L&T retains revenue growth guidance for FY14 despite 8% sales growth in H1

Analysts attribute growth to pick-up in execution in engineering, construction & heavy engineering

 

Engineering major Larsen & Toubro (L&T) on Friday announced its net profit for the quarter ended September fell 14 per cent to Rs 978 crore from Rs 1,137 crore in the corresponding quarter last year.

The company’s revenue, however, rose 10 per cent to Rs 14,510 crore, against Rs 13,195 crore in the year-ago period. In the first quarter, L&T reported a 5% year on year growth in sales and in the first six months of the fiscal, its sales growth is at 8%. Despite this, the company has retained its 15% revenue guidance for the full fiscal.

Analysts attributed the revenue growth to a pick-up in execution in the engineering & construction and heavy engineering segments. In the quarter ended June, L&T’s revenue had risen only five per cent.

“This revenue growth is in line with our plans, as revenues have improved compared to the first quarter. These (revenues) would gather momentum in the next two quarters to fulfil our guidance of 15 per cent revenue growth through the year,” said Chief Financial Officer Shankar Raman.

Increase in staff costs, forex provisioning of Rs 200 crore and underrecoveries in the power business impacted the company’s margin, which fell 0.9 per cent to 9.7 per cent. This was, however, higher than analysts’ estimates.

“On the Ebitda (earnings before interest, tax, depreciation and amortisation) front, the performance was according to our expectations, with the company reporting a year-on-year dip of 100 basis points to 9.7 per cent in the second quarter, against our expectations of 9.5 per cent,” said Viral Shah, senior research analyst at Angel Broking.

The company’s order inflows increased 27 per cent to Rs 1,76,036 crore by the end of September, primarily aided by large international orders, especially the Rs 8,250-crore metro project order from Riyadh. International orders contributed 43 per cent to inflows during the quarter.

“The domestic market is still challenging, with depressed conditions in the power and metals sector. The government is trying to improve the sentiment, but for this to translate into orders for a company like ours is still a few quarters away,” said Shankar Raman. Among the sectors hit hardest was the power segment, which registered a 40 per cent decline in revenue. The power order book stands at about Rs 15,000 crore; the company has facilities to execute orders of Rs 30,000 crore.

“Due to competition, margins in the international segment are two per cent lower than in India,” said chief executive K Venkataramanan. “Cash flows are predictable and contract terms are well set, though most of these are fixed-price contracts.”

CAUSES & EFFECTS

* Increase in staff costs, forex provisioning of Rs 200 crore and underrecoveries in the power business impacted the company’s margin, which fell 0.9 per cent to 9.7 per cent. This was higher than analysts’ estimates

* The company’s order inflows increased 27 per cent to Rs 1,76,036 crore by the end of September, primarily aided by large international orders, especially the Rs 8,250-crore metro project order from Riyadh. International orders contributed 43 per cent to inflows during the quarter.

* CFO says revenue growth is in line with company’s plans