<p>As the second quarter comes to a close, analysts feel the country’s largest engineering and construction company, Larsen & Toubro (L&T), may revise its revenue and order inflow guidance later this year. The company, which is a proxy to the infrastructure sector, may not be able to meet its guidance as the investment cycle isn't showing any sign of revival and its order inflows in the quarter has not been good. In FY12, the company saw order inflows of Rs 70,000 crore.
L&T has given order inflows growth of 12-15 per cent in FY13. The guidance looks rather stretched as the company has, in the past too, shown such optimism at the beginning of the financial year and later revised it. This year too, it may revise its guidance, which has an impact on investor confidence, says Nidhi Agarwal of Sharekhan.
JP Morgan has downgraded the company's stock for the same reason. The brokerage says in the last three financial years, the company underperformed the Sensex in the third quarter. It had expected to bag more orders, but had to prune its guidance after it failed to do so. JP Morgan says, deferment of inflow prospects amid weak local capex sentiment and bureaucratic inaction affords a base case inflow growth of 8.5 per cent against management guidance of 15-20 per cent growth.
The other development analysts are flagging off is the sharp increase in the captive development project portfolio, up three times to Rs 85,000 crore. These projects require huge cash investments in the medium term, which delays breakeven. Five of the seven road projects the company has commissioned in the last three years have not started making profits.
JP Morgan says consolidated return on capital employed is down to 7.3 per cent in FY12 from 9.1 per cent in FY10. By FY14, RoCE is expected to fall further to 5.7 per cent. Analysts also expect margins to decline by 50-60 basis points, at least.
Though the last quarter saw a pick-up in order inflows, analysts say these were spillovers from Q4. For the company’s fortunes to change materially, the investment cycle needs to revive in India and the policy logjam needs to end. The latest report on coal block allocations and subsequent investigations will only delay the government’s decision-making process further. Interest could revive if the company reports substantial order win foreign.
