L&T defers salary appraisals over Rs 12,000 cr billing loss since lockdown

Analysts raise concerns over Q1 show, firm to shift focus to Africa as West Asian market turns weak

Engineering conglomerate Larsen & Toubro (L&T) has lost Rs 12,000 crore worth billing due to the nationwide lockdown, the company’s top management told employees in a webinar this week. While, the company looks to defer monetary appraisals, analysts raise concerns over June quarter performance.

According to people in the know, S N Subrahmanyan, L&T managing director and chief executive officer(CEO) pegged the billing loss at Rs 12,000 crore, in a webinar with employees. Sources say the top boss added in anticipation of weakness in Middle East orders, L&T will focus on orders from African markets.

Sources added, L&T’s top management indicated that the firm will go ahead with non–monetary appraisals like designation promotions, while it will defer monetary appraisals. The move to not defer promotions, sources add, is to ensure employee career trajectory remains unaffected.

An email query sent to L&T remained unanswered.

L&T’s the first quarter historically always remains softer in terms of revenue run rate, nevertheless it is important to set the tone for execution during the year ahead. Hence analysts opine the progressing lockdown in first quarter can impact performance in subsequent quarters too.

Naveen Kulkarni , chief investment officer (CIO) at Axis Securities feels that if the activities continue to remain impacted in the first quarter, L&T can in fact end up reporting a loss. Also the slowdown that will follow the lockdown, the labor displacements and in turn higher labor costs and other costs escalations, all will have a bearing. The hydrocarbon segment is already seen facing challenges. This may mean FY21 earnings may see a hit of 25-50 per cent, say analysts, though remain watchful on developments.

L&T clocked 20 per cent of its FY20 estimated revenues (Rs 147, 126 crore) during June’19 quarter, while the quarter contributed about 15 per cent to its earnings.

Analyst Umesh Raut at Yes securities says that while he was looking at 12 per cent impact to March 2020 quarter earnings, the month of April too has been a washout. Though he still expects Rs 20,000 crore in revenues during first quarter (about 25 per cent lower than the year-ago quarter), he has one eye on the progress and restart of activities, and will work his numbers post results. Costs have already been on a rise, and with escalations in project outlay, margins may be significantly impacted. Raut says they could slip to single digits during first quarter (20.4 per cent in June’19 quarter). 

On the order book side, analysts expect L&T to consolidate its position in certain business segments. “We see more scope for consolidation as the leader put its best foot forward in the engineering and construction (E&C) market. This would help L&T recover from cyclical lows; the extent of recovery, though, is contingent on how management addresses some key investor concerns,” analysts with Edelweiss said in an April 24 note on the company. The note also added the company has signed orders worth more than $3.5 billion, 20 per cent of L&T’s expected FY20 order inflow, in past 15 days in spite of lockdown.

In a separate note, Edelweiss analysts said L&T’s deal to sell its electrical business to Schneider Electric is likely to be completed in the first half of FY21. The deal completion will get L&T another Rs10, 000 crore in cash (post-tax deal proceeds).