Covid-19 impact: L&T pre-tax profit plunges 66% to Rs 894.46 cr in Q1

The company's net profit at Rs 303.14 crore for the quarter under review, was 79 per cent lower than the net profit of Rs 1,472.58 crore reported last year

Larsen & Toubro (L&T) saw its profit before tax (PBT) crash 66 per cent year-on-year in the April to June 2020 quarter (Q1), hurt by the lockdown.

The management refused to provide any guidance. However, executives indicated a revenue ramp-up would take a couple of quarters more.

L&T reported a PBT of Rs 894.46 crore for Q1FY21, down from Rs 2,655.23 crore in Q1FY20. An exceptional gain of Rs 224.72 crore thanks to divestment in its wealth management business, came as a shot in the arm. Net profit of Rs 303.14 crore was 79 per cent lower than Rs 1,472.58 crore last year, while revenue stood at Rs 21,259.97 crore, witnessing a dip of 28 per cent.

Most of the quarter saw the firm struggle due to labour shortage, and curtailment in factory and office operations because of the lockdown. In a Bloomberg poll, three analysts estimated a loss of Rs 467.8 crore, while five had pegged revenue for Q1 at Rs 20,678 crore. L&T managed to surpass the Street’s expectations.

R Shankar Raman, whole-time director and chief financial officer of L&T, said: “Revenue ramp-up will be gradual and take a few quarters to get near normal levels.” Based on available data, L&T’s quarterly net profit never dipped to Rs 303.14 crore between June 2013 and March 2020. 

“Profit after tax was hit mainly due to lower revenue, credit provisions in the financial services business, and under recovery of overheads,” the firm said.

S N Subrahmanyan, managing director and chief executive of L&T, said it was a challenging quarter, in which the company operated “with our hands, legs, and eyes tied (due to restrictions and lockdowns”.

L&T booked orders worth Rs 23,574 crore — a 39 per cent drop from the Rs 38,700 crore in Q1FY20. The decline in new orders, said L&T, was caused by low interest towards fresh investment and deferment in award decisions.

Of the new orders, 15 per cent came from the private sector. The management has not shared any guidance for the full year — a deviation from its usual practice. International orders, at Rs 8,872 crore, accounted for 38 per cent of the total order inflow. As of June, the firm’s outstanding order book stood at Rs 3.05 trillion.

The focus for most of the quarter was on safety of the workforce, transition to productive remote working, staying engaged with stakeholders, conserving resou­­rces, and resuming business in a carefully calibrated manner, said the company.

Subrahmanyan pegged labour availability at 190,000 workers, much lower than the peak of 250,000-260,000. 

“We expect another 45-60 days for full labour to return.” He added that new lockdowns being implemented at state level may also impact labour availability.

L&T’s finance cost for the quarter nearly doubled to Rs 1,055.90 crore, from Rs 586.65 crore last year. The firm attributed the rise to the newly commissioned Hydera­bad Metro project, and higher borrowings taken with the intent to create a liquidity buffer.

As regards the tensions between India and China, company executives said: “We are proceeding with what we have already contracted for. Regarding fresh deals, we are conscious of what the government is saying. There is also a need to build an alternative eco-system for sourcing.”

For payments from clients on jobs completed, L&T said it has managed to recover bill payments of up to Rs 30,000 crore through follow-ups in the June quarter.

“With partial lifting of the lockdown and resumption in business operations, domestic operations are expected to improve over the next few quarters. Ordering activity in roads, urban infra, railways, water distribution, irrigation sub-segments, and especially health care, are all expected to pick up in the second half of FY21,” said Arafat Saiyed, assistant vice-president at Reliance Securities, in a note on L&T.