With 36% growth in Q1 profit, L&T takes a strong start to fiscal year 2019

Rising project order flow, improving execution continues to boost topline

Larsen & Toubro (L&T) put out a robust performance in the first quarter, reporting good order flow growth and stable financial performance.

Order flows of Rs 361.42 billion during the quarter, marking a growth of 37 per cent, indicates better days for the firm ahead. Not only has the order flow momentum that has gained pace since the second half of FY18 continue in FY19, revenue visibility is also improving with the order book now at Rs 2.71 trillion. Profit growth of 36 per cent also remained strong. The growth in order book was led by infrastructure, hydrocarbons and heavy engineering business. The turnkey project orders for rural water supply and irrigation (water & effluent treatment business) lifted infrastructure segment order flows (more than half of overall order inflows), which grew 16 per cent.

Hydrocarbon segment saw rising order inflows driven by the fertiliser sector, which is positive. This  will help reduce exposure to West Asia revenues, minimising risks from the region. Half of the segment revenues comes from outside the country, largely from the gulf region.

Though the private sector capex is yet to pick up, analysts remain positive for now on growth led by government spending. Private capex pick-up over time can provide fresh triggers, they added.

  

Revenue growth of 18 per cent indicates a pick up in execution momentum in project business and robust growth in services business. IT and financial services business, which significantly contribute to overall revenues, registered more than 30 per cent growth, with margins close to 25 per cent. 

The infrastructure services segment, which achieved margins close to seven per cent, could see another 200-300 basis points jump and will be the key trigger.

Operating profit at Rs 29.13 billion was ahead of consensus estimates of Rs 25.78 billion.

Analysts remain confident on L&T looking at the growth visibility and scalability in business. Efforts to drive up capital efficiency and cut debt by selling non-core businesses, will also help in improving return ratios.