L&T profit up 7% but may miss FY 15 revenue, margin guidance

Possible delays in projects and problems in execution of hydrocarbon projects are the reasons

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Larsen & Toubro reported 7% rise in its consolidated net profit for second quarter of FY2015 over same period previous year but company management indicated that it may miss the annual revenue and margin guidance due to delays in projects and problems in execution of hydrocarbon projects.

Net profit for the quarter under review rose to Rs 862 crore from Rs 806 crore and the result was aided by 2% decline in finance cost following refinancing of long term loan.

Revenue was up 10% to Rs 21,331 crore from Rs 19,130 crore in second quarter of last year. Earning before interest tax depreciation and amortisation (Ebidta) was down 7% to Rs 2,334 crore.

The company bagged over Rs 39,797-crore worth orders in second quarter registering a growth of 17%. About 83% of order wins were from domestic market reflecting early signs of recovery. Another factor tilting the balance was the absence of big ticket international orders. In second quarter of FY2014 the company had won orders for Doha and Riyadh metro projects. Infrastructure sector continues to dominate the order inflows with nearly of the orders coming from this segment.

While L&T did well in reporting a higher profit the company's senior management indicated that it may miss the guidance.

At the start of FY2015 the management indicated 15% revenue guidance and said the company would maintain 12.3% margin in line with the previous year.

L&T's chief financial officer R Shankar Raman indicated the company now is expecting revenue growth anywhere between 10-15% though the management will strive to achieve its original target.

Power and hydrocarbon segments reported fall in revenue and on an overall basis L&T achieved 10% revenue growth in first two quarters this fiscal which is below the desired target.

He added that profit margins in FY 2015 could fall by 150-200 basis points largely due to problems in execution of hydro carbon projects in the Gulf region. The projects have had cost and time overruns and the company had to incur additional expenses and make provision of about Rs 900 crore. The company will raise claims  of extra expenses upon completion and handover of the projects.

Shankar Raman said business sentiment had improved as initiatives have been taken to remove bottlenecks but it would take 3-4 quarters for full recovery in the domestic sector.

Senior executive vice president (infrastructure and construction)  S N Subrahmanyan said the company is exploring new markets in North Africa and South East Asia for its power transmission business and has deputed its management to develop business. “I think we have potential to grow our business in North Africa," he added.