L&T meets FY13 order inflow guidance, back in reckoning

Company's flexibility allows it to grow order book during a slowdown

At the start of the financial year, when the country's largest engineering and construction company, Larsen and Toubro (L&T) said it expected order inflows to grow 15-18 per cent, few believed it, as the company had missed its FY12 guidance. The company has salvaged its credibility by meeting its guidance on order flows. In the fourth quarter, supposedly the best in terms of new orders, L&T is estimated to have bagged orders worth Rs 15,400 crore. At the end of the first nine months, inflows stood at Rs 60,100 crore. Adding the Q4 orders, the tally for the full year stands at Rs 75,500 crore. Analysts expect the final order inflow tally to be close to Rs 81,000 crore for FY13, if one factors in undisclosed orders, too.

What is interesting is that the order flows in FY13 are very different from the previous years. Till FY12, the company was largely focused on technology-intensive sectors like power and hydrocarbons. With order flows drying from the power sector and urban transportation segments (metro railways) in FY13, the company has been flexible enough to look at other segments. For instance, buildings and infrastructure are expected to contribute to almost half of the company's order inflows (Rs 35,100 crore). However, this change was inevitable as flexibility and predisposition to compromise should not be taken as a sign of weakness or sell out, explains Rupa Shah of Prabhudas Lilladher.

Not only has the company been flexible on sectors but also on margins. And, in these times this might not be such a bad thing. The company won an order from Rajasthan Rajya Vidyut Utpadan Nigam (Chhabra project) for 2x660 Mw for Rs 5,689 crore. Analysts say the capital cost per Mw adds up to Rs 4.3 crore, on the lower side but still margin-accretive. According to ICICI Securities: "With adequate revenue visibility for more than 2.75 years, at a sound margin profile of 10.7/8 per cent over FY13-14, coupled with a low leverage of 0.4x and solid execution capabilities, we believe L&T will perform well, both business wise and stock wise."

What is in store in FY14? Given that nobody is expecting any movement before elections next year, analysts are factoring in order inflow growth of 10 per cent. At least 12-14 cities are in the process of finalising their metro projects and it could be a big opportunity for L&T. Also, once activity picks up for the dedicated freight corridor, additional order inflows would come by from the railways.