After touching a low of Rs 1134.50 on 31 May 2012 on order inflow concerns, Larsen & Toubro has bounced back sharply (up 46 per cent) to touch its 52-week high of Rs 1656.90 on 5 October 2012.
The rise comes on the back of these concerns ebbing, as analysts peg the order inflow at around Rs 16,500 crore during September 2012 quarter, which adds to the revenue visibility. At the end of Q2FY13E, they expect the order book to be around Rs 1,55,800 crore, which places the company in a comfortable spot as there is revenue visibility for another two years.
Daljeet. S. Kohli, head of research at IndiaNivesh observes that the company is expected to report around 11.8 per cent increase in its order inflows during H1FY13, as compared to H1FY12. “This leaves the company with a quarterly run rate of Rs 22,550 – 24,310 crore to attain 15-20 per cent growth in FY13 Order inflows (as per management’s guidance). However this run rate seems achieves possible looking at the fact that award activity happens to be more during the second half.”
Concern areas
The concern, however, is the segment-wise mix of new project orders. In the last few quarters, majority of the new order wins were from the low margin buildings and factories sub-segment, observe analysts.
They point out that if other infra sub-segments do not see a quicker revival, then L&T may see marginal shift in its order book towards buildings and factories segment, thereby putting pressure on the margins. “With the likely cooling down of raw material prices and other operating levers coming into play, we sense that it would address the impact of this low margin business,” Kohli adds.
The road ahead
For the quarter ending September 2012, analysts at Motilal oswal see the earnings before interest, depreciation, taxes and amortisation (EBIDTA) margins of 10 per cent, which are marginally lower than September 2011 quarter’s 10.4 per cent; though much better that 9.1 per cent seen in the March 2012 quarter.
On the revenue front, analysts expect revenues at Rs 1,32,96.7 crore, up 18.2 per cent year-on-year. However, with lower income, marginally higher interest outgo and depreciation costs, the bottom-line at Rs 822.3 crore may be able to grow just three per cent year-on-year.
Given the outlook and the strengthening order-book, most analysts remain positive on the stock. In the recently concluded quarter, the company has been awarded an EPC order worth Rs 749 crore by ONGC for four wellheads in the hydrocarbon sector after a long gap of over one-year. This is significant, given the loss of key orders to competition in the last one – two years. Besides this, L&T also won Rs 1,302 crore order from Petroleum Development Oman LLC.
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