L&T's margins shaved, orders up

Engineering and construction margins were down by 1.1% from last year

Infrastructure major L&T today reported a 13% increase in net profit to Rs 1,122 crore, as compared to Rs 991 crore, in the same quarter last year.

Its revenues grew by 10.3% to Rs 15,429 crore, as compared to Rs 13,983 crore. The earnings before interest depreciation tax and amortisation (EBIDTA) margins of the company stood at 9.6%, lower by four basis points from last year, and much lower than many analyst estimates.

On a quarter-on-quarter basis, margins are down by 1.1%. “L&T posted mixed set of numbers for the third quarter, with a decent growth in revenue and order inflow front but a steep fall in EBITDA margin mainly on account of higher-than-anticipated construction cost. EBITDA margin at 9.6% was below our estimate of 11.2%,” said Viral Shah, senior research analyst at Angel Broking. The total expenses for the quarter went up by 10.6%.

The company’s largest segment, engineering and construction (E&C) too, margins were down by 1.1% from the last year, to stand at 10.4%, due to rise in input costs and a mix of projects undertaken. Sluggish ordering, and weak demand from agricultural front due to unfavourable monsoons also hit its machinery and industrial products division and electricals and electronic division, respectively.

Shankar Raman, the chief financial officer of the company said that their business performance has been satisfactory considering the environment that they operate in. “Infrastructure, energy and industrials are going through a period of trough. We hope the recent policy and market push by the government will help,” he said.

The bright spot came from order inflows of the company which grew 14%, with a strong push from international orders which contributed to 22%. While domestic orders slowed down, the company had planned to go international aggressively. The strategy, the company says, has started paying off. Buildings and factories, infrastructure and power transmission and distribution sectors brought in major orders in the quarter. The order book at the end of the quarter stood at Rs 1,62,334 crore.

“While sales and margin performance was weak, this was offset by order inflows which were ahead of our toned down expectations,” said a report by Barclays.

L&T believes that it is well in line with its order inflow forecast which has been set at the start of the year, at 15-20%. With the robust inflow this quarter, the company completed 75% done of this target. “We are a fourth quarter heavy company and it is a busy quarter. We are trying to stay within the course of our guidance,” said Shankar Raman.