Smart cost management has helped the company maintain margins, with the power sector bringing more hope.

India’s leading engineering and construction company Larsen & Toubro (L&T) is well on its way to meet the management guidance made in April, which stated that order inflow would grow around 25 per cent in the current financial year.

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However, the key will be to maintain profit margins. Earnings before interest, tax, depreciation and amortisation (Ebitda) margins stood at 12.8 per cent, as compared to 11.2 per cent recorded in the year-ago period. The improvement has been on account of strong performance in the engineering & construction (E&C) segment and lower manufacturing and operating expenses. Operating expenses were 75 per cent of the sales value, a two percentage point improvement from the previous year’s quarter. The E&C segment, which contributes around 83 per cent to revenues and 80 per cent to Ebitda, saw margins improve by around 170 basis points — hence the traction.

Going ahead, the company has capacity-expansion plans of around Rs 36,300 crore. Funding should not be a problem for the company, since it has a favourable debt-to-equity ratio of around 42 per cent. The management also mentioned that it would not be looking at additional funding.

The power sector is likely to drive order inflows in the second and third quarters, as key tenders, including that of NTPC, open up. According to analysts at Antique Securities, L&T’s orders from the power sector have more than doubled in the last financial year, while that of BHEL remained constant. This buoyed the overall order inflow growth for L&T, as compared to BHEL’s stagnating order inflow, point analysts. With execution rate and order-book-to-sales ratio improving from 1.5 times to 2.7 times, momentum may continue to be strong.

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