Will L&T meet FY16 order inflow target?

Recent record of increasing proportion of undisclosed orders suggests it will achieve goal

Mirroring the Sensex, L&T (Larsen & Toubro)’s stock is up eight per cent since February. There are hopes of a good FY17.

Analysts believe not only will L&T’s profits fall in the quarter ended March, but the company might miss its FY16 order inflow forecast. For FY16, L&T lowered its estimates: In October it reduced inflow growth target to five-seven per cent (from 10 per cent) and in January by forecasting flat order inflow in FY16.

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But, there are some factors to consider before guessing the trend for the March quarter. During any quarter, L&T announces key order wins, while those not disclosed reflect in the cumulative order inflow figure announced with quarter results.

So far, L&T has disclosed inflows of Rs 17,638 crore in the March quarter. Considering the actual inflow of orders in the first nine months and disclosed orders, its total order inflow for FY16 is Rs 1.11 lakh crore — Rs 43,860 crore lower than FY15 inflows.

The share of undisclosed orders has historically been 20-35 per cent of total orders. This went up to 40 and 57 per cent in the September and December quarters, respectively. “In Q3, unreported orders (Rs 22,000 crore) were twice the reported orders (Rs 11,000 crore). This swing pleasantly surprised everyone," said Rohit Natarajan of IDBI Capital. It is not surprising analysts at Emkay say meeting the order inflow forecast for FY16 is achievable.

However, some analysts point to the slack capex (capital expenditure) environment that may lead to lower inflows. Kunal Seth of Prabhudas Lilladher believes bridging the shortfall in orders is a tall target.

With the pace of execution not showing signs of improvement, order forecast for FY17 becomes critical.

This could be a reason the stock has moved in line with the market after underperforming between July 2015 and February 2016. L&T has emerged the lowest bidder in the Mumbai Metro Line III railway project (Rs 5,950 crore) and the Street expects a few defence orders, too. While a company official said they were yet to receive confirmation of the Metro order, this may spill to the June quarter and improve the order figure for FY17. BHEL (Bharat Heavy Electricals Ltd)’s provisional results add to hopes.