L&T Q1 preview: Analysts see up to 85% YoY PAT dip on Covid-19 disruption

The April-June 2020 quarter is likely to be one of the weakest quarters in recent times for the engineering & capital goods (ECG) companies amid the Covid-19-induced lockdown, analysts say.

The April-June quarter of the fiscal year 2020-21 (Q1FY21) is likely to be one of the weakest quarters for the Engineering & Capital Goods (ECG) companies as the Covid-19-induced lockdown triggered demand and supply disruptions, contract labour shortage and paucity of liquidity, that stalled project execution. Order inflows during the period, analysts say, were impacted by a delay in tendering/awarding projects while crude oil price crash would have impacted orders in hydrocarbon space of the companies.

Given this backdrop, the engineering and construction major, Larsen & Toubro (L&T), is also expected to report a dismal performance for the quarter ended June 2020 when it announces its numbers on Wednesday, July 22. However, the company's services and exports businesses are expected to cushion the overall revenue decline. Key monitorables for the period under review, according to analysts, would be pick up in ordering activity, update on supply-side and labour issues and working capital cycle.

Meanwhile, L&T's chairman A M Naik struck a positive note in his letter to shareholders recently, saying the second half pf the current financial year (H2FY21) could see better economic activity. “While we hope the second half of 2020-21 will herald better economic and business activity in terms of tendering, good liquidity, as well as revival of labour and supply chains, it would be premature to predict the company’s business outcomes,” he said.

Here's a look at what brokerages expect from L&T's June quarter numbers:

Edelweiss Securities

The brokerage notes that L&T's year-on-year (YoY) numbers are not comparable as previous year does not include Mindtree. It estimates L&T's revenue to slip 22.8 per cent YoY to Rs 22,867.5 crore while earnings before interest, taxes, depreciation, and amortisation (EBITDA) is expected to see a sharp decline of 50.5 per cent at Rs 1,644.1 crore. EBITDA margin is seen at 7.2 per cent against 11.6 per cent in the year-ago period. Net profit or profit after tax (PAT) is seen plunging 84.1 per cent YoY at Rs 230.5 crore. "We expect core EPC revenues (excluding Electrical & Automation business) to decline by nearly 40 per cent YoY with core EBITDA margins declining by 360bps YoY to 5.1 per cent. We expect core order inflow of Rs 16,000 crore," it says.

 

ICICI Securities

Anaysts at ICICI Securities expect company's standalone revenue to decline 46.3 per cent YoY and 67.5 per cent quarter-on-quarter (QoQ) to Rs 8,865.7 crore. EBITDA is seen at Rs 505.3 crore, down 58.5 per cent YoY and 80.7 per cent QoQ. PAT is expected to fall 63.6 per cent YoY and 85.6 per cent QoQ to Rs 323.6 crore. During the quarter under review, L&T announced order inflows within the range of Rs 2,500-5,000 crore (as on date, ex-services segment) across transportation infrastructure and water effluent segments. India and global lockdowns amid Covid-19, crude oil price crash, labour migration issue will have an impact on order execution and order inflows, analysts at ICICI Securities said in a result preview note. Working capital situation, they say, will be a key monitorable.

Centrum Broking

Centrum expects L&T’s consolidated order inflow to fall 35 per cent YoY to Rs 25,000 crore in Q1FY21, with a decline of 46 per cent in ex-services inflow at Rs 16,200 crore. "Order inflow is largely driven by building, infrastructure and water segment orders. With lower labour availability and other execution constraints, we expect revenues to decline 27.5 per cent YoY to Rs 21,500 crore. We expect EBITDA to decline 41.2 per cent YoY to Rs 1,800 crore and EBITDA margin to decline 200 basis points (bps) YoY to 8.4 per cent to lower absorption of fixed costs," the result preview note said. Profit, according to their estimates, is likely to decline sharply by 80.9 per cent YoY to Rs 280 crore due to weak margins and elevated interest and depreciation expenses due to full commissioning of the Hyderabad metro rail services.

Emkay Global

The brokerage expects L&T to report a 32 per cent decline in revenues due to operational disruptions in the engineering and construction (E&C) segment. It expects a relatively lower impact in its services business, which will help cushion the overall revenue decline. Margins and working capital are also likely to deteriorate on lower resource utilisation and difficulty in receivable collection. Announced order inflows for Q1FY21 are about Rs 15,000 crore and we estimate Rs 21,300 crore of total order inflows during the quarter, including service revenues.