L&T Q4 net down 7% to Rs 1,788 cr on high finance costs

However, results show strong revenue and order growth, especially abroad

 

Larsen & Toubro (L&T), the multinational conglomerate which is also the country’s largest engineering and construction company, says profit in the March quarter fell seven per cent, due to a sharp rise in interest cost.

Despite a weak investment climate, it exceeded its order inflow target. The company reported Rs 1,788 crore net profit for the quarter, the fourth one in 2012-13, as against Rs 1,920 crore for the same period last year. The stock fell 5.6 per cent to Rs 1,517 on Wednesday, as the result was below Street estimates. 

• Analysis: Larsen & Toubro's bonus beats logic

A M Naik, the executive chairman, said the company would overcome the challenges because of its diversified portfolio and increased expansion in international markets. The company  expects a 20 per cent increase in order intake and 15-16 per cent rise in revenue for 2013-14. In FY2013, L&T got orders worth Rs 88,000 crore.

According to Naik, development projects in the country will take a back seat due to to the run up to elections next year. “There will be social compulsions,’’ he said, adding GDP growth in the current year would be six per cent, at best. The domestic business has remained sluggish and the company removed Rs 17,000 crore worth of projects from the order book; it also categorised works worth Rs 5,000-6,000 crore as “slow moving’’.

Naik’s optimism in growing his order book is backed by the company’s increasing international reach. It has been able to make up for the loss of business in India due to the widening global footprint.

“In the past three years, we have diversified in the Middle East and Far East. We had Rs 12,000 crore of international orders and we expect these to increase to Rs 25,000 crore this year,’’ Naik said, adding the company expects growth in Malaysia.

Within India, it expects to bag projects from metro rail and railway projects, and the power sector. About six projects of NTPC and state power generation companies will come up for bidding this year.

The company’s chief financial officer, R Shankar Raman, said the increase in interest cost was due to a rise in capital employed and because the overall cost environment was higher. The average interest rate for the company rose from 8.1 per cent to 8.8 per cent. Overall, however, the cost was within the benchmark for infrastructure companies.

Although the stock market was disappointed with the results,  Naik and Shankar Raman said it was incorrect to look at a quarterly result in isolation. Naik said several works it had implemented had a large project cycle, of two to three years and up to five years. “Quarterly results are relevant but not defining,’’ added Shankar Raman.

“The L&T numbers were lower than our expectations. Revenue growth in FY13 has been mainly driven by exports, even as domestic revenue has been flat,’’ said Sanjeev Zarbade, vice-president (private client research group), Kotak Securities.

“L&T declared a mixed bag of numbers in its results for Q4. While the reported profit and loss  numbers surprised negatively, the order book and guidance (forecast) for FY14 remains robust. The guidance is very strong, given the macro environment, and it reflects the management’s confidence in its ability to steer business in a challenging environment,’’ said Gautam Sinha Roy, VP–Equities,  Motilal Oswal Securities.

Creates arm for hydrocarbon biz
The board on Wednesday approved the creation of L&T Hydrocarbon Engineering Ltd as a wholly-owned subsidiary, to give a push to its hydrocarbon business.

Board approves 1:2 bonus issue

The Larsen & Toubro (LT) board on Wednesday gave its approval for a bonus issue in the ratio of 1:2 and recommended a dividend of Rs 18.5 per equity share.This, however, failed to enthuse the market. Though the stock moved higher after the announcement of the bonus, missing the profit expectation resulted in a sell-off, pushing the price down from a high of Rs 1,650 to Rs 1,505, an intra-day fall of nearly 8.8 per cent.

A company generally issues bonus shares when its performance has been spectacular and expects to maintain it. However, that doesn’t seem to be the case here. Its profit increased by 10 per cent in FY13, though revenue increased 16 per cent. While missing the profit expectation would pass over, a bonus issue would have a permanent impact on the equity capital. With a mediocre profit growth, a 50 per cent growth in its capital base beats logic, said analysts.