L&T Q4 preview: PAT seen rising up to 18% YoY as margin pressures ease

Ability to hold on to margins amid higher raw-material prices and restored salaries/wage cuts through cost control, order pipeline, and commentary on FY22 guidance among key monitorables

The engineering and capital goods companies are believed to have sailed through the March 2021 quarter, which started off with economic activity reaching pre-Covid levels but ended with localised restrictions in place.

Despite this, analysts believe a healthy order pipeline, pro-growth government policies supported by higher capex allocation in the Union budget, and production-linked incentive (PLI) scheme for the sector may aid their earnings in the March quarter (Q4FY21).

“With all segments viz. Metro, Roads, Rail, Water, Manufacturing, etc. witnessing strong ordering, the capital goods companies stand to benefit from replacement demand and greenfield expansion,” said a report by HDFC Securities.

At an aggregate level, analysts at Anand Rathi Shares and Stock Brokers expect the companies under its coverage (excluding L&T) to report 14 per cent, 43 per cent, and 36 per cent year-on-year growth in revenue, Ebitda, and net profit, respectively.

Among the lot, most analysts back Larsen and Toubro (L&T), in the large-cap space, to report healthy quarterly results on the back of nearly Rs 17,500 crore order book.

Company’ ability to hold on to margins amid higher raw-material prices and restored salaries/wage cuts through cost efficiencies and cost control, order pipeline, and commentary on FY22 guidance amid the Covid-19 second wave uncertainty are among the key monitorables for L&T, according to analysts.

“Execution in global market can be hit by travel restrictions, quarantine and other higher costs. Besides, Q4FY21 saw a small hiccup on account of the Suez Canal blockage, affecting global supply chains leading to halt in movement of goods and availability of empty equipment, particularly in Asia and Europe. We believe this hiccup would have for many companies pushed end-Mar’21 export revenue to April’21,” wrote analysts at Anand Rathi Shares in a preview note.

Here’s what analysts across brokerages expect from L&T’s Q4 results:

HDFC Securities

The brokerage pegs L&T’s consolidated net profit at Rs 3,610 crore for the quarter under review, up 12.9 per cent from Rs 3,197 crore posted in the previous year period. In the December quarter, the engineering major posted a PAT of Rs 2,466.7 crore. Operationally, it sees revenue growing in double digits to Rs 50,630 crore. Ebitda margins, however, may slip 13 bps QoQ to around 12 per cent.

Reliance Securities

With a strong order book worth nearly Rs 45,000 crore in 4QFY21 and focus on liquidity management, the brokerage expects L&T to report revenue at Rs 47,764 crore, up 8 per cent YoY aided by services business and up-tick in core infra segment.

Further, it projects Ebitda to improve by 17 per cent to Rs 5,970.5 crore relative to previous year’s Rs 5,121 crore. Sequentially, it would be up 39.5 per cent from Rs 4,279.7 crore clocked in Q3FY21. Contrary to HDFC Securities, it expects margins to expand by 93bps YoY and 5bps QoQ to 12.5 per cent. PAT is seen at Rs 3,781.6 crore.

Anand Rathi Shares

While the brokerage expects L&T’s aggregate revenue to grow around 8 per cent YoY and 33.7 per cent QoQ to Rs 47,595.8 crore (Rs 44,245.3 crore in Q4FY20 and Rs 35,596.4 crore in Q3FY21) led by better execution, it believes revenue of its Hydrocarbon segment may fall on a yearly basis. It sees Ebitda at Rs 5,461.2 crore, up 6.6 per cent YoY and 27.6 per cent QoQ, but expects margins to stay flat.

Phillip Capital

The brokerage pegs L&T’s net profit lower than other brokerages at Rs 3,300.2 crore. Pre-tax profit, however, is seen up 33 per cent QoQ at Rs 4,907.3 crore from Rs 3,680.5 crore. On a YoY basis, it would be up 15 per cent from Rs 4,249.7 crore.

As regards order flow, the brokerage believes L&T bagged orders worth Rs 27,300 crore of ex-services orders in Q4, assuming average range of new orders. Adjusting for unannounced orders and orders likely to be announced in 1st week of April, it expects ex-services orders for L&T to decline 17 per cent YoY to Rs 38,900 crore. Ebitda is seen higher at Rs 5,750.8 crore, up 34 per cent QoQ and 12 per cent YoY.

ICICI Securities

It sees L&T’s standalone revenue rising 49 per cent QoQ and 7 per cent YoY to Rs 29,159 crore. Standalone net profit, on the other hand, is seen up 45 per cent QoQ and 17 per cent YoY at Rs 2,466.1 crore.

During Q4FY21E, EPC order inflows announced by L&T were in the range of Rs 7,500 crore to Rs 17,500 crore (as on date, ex-services segment) across heavy civil infra, water treatment, power T&D, transportation, buildings & factories segments.

“Consequently, we expect Ebitda to grow 16.7 per cent to Rs 3,061.7 crore with margins expected to improve 90 bps to 10.5 per cent due to low base and higher execution and adjusted PAT (ex-E&A) expected to grow 16.6 per cent to Rs 2,466.1 crore partly due to higher other income,” it said in a result preview  report.