L&T beats expectations with 69% jump in Q4 net, signals strong FY15

Written by fe Bureau | Mumbai | Updated: May 31 2014, 06:47am hrs
The countrys largest engineering and construction company by sales, Larsen & Toubro (L&T) on Friday recorded a robust growth in earnings for the quarter ended March 31, and the management indicated that prospects in the current fiscal would be even better with an expected upswing in the infrastructure sector with a new government in place.

L&Ts standalone net profit increased 69% year-on-year to R2,723 crore during the period.

The growth in net profit, which beat Street estimates, was achieved on the back of higher turnover from the infrastructure and heavy engineering businesses and high intake of orders, which was in line with its guidance for 2013-14.

Analysts had estimated L&Ts net to fall around 5% over the year earlier to R1,700 crore during the quarter, while they estimated net sales to go up 3.5% to R20,960 crore.

However, net sales were up 11% year-on-year to R20,079 crore with progress made on various projects under execution. Revenues from L&Ts international business during the quarter stood at R2,966 crore, up 25% over the corresponding period in FY13, and constituted 15% of overall revenues during the quarter.

For all of 2013-14, L&T posted a 14.2% y-o-y rise in consolidated net sales to R85,128 crore, marginally lower than what it had guided. The consolidated net for the year was lower by 6% at R4,902 crore due to cost and time overruns in the hydrocarbons business leading to a decline in margins that affected profitability. L&T met its guidance of a 15% increase in order inflows in 2013-14 over the previous fiscal.

Order inflows for fiscal 2014 stood at Rs 94,108 crore. The firms total order book increased by 13% to 1.63 lakh crore as on March 31, after the company removed Rs 15,000 crore worth of orders from its books on account of them being slow-moving.

Of these, around Rs 9,000 crore of orders were in roads, Rs 3,000 crore in minerals and material handling and about Rs 2,000 crore in other sectors, R Shankar Raman, chief financial officer, L&T, said. During the fiscal, international orders constituted 21% of the total order book.

For the current financial year, L&T has given a guidance of a 20% increase in order inflows and a 15% increase in revenues.

L&Ts total expenditure for the January-March quarter rose nearly 8% year-on-year to Rs 17,392 crore, with a significant increase of 26% in staff costs as the company inducted 4,000 new people. Annual pay revisions and international hiring also pushed up employee wages.

L&T's earnings before interest, tax, depreciation and amortisation (Ebitda) was up 36% over the previous year at Rs 2,901 crore, while Ebitda margin was up 120 basis points at 14.4%. Margins improved due to efficient project execution and job mix, according to Shankar Raman.

The results for the quarter and year ended March 31 excluded the hydrocarbon business since it has been transferred to a new company called L&T Hydrocarbon Engineering with effect from April 1, 2013. Consequently, the performance for the corresponding quarter and year ended March 2013 has been suitable restated, the company said in a statement.

AM Naik, group executive chairman, said that with the formation of the new government at the Centre, the mood is upbeat and he hoped to see that infrastructure projects worth Rs 80,000 crore that have been stuck due to lack of environmental clearance and other mega infrastructure projects like the Mumbai Trans-Harbour Link start moving from August-September.

However, from the point of view of execution on these projects, momentum should pick up in the next six to nine months, Naik said.

The L&T chairman added that it will take some more time before the upbeat mood translates into the private sector committing more investment towards capital creation, while orders from the public sector will start flowing sooner.

Private sector investment will take longer as there are still reforms needed in the financial sector and a lot of groups that are our customers are also not in a mood to go ahead, Naik said. They themselves are cleaning up their balance sheets. So, apart from orders for factory buildings and housing sector orders that will come from the private sector, others orders in infrastructure, hydrocarbon, defence and power will come from the government.

Naik also added that the potential move on the part of the government to allow 100% foreign direct investment in Indias defence sector would bode well for L&T as it was better positioned than any other private sector player to tap opportunities in this space, especially in areas like shipbuilding, field guns, missile launchers and defence electronics.

Keeping in line with L&T's plan of hiving off its business into independent companies and listing them, Naik said that the firm had plans of launching initial public offerings for group companies like L&T Infotech and L&T Technology Services (its engineering services division) by July 2016.

In fiscal 2014, the two companies posted a combined turnover of $1.1 billion, which is expected to grow to $1.3 billion in next two years.

The L&T share lost 0.10% on the BSE on Friday to close at Rs 1,548.90. The bourses benchmark index dipped 0.07% to end at 24,217.34 points.