L & T Bags Rs 700-Crore Orders

Engineering and cement major Larsen & Toubro (L&T) has bagged orders worth at least Rs 700 crore from three petroleum majors, Hindustan Petroleum Corporation , Bharat Petroleum Corporation and Indian Oil Corporation (IOC).

Confirming this top L&T sources said the company had secured the engineering, procurement and construction (EPC) contracts for setting up dehydrogenation and desulphurisation (DHDS) plants at various refineries of the three companies.

The plants have to be set up by the refineries by 1999 as per a supreme court directive, which stipulated this as a pollution control measure. Dehydrogenation and desulphurisation plants reduce the sulphur content in petroleum products like diesel and petrol.

The engineering giant has bagged the orders in the face of stiff competition from Korean, Italian and US-based companies.

Market sources however said the engineering major has in fact bagged DHDS orders worth about Rs 1,200 crore. The company is in an advanced stage of negotiations for securing another order for a power plant, said sources. This order has been valued at about Rs 1,600 crore.

The L&T scrip has already started moving up in the face of these reports and has been witnessing sustained buying interest in the last few trading sessions.

It steadily moved up from Rs 185 levels last week and closed at Rs 210.25 on the BSE and at Rs 209.85 the NSE yesterday. Trading volumes too witnessed a sharp spurt with 7-8 lakh shares changing hands daily on an average last week. In the GDR markets the scrip moved up from $9.50 to $11 last week. Marketmen said Schroeders, a big FII was among the foreign funds that were aggressively making purchases at the counter.

However, the impact of the refinery orders will not be felt on the companys bottomline in 1997-98, according to analysts. The 1997-98 net profit is likely to increase only marginally to Rs 420 crore from Rs 411 crore in 1996-97.

In 1998-99, however, net profit will increase dramatically to Rs 545 crore in 1998-99. The companys earnings per share will jump by 29.8 per cent to Rs 21.9 in 1998-99 from Rs 16.9 in 1997-98, says Anish Damania, an analyst with FII broking house Jardine Fleming.

Incidentally, Jardine Fleming is one of the major buyers of L&T. The Rs 5,200 crore L&T posted a net profit of Rs 411 crore in 1996-97.

Another analyst points out that L&T will not implement the entire EPC contract on its own but sub-contract a part of it. L&Ts operating profit will rise by 10 per cent. However, it is not easy to predict what impact the new orders will have on the 1997-98 net profit, the analyst says.