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L&T: Hurt by the environment

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Shobhana SubramanianVarun Sharma Mumbai
Last Updated : Jan 29 2013 | 3:14 AM IST

Orders continue to pour in for engineering major Larsen & Toubro — it recently snapped up a Rs 5,000-crore project from Indian Railways. That’s why the firm believes it can better its projected order book number by about Rs 9,000 crore to about Rs 75,000 crore by March 2009. That would be 50 per cent higher than what it had in March 2008.

What’s worrying the Street, however, is that it’s becoming increasingly difficult to predict the turn of events in 2009-10; the management too is not quite certain about how many infrastructure projects will actually take off given the credit crunch and the weakening demand.

According to a study by CMIE, projects worth Rs 76,500 crore have been shelved in the first half of 2008-09. That apart, a report from Citi says GDP growth is likely to be lower at 6.8 per cent than the earlier estimated 7.2 per cent. If industry slows down, it can’t be good news for engineering firms. Therefore, on a huge base, it’s possible that orders for L&T may be up just 5-10 per cent in 2009-10.

In 2007-08, the Rs 24,855 crore L&T’s revenues were up 41 per cent, while the net profit increased 55 per cent to Rs 2,173 crore. In the six months to September, revenues rose 46 per cent to Rs 14,584 crore, though the net profit grew a more subdued 33 per cent because of cost pressures.

Even if the second half of the year sees fewer projects being executed, L&T would nonetheless be able to grow by 30-35 per cent — the company has indicated as much. But thereafter, things could become difficult unless the macroeconomic environment improves significantly. Since January, the stock has underperformed the market, falling by 61 per cent, but over the last couple of months, has fared better.

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First Published: Dec 17 2008 | 12:00 AM IST

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