The September quarter performance is a good boost for the underperforming infrastructure sector.
Despite good monsoon, that generally impacts execution of infrastructure companies, Larsen and Toubro (L&T) reported sales growth of around 18 per cent year-on-year (y-o-y) to Rs 9,331 crore in the September 2010 quarter — almost in line with analysts’ expectations — albeit due to a lower base in same quarter last year when sales inched up just three per cent y-o-y.
The company kept its promise of maintaining margins, though analysts expected an improvement. While operating profit margin has been maintained at 10.8 per cent, the net profit margin (after adjusting for extra-ordinary items) has inched up 44 basis points (bps) at 7.4 per cent, largely due to an 80 per cent jump in other income.
The September 2010 quarter was, however, challenging compared to the June quarter though sales growth has been better. In the first quarter of FY11, sales grew 6.4 per cent y-o-y despite a low base of 7.3 per cent growth in June 2009. The company had to grapple with higher costs in the September 2010 quarter as total expenditure surged 17.5 per cent.
There has also been some slowdown in the growth of the order book (41.4 per cent down from 50.5 per cent in the first quarter of FY11) and order inflows (11.4 per cent versus 63.3 per cent), which investors need to keep a watch on. However, with further pick up in operations in the second half of the current financial year, analysts believe the company can meet its guidance of 20 per cent and 25 per cent growth in revenue and order intake, respectively, for 2010-11.
The stock staged a smart recovery as it closed with a gain of 1.2 per cent at Rs 2,013.15 after falling as much as three per cent intraday. With the company’s stretched valuation of 24x FY12 estimated earnings, its plan to list finance (L&T Finance Holdings) and infrastructure subsidiaries in the second half of FY11 and FY12, respectively, will act as positive trigger.