Larsen & Toubro beats expectations, doubles quarterly profit growth

Written by fe Bureau | Mumbai | Updated: Jul 29 2014, 13:59pm hrs
Larsen ToubroLarsen & Toubro posted a consolidated turnover of Rs 18,975 crore for the June quarter, 10% higher than a year earlier.
Engineering conglomerate Larsen & Toubro (L&T) doubled its net profit year-on-year for the quarter ended June 30 to R 967 crore, helped by new orders and gains from the sale of stakes it held in companies like L&T Finance Holdings and City Union Bank.

The company posted a consolidated turnover of R18,975 crore for the June quarter, 10% higher than a year earlier.

L&Ts June quarter results surpassed Street expectations. A Bloomberg poll of L&Ts earnings estimates put out by analysts tracking the company had pegged its net profit to come in at R800 crore and revenues at R11,587 crore.

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L&Ts financial performance in the April-June period was aided by an exceptional gain of R249 crore. This was on account of L&T selling an 8% stake in its financial subsidiary L&T Finance Holdings during the quarter to comply with rules laid down by the Securities and Exchange Board of India that mandates the maximum level of promoters holding in a listed company at 75%. The conglomerate also sold its entire holding of 4.55% in City Union Bank, held through L&T Finance Holdings, during this period. L&Ts June quarter earnings also take into account profit from the sale of its stake in Dhamra Port, which it sold along with Tata Steel to Adani Ports and Special Economic Zone in May.

A quarter of L&Ts total consolidated turnover came from jobs executed overseas. However, this contribution declined 16% y-o-y because much of the pick-up in international orders has started in the last few months and L&T is hopeful that should reflect in sales over the next few quarters.

The companys total expenses surged 8.4% y-o-y to Rs 17,267 crore. This was primarily on account of a 12% increase in staff cost, which was due to additional hiring of 6,000 people at the group level. L&Ts performance could have looked even better but for a 45% surge in depreciation charges in the June quarter over the previous year, on account of changed guidelines to calculate depreciation in line with the new Companies Act.

L&Ts operating profit was up 34% over the same period a year ago at Rs 2,515 crore and operating margins improved 240 basis points to 13.3% during the quarter.

The companys consolidated order inflows during the quarter rose 11% y-o-y to Rs 33,408 crore, while its total order book stood at Rs 1.95 lakh crore. The bulk of the new orders came from the infrastructure, hydrocarbons and heavy engineering segments.

However, demand for engineering services in the power, hydrocarbons, metals and other capital goods sectors in India remained sluggish.

We are still awaiting tailwinds to improve the prospects of the domestic market. The awards (of projects) are still slow as compared to what we saw in the 2008-2010 period and the decision-making on capital expenditure is still laboured, L&Ts chief financial officer R Shankar Raman said.

International markets contributed 44% to the order inflows for the company in the first quarter of FY15, and constituted 26% of the total order book as on June 30.

This is the first quarter for which the company has published consolidated numbers and it intends to follow this practice going forward as a significant portion of its business is being done through subsidiaries, Raman said.

L&Ts hydrocarbons segment performed poorly in the June quarter with revenues dropping 49% to Rs 1,553 crore over the previous year due to order inflows slowing down both domestically and globally, Raman said.

About five to six projects that the hydrocarbons division is executing in international markets have reported cost and time overruns. Accordingly, we have made provisions for such escalations, Raman said. We are in discussions and hopeful of reaching settlements on the same.

Raman said that the company was keeping its revenue and order inflow guidance of 15% and 20%, respectively, unchanged. However, the cost and time overrun provisions made in the hydrocarbons business could impact profit margins by 100 to 150 basis points.

The L&T share declined 0.70% to close at Rs1,644.75 on the BSE on Monday. The bourses benchmark Sensex lost 0.52%.