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From the start of the year, analysts have doubted the company’s ability to grow revenues by 15 per cent in FY14, though order inflows have remained robust through the first half of the financial year. The Street was expecting a dip in profits and operating margins, which fell to 8.3 per cent in the first quarter. There was a reason behind such pessimism, as the company had reported a five per cent growth in revenues on slower than expected execution.
The firm surprised the Street with a year-on-year (y-o-y) revenue growth of 10 per cent and a 27 per cent jump in order inflows. Almost in response to the market’s quarterly concerns, chief financial officer Shankar Raman said that given the diverse nature of the company’s businesses, it was difficult to assess margins on a quarterly basis.
The company expects the pick-up in revenue growth will continue through the remaining quarters and, as a result, the revenue growth guidance of 15 per cent has not been revised downward, though the market is factoring in a 10 per cent growth at best.
The most notable aspect this quarter has been the stellar growth in new orders. The company has reported a y-o-y growth of 27 per cent in these to Rs 26,533 crore during the quarter. The company maintained the order inflows were driven by international orders.
International order inflow more than doubled, contributing 43 per cent of the total, on the back of a few orders for large projects in West Asia. The major orders came from the infrastructure and hydrocarbon segments. The strong flows have helped grow the order book by 11 per cent, to Rs 176,036 crore.
On the downside, though operating margins have come in at 9.7 per cent, the company’s net profit grew by an anaemic seven per cent to Rs 978 crore. The market had factored in a net profit of below Rs 900 crore, so the company has beaten the estimates but the competitive pressures are clearly visible. Analysts say growth in orders is good, but this growth has to be profitable.
No doubt, the firm’s internationalisation strategy has yielded results but it also comes with risks. In the previous quarter, the company had spoken of hiring for projects, which were yet to take off, and so margins were affected. The rupee’s volatility could impact margins, as the company will increase headcount abroad.
Despite the pressures, the company has not revised its revenue growth guidance for the full year, as it expects revenues to pick up in the coming quarters. Going by the steady flow of orders, the markets could revise upwards the stock’s target price but no earnings upgrades are likely just yet.
