High and low; 2009-10 was a year of contradictions for engineering major Larsen & Toubro. While its order book went up at a much better pace than the year before, it disappointed somewhat on revenue.
In the third quarter, the company announced orders of Rs 15,242 crore. In the past few weeks, the company reported new orders on a daily basis. "I think they will achieve the order book growth target because they have already declared Rs 1,00,000 crore of orders by now and that is close to what they were supposed to achieve. It has been one of the best years in terms of order book inflow," says Nidhi Agrawal, analyst, Sharekhan.
L&T had reported 23 per cent growth in the order book in financial year 2008-09 against the standard 30 per cent growth. It had subsequently cut its guidance (prediction) for the year ahead to 25 per cent. Halfway through the year, the company revised this to 30 per cent , buoyed by an improvement in the economic situation, dogged till then by slower growth in India and the credit crisis.
The 72-year-old company created a ripple in the third quarter, as it reported a decline in revenue growth for the first time in many years. Revenues were six per cent lower than those reported last year. This made the company cut its full-year revenue growth forecast from 15 per cent to 10 per cent. Analysts believe the company can deliver on this reduced revenue guidance, though many believe a 10 per cent increase in top line itself might not be satisfactory.
"The management is confident of achieving the revenue growth guidance. Management has based its guidance on progress achieved in the current order backlog, including orders from real estate sector and international geographies, and financial closure achieved in own build, operate and transfer projects," says a report by Emkay Research.
What analysts will watch out for in the coming quarters is the company's implementation capability, which had come under a scanner last quarter. “The company has bagged many complicated orders in the last few years and the next two years will be crucial in terms of execution," says a Mumbai-based analyst who does not wish to be named.
The management had admitted to execution delays from the client's side last quarter. It now says they have been addressing these issues. It has also achieved financial closure for its four build, operate and transfer road projects, which it bagged under L&T IDPL. These projects, in turn, will place equipment, procurement and construction orders with the parent company.
L&T is also ramping up capacities at its workshops in Hazira, Mysore, Kansbahal and Ahmednagar. It is also setting up new manufacturing facilities at Coimbatore, Talegaon and Navi Mumbai and design and engineering centres at Faridabad and Vadodara. Analysts say this capacity expansion will come in handy to the company, as the infrastructure addition gathered speed in the past few months. "Investment in the infrastructure sector is expected to be much higher, going ahead. We believe that despite the near-term constraints like the threat of fiscal blowout, the country's medium-to-long-term growth story remains intact. L&T is expected to gain from its presence across various verticals and geographies,” says Shailesh Kanani, Senior Research Analyst, Angel Broking.