The bottomline would have looked worse had it not been for the Rs 76.2 crore earned on the sale of ships and transfer of the shipping division. Attributing the decline to the economic slowdown, managing director and CEO SD Kulkarni said, "We expect more profit to accrue in the second half as payments, especially for the engineering and construction division, will come in once the projects reach some stage of completion."

Admitting that the cement division had been particularly hit, he said, "We have made no profit in cement in this half." Depressed cement prices and lower realisation had contributed significantly to the decline in profit. Since the company had gone in for veryaggressive expansion in cement capacity, part of it was underutilised. Cement currently accounts for 22 per cent of the company's total sales.

Despite the economic slowdown, L&T's order booking is in good health and has registered a 23 per cent increase to Rs 3,742 crore in the current half. Prominent among these is the Rs 655-crore DHDS projects for HPCL, IOC and CRL, Rs 106-crore ammonia, syngas project being executed for Petronas in Malaysia and the Rs 104-crore Mumbai-Pune expressway contract.

Says Kulkarni, "Infrastructure will emerge as the growth area for us in the future." The company also hopes to bag contracts in the power sector, especially the private sector water supply projects in Tirupur, Bangalore and Pune. The engineering and construction division currently accounts for about 57 per cent of the company's total sales.

Interest cost has registered a sharp increase from Rs 37.1 crore for the first half last year to Rs 70.33 crore this year. Expenditure has moved up to Rs 2,788.33 crorefrom Rs 2,288.65 crore in 1997-98. Depreciation was also higher at Rs 129.19 crore, compared with Rs 102.73 crore in the corresponding period last year.

L&T has also done a fair amount of corporate restructuring. It has closed down its shoe manufacturing unit and discontinued trading exports. However, the information technology business, which was hived off into a subsidiary last year, is growing at 60 per cent to 70 per cent, all of which is exports.

Our Research Bureau adds: Net of extraordinary income of Rs 76.2 crore, profit before tax in the second quarter has declined to Rs 64.06 crore -- a drop of 20 per cent. The shipping division was operational for four months and the company had to account for short-term unremunerative contracts pending its sale. Cement was also a major drag on the bottomline. According to the management, the industry is simply not making a profit. In Gujarat, only companies with sales tax benefits are able to recover the variable cost. Of its capacity in Gujarat, 50 percent of capacity utilisation is sold in Gujarat and the rest is exported where realisations are not any better. Higher interest and depreciation is because of commissioning of new projects (in cement, 6 million tonne capacity has been added in last three years). With the commissioning of bulk terminals at Mangalore and Mumbai (each can handle 0.5 million tpa cargo), 60 per cent of the cement output in Gujarat will be sold within the state, 10 per cent in the domestic market and the rest will be exported. The cement prices are showing no signs of improvement in Gujarat and Tadpatri in AP is at best expected to break even.

The profit after tax in the second half is always better due to percentage completion method, but year-on-year PAT is unlikely to show more than a single digit growth.