L&T plunges most in a year

Written by fe Bureau | Mumbai | Updated: Jul 31 2014, 07:10am hrs
The Larsen & Toubro (L&T) scrip declined the most in a year after its June quarter numbers disappointed the Street and led to several downgrades. After falling as much as 8% in Wednesday's trading session its biggest intraday decline in nearly four years the stock closed at Rs 1,524.40, down 7.3%.

While most brokerages moderated their target price for the stock, as many as four, including Citi, Deutsche, Jefferies and Quant Broking, downgraded their rating, citing muted core earnings and hydro carbon business related write-down.

On account of large cost provisions in 5-6 international projects, the hydro carbon unit of the company reported an Ebitda loss of close to Rs 890 crore, which could have resulted in an overall loss had it not been for the exceptional income from its stake sale in Dhmara Port. On account of this sale, which fetched Rs 1,350 crore, the consolidated net profit more than doubled.

Analysts were largely put off by the write-off at the hydrocarbon business, given the increased importance of the overseas operations in company's consolidated performance. According to Nomura, While L&T had already guided for a weak year for hydrocarbons in FY15, the extent of the losses was a negative surprise for us and management as well, which lowered its margin guidance by another 50bps for the same reason. Deutsche Bank, which most aggressively cut its target price on the stock by 18% to Rs 1,560 said the Middle East hydro-carbon write-off will be a near-term drag on the stock.

Even on standalone basis, L&T reported a meager 9% y-o-y growth in adjusted profit as all segments but infra saw a decline in revenue growth. Domestic revenues reported 13% y-o-y growth while overseas revenues declined 11% y-o-y. Although analysts are content with the standalone Ebitda margin of 10.5%, they noted that it was driven by higher volumes sold by the realty segment and lower losses in the shipbuilding segment.