertising spend in India today, can be influenced for a price.

WPP’s statements show that it is no longer a battle about the quality of TAM ratings but a battle of wits and strategy between WPP and NDTV.

The $16 billion WPP group, founded by Sir Martin Sorrel, who is also its CEO, is the largest communication services group in the world with unparalleled reach and access around the world, across all communications segments and sub-segments. India, until recently a fast growing economy, is important to WPP as is evident from Sir Martin’s frequent visits to the country.

NDTV is the David to WPP’s Goliath. It is a glamorous-looking company, whose clout has waned steadily over the years due to editorial controversies, tough competition, increasing media fragmentation, poor finances and miserable share price performance. Yet, its clout is completely disproportionate to its financial muscle (or lack of it) due to powerful political connections, mainly with the ruling Congress-led government and some leaders of the opposition (mainly the Left).

This clout was on display soon after NDTV filed the lawsuit. Media houses, which had refused to join the suit (NDTV sources say they had approached most of them to join hands), unleashed a spate of media reports supporting NDTV’s viewpoint. They were worried that the information & broadcasting ministry would support a move to threaten the market dominance (a monopoly) of TAM ratings.

Through all this, the WPP group remained silent. Those of us who asked Nielsen (India and overseas) for a reaction, were directed to TAM India, which sent this one-liner on 31st July. “TAM India, a 50:50 joint venture between Kantar Media and Nielsen doesn’t comment on any litigation.”

So what has changed a month later? Clearly, WPP had studied NDTV’s lawsuit and decided on a strategy of planned aggression led by Sir Martin himself. And it has really hit hard starting with a press statement timed to hit the global media first, which dismissed NDTV’s action as a “hypothetical lawsuit” that had not even been properly served (although it is posted on the New York Supreme Court website). Secondly, although NDTV’s lawsuit documents admission by Nielsen’s global executives about the TAM’s poor quality, the group aggressively defended the quality of its ratings.

Further, in an interview with Mint on 25th August, Sir Martin savaged NDTV, saying a “two-lawyer firm, ‘which’ specializes in restaurant law” had called WPP and “asked if we would discuss a settlement. I said there is no question of settlement. This whole thing is mischievous, designed to elicit some financial response from us”. He also told Mint that “they (NDTV) are issuing illegitimate proceedings in the US with lawyers working on a contingency basis, where they do not get a fee, but a percentage of the settlement. That is why they rang up”. Expectedly (to us) Sir Martin attacked NDTV’s financial performance by pointing out that its “market cap has fallen from $800 million to $60 million”. He ended by saying that NDTV’s PR campaign had hurt the reputation of WPP and TAM and that is why WPP was considering a defamation suit.

Based on my conversations with NDTV sources, it seems safe to say that they have been blind-sided by Sir Martin’s aggressive posturing. There is some talk about NDTV’s lawyers, suing Sir Martin in New York for defamation. But what happens next in India? NDTV has responded to the ‘hypothetical’ charge by providing details of an acknowledgement by Kantar Media Research about being served, and WPP has since modified its stance to claim it wasn’t “properly served” a notice of the lawsuit.

It will be interesting to watch. Soon after NDTV filed its suit, a spate of broadcasters came out in support of its charges of corruption and low sample size. Some, like the Zee Group claimed that they too had complained about the tiny sample size and ability to influence the ratings. The media and broadcasters associations were uniformly supportive. The News Broadcasters Association, the apex body of news broadcasters in the country, quickly wrote to the I&B ministry about TAM Media’s TV viewership measurement. The ministry in turn indicated that it would hasten the setting up of the Broadcast Audience Research Council). WPP calls this sudden aggression a “trial by media”.

But nobody probably reckoned that WPP would hit back so hard or take three weeks to do so. Will broadcasters continue to back NDTV? Let’s remember that financially, most broadcasters are as badly off as NDTV. Many remain alive only because of politicians (with an endless supply of funds) who back them, look upon television as a tool to reach their constituents. With WPP controlling the biggest media buying agencies in India, we believe that the media will happily do an about turn. After all, in a situation where most of mainstream media has no qualms about private treaties and paid news deals, why would it want to bite the hand (WPP) that feeds it?

As expected, WPP’s aggressive stand and statement released to the global media lays the ground for challenging NDTV on the jurisdiction issue. Clearly, it does not want the allegations of corruption being heard in a New York court, which may take a more puritanical view of the matter. On the other hand, pushing the matter to an India court is guaranteed to ensure that it will drag for decades. Meanwhile, if TAM improves its rating system (it has already offered a six-point agenda to do so), the eventual verdict will have little meaning.

Until the hearings begin at the New York court, it will be an interesting battle of strategy and maybe even dirty tricks—after all, there is a lot riding on the jurisdiction issue and while courts are not supposed to take cognizance of media reports, everybody knows that it does play a significant role. Our guess is that NDTV failed to realize how well the WPP clout and PR machinery would work on its home territory.



Sandeep Khurana

5 years ago

A small entity if hurt by and forced to take on a giant, may have lawsuit as the most fair option since law should go by merit and not size(practically too, not just ideally). WPP is posturing for now doing some plain bullying but depending on whose case has intrinsic merit, final out of court settlement may be in favor of or against NDTV. Going by evidence against TAM, WPP has reason to worry too. Interesting battle ahead.


5 years ago

NDTV as a PAID MEDIA of CORRUPT & COMMUNAL CONgis have spoiled their Reputation and due BIASED, HALF BAKED TRUTHS & LIES is continuing to loose viewership. MANY OF MY FRIENDS HAVE TOTALLY STOP WATCHING NDTV.

nagesh kini

5 years ago

An extremely fair reporting by Sucheta.
I've two issues
1. What should a fair sample size be?
2. After suing can one go for "settlements" through contingency fee attorneys?

Also where does the Indiabulls vs. Veritas suit stand in the same light - more particularly when other biggies like Reliance, HDFC and Kingfisher have not acted?
Is silence not implied consent?

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