 "A sign of Larsen and Toubro (L&T) is placed on a road divider in Mumbai")
Having posted impressive numbers for the September quarter, India’s largest engineering and construction company Larsen & Toubro (L&T) remains confident of meeting its annual growth target for revenue and order inflow, even though the business environment continues to be challenging.
“Business conditions continue to remain challenging particularly for the capital goods segments and, within that space, the infrastructure segment,” said R Shankar Raman, chief financial officer at L&T.
According to him, there won’t be a dramatic or rapid recovery but the company will meet its performance guidance shared at the beginning of the financial year – 15 per cent year-on-year rise in order inflow and 12 per cent increase in revenues.
For the July-September 2016 period, consolidated revenue from operations was eight per cent higher at Rs 25,010 crore from Rs 23,120 crore reported a year ago. “The revenue growth was driven by hydrocarbon, power, heavy engineering and services business,” said Raman.
Profit after tax (PAT) at Rs 1,430 crore for the September quarter was 84 per cent higher from Rs 780 crore reported in the same period a year ago.
A big part of this growth was on account of exceptional gains arising out of stake sale in subsidiary company. PAT before exceptional items was 41 per cent higher at Rs 1,030 crore against Rs 730 crore reported in the year-ago quarter.
The company exceeded Street expectations for its profit numbers by a wide margin. In a Bloomberg poll, 16 analysts estimated revenue for the company at Rs 25,276 crore and 18 analysts estimated a net profit of Rs 794 crore.
“Growth in other income has led to the company beating estimates, barring that the numbers are not too good or bad against Street expectations. The 41 per cent growth before exceptional items is against a weak base and under new accounting standards,” said an analyst with a foreign brokerage firm who asked not to be identified.
For the July-September 2016 period, order inflow for the company grew 11 per cent. With additions of Rs 31,120 crore worth of new orders, order book grew four per cent with an outstanding order book of Rs 2.51 lakh crore at the end of September 2016.
Analysts on L&T were largely satisfied with the order inflow numbers, but remained in a wait-and-watch mode.
They cautioned that much of the September quarter order inflow performance was helped by Delhi Metro’s order for phase-3 construction. “So, I would wait to see how much of the pick-up in order flows is sustainable, though on a relatively low base of FY16, the current fiscal (year) should be better,” said another analyst with a domestic brokerage. “I would wait to see how the order scenario plays out before I can revise my estimates upwards.”
The L&T management is far from optimistic and the company has also resized some of its business. During its quarterly results press meet, the company said it had let go of 14,000 employees over the past six months. “Job shedding will not be sequential and will not be a trend. It was part of the right-sizing of certain businesses and thus jobs were cut where the positions have gone redundant across various businesses. This (job cuts) was quite widespread (across verticals),” Raman added. Staff costs for the company were up three per cent at Rs 3,437 crore, which the company said was consistent with its manpower rationalisation initiatives.
L&T’s key segment infrastructure reported earnings before interest, depreciation, taxes and amortisation (Ebitda) margin at 7.1 per cent during the quarter against 9.3 per cent reported a year ago. “The margin during the quarter was impacted due to extended stay and delayed approvals, leading to cost increases in some of the contracts under execution,” the company said. Ebitda for the power business was also lower at three per cent against five per cent recorded a year ago.
For its shipbuilding business, where the company took certain write-offs, L&T said it did not foresee any further impairments and was hopeful that the segment would report a profitable year in 2018-2019 with defence orders gathering momentum.
The company’s overall Ebitda grew at eight per cent to Rs 2,300 crore helped by positive margins growth in the hydrocarbon, heavy engineering & electrical, and automation businesses, among others. The company added it had seen a turnaround in its hydrocarbon business.
On the government’s demonetisation drive, the company said there would be some short-term effect and that business would return to normalcy by the March quarter.
