L&T margins get shaved, orders prop net up 13%

Company posts mixed numbers, clocks decent growth in revenue

Larsen and Toubro (L&T), the infrastructure major, on Thursday reported a 13 per cent increase in net profit to Rs 1,122 crore in the December quarter, compared with Rs 991 crore in the corresponding quarter last year.

Revenue grew 10.3 per cent to Rs 15,429 crore, compared with Rs 13,983 crore. The earnings margin before interest, taxes, depreciation and amortisation (Ebitda margin) was 9.6 per cent, lower by 20 basis points from last year and much lower than many analyst estimates.

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

SO-SO

• Q3 net profit beats estimates, up 13% on strong order wins
• Ebitda margin down 20 bps on costs
• Revenue grows 10.3%

In the largest segment, engineering and construction (E&C), margins were also down 1.1 per cent from last year, to 10.4 per cent, due to a rise in input costs and a mix of projects. Sluggish ordering and weak demand on the agricultural front due to an unfavourable monsoon also respectively hit its machinery and industrial products division and the electricals and electronic division.

Shankar Raman, chief financial officer, said their business performance had been satisfactory, considering the environment. “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, up 14 per cent, with a strong push from international orders (22 per cent of the total). With domestic orders slowing, the company had planned to go after international ones aggressively. The strategy, it says, has started paying. Buildings and factories, infrastructure, and power transmission and distribution sectors brought in major orders. The order book at the end of the quarter was 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 it is well in line with the order inflow forecast set at the start of the year, at 15-20 per cent more. With the robust inflow this quarter, the company completed 75 per cent 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 Raman.