L&T net up 11% despite lower margin, order flow

India's largest engineering company, Larsen & Toubro Ltd (L&T), posted a net profit of Rs 841 crore for the third quarter of 2010-11, about 11 per cent higher as compared to the Rs 696 crore of profit after tax for the corresponding quarter of 2009-10.

However, operating margin in the third quarter was lower at 10.8 per cent, compared with 12.4 per cent a year earlier.

Net revenues for the quarter were up 40 per cent to Rs 11,413 crore, compared to Rs 8,145 crore for the corresponding quarter of the previous financial year. Though the company fared better than what the markets expected in terms of revenue and net profits, pressure on margins caused its stocks fall 1.65 per cent to Rs 1,681 per share on the Bombay Stock Exchange today.

"Pace of execution of orders was fast. However, margins were affected during the quarter by commodity prices and inflation," said Y M Deosthalee, whole-time director and chief financial officer. For instance, he said, the price of copper, a key raw material, had appreciated by 30 per cent during the quarter. These had an impact on margins, since the company could not factor the cost escalation clause in some of the implemented projects for the quarter.

He said the company would maintain its earlier expectation of 25 per cent growth each in sales and orders for the full year, since project management companies normally get their largest lot of orders during March.

Order flow for the quarter was also lower by Rs 4,427 crore (minus 25 per cent) at Rs 13,366 crore, compared to Rs 17,793 crore in the same period of last year. L&T had an order book of Rs 1,14,882 crore as on December 31, 2010, senior executives told a press conference here today.

K V Rangaswami, president and director, said awarding and tendering of at least Rs 50,000 crore worth of infrastructure projects was behind schedule in the past three quarters. Availability of gas, for insatnce, was an issue for awarding many gas-based power and fertiliser projects. Others he;d up were construction of highways and power transmission and distribution projects. L&T might win many of these during the fourth quarter or as and when they come up for tendering in the coming year, he said.

K Venkatraman, board member and president of operations, said L&T was anticipating revival of large orders in the hydrocarbon sector, especially in West Asia, Vietnam and Australia. International orders for L&T were higher by 30 per cent during the quarter, thanks to a large airport modernisation project at Salalah in Oman.

The power sector accounted for 37 per cent of the orders, followed by infrastructure with 32 per cent and the hydrocarbon sector with 26 per cent.