Larsen & Toubro’s (L&T’s) net profit for the quarter ended June 30 rose 21 per cent on the back of improved performance. The company’s management maintained its guidance for the financial year, though it expects order inflow to remain volatile.
Top officials at L&T feel that private investment is unlikely to make a comeback for 12-18 months.
For the April-June 2019 quarter, L&T reported a net profit of Rs 1,472.58 crore against Rs 1,214.78 crore reported in the same quarter a year ago.
Order inflow for the company during the quarter was at Rs 38,700 crore, witnessing a growth of 11 per cent year-on-year (YoY). “We are surprised we could ramp up orders in an election quarter. We managed to continue the momentum from the previous quarter. Also, credit goes to the (awarding) agencies,” said R Shankar Raman, wholetime director and chief financial officer (CFO) at L&T.
L&T’s earnings before interest, depreciation, taxation and ammortisation or EBIDTA rose to Rs 3,320 crore from Rs 2,760 crore a year back. EBITDA margins rose to 11.2 per cent from 10.2 per cent a year ago. The June quarter profit also saw a one-time impact of Rs 93 crore owing to impairment taken for the Halol road project, which is now at the National Company Law Tribunal (NCLT) for debt resolution. New orders from the infrastructure sector declined 10 per cent for the June quarter. Orders from the hydrocarbons sector fell 87 per cent owing to deferment of orders in the international oil and gas sector.
Raman added Rs 19,000 crore of the order inflow comes from the private sector; however, new capacity addition from the private sector is yet to take off. “Liquidity is an issue. In the current scenario, the private sector will think 10 times before setting up a new facility,” he said. L&T’s order book as of June 2019 was at Rs 2.94 trillion, 21 per cent of which comes from international orders. The company expects to meet its guidance for the full year 2020 for order inflow and revenue growth. “Order inflows remain volatile and back-ended. The pace of order inflow will depend on how well prepared the government and its agencies are financially to give out these orders,” Raman said. At the start of the current financial year, L&T guided for a 10 per cent to 12 per cent growth in order inflow and a 12 per cent to 15 per cent growth in revenue for the full year.
SN Subrahmanyan, managing director (MD) and chief executive officer (CEO) of L&T said, “Domestic orders will continue to be government driven for the next couple of years.” He said while the latest Budget focused on revenue generation, the company expects allocation to the infrastructure sector and schemes from the newly formed Jal Shakti ministry.
L&T’s current order book also faces concerns owing to issues in Andhra Pradesh and because of the Bombay High Court cancelling a green clearance for the Mumbai Coastal road project. L&T is executing two packages for the coastal road project.
“It is a setback. Logically, the government will have to go back to the Supreme Court. We will wait and see how it goes,” said Subrahmanyan.
L&T’s slow moving portfolio as of June 2019 stood at 2 per cent of its total order book. L&T has not moved the coastal project to the slow moving classification.
L&T’s exposure to projects in Andhra Pradesh stands at less than 3 per cent of its order book, according to the company, where a resolution is expected in a month’s time.
“This is a new thing where a new regime is re-looking at works given from the old government. Few of our contracts are facing this issue,” Subrahmanyan added.
The company’s payment period from clients is also under pressure owing to a macro liquidity squeeze. “There is some turbulence. It should take two to three months to ease,” Subrahmanyan said.
In the June quarter, L&T also received a clearance from the Competition Commission of India (CCI) for the sale of its electrical and automation business to Schneider Electric. The sale is likely to be completed in the next one year.