Larsen & Toubro on Monday reported a modest year-on-year increase of 9% in consolidated net profit for the quarter ended December 31, 2014 at Rs 870 crore. However, the numbers missed street estimates as execution challenges at most of the company’s segments proved a drag on profitability.
Analysts had expected the heavy engineering major to post a consolidated net profit of Rs 1,134.5 crore during the quarter, Bloomberg data show.
L&T’s consolidated net sales rose 10% y-o-y to Rs 23,850 crore, driven by growth in the infrastructure and services businesses. The revenues came in higher than what analysts had expected, beating their estimate of Rs 23,040 crore, the data show.
The company achieved customer revenue of Rs 11,553 crore for October-December 2014 in the infrastructure segment, a 22% y-o-y rise, driven by a surge in execution.
However, investment-constrained segments, such as power, metal and material handling, hydrocarbon and heavy engineering, saw a depleted order book, impacting margin growth. There was no change in L&T’s Ebitda margin, which was flat at 12.1%.
Calling the operational environment challenging, R Shankar Raman, chief financial officer, L&T, said, “India Inc continues to be aspiring but it is still on the wait and watch mode waiting for the policies to become sustainable opportunities.” Revising the earlier guidance on order inflows, Raman added: “The order inflow for the company would be 15-20% for FY15, what used to seem 20% at the beginning of the year.” He maintained the 10%-12% range for revenue guidance.
For the hydrocarbon segment, Raman said the company was witnessing a “pause” in investments. “We do believe that deep sea is going to take a longer pause than the near-shore and on-shore. Likewise mid and downstream will have some implication because of the meltdown and the realisations.” The company’s revenues in the segment suffered a sharp decline of 26% y-o-y during the quarter to Rs 1,778 crore due to delays in receipt of orders and a lower opening order book. In the previous quarter, Raman had said that consequent to the cost and time overrun provisions made in the business, the margins for FY15 could come in 160-200 basis points lower.
He said that with the decline in oil prices, there will be more re-evaluation of investment programmes in the Middle East. “It is going to be very project- and geography- specific. Sowhile the slowdown in investment is for sure, how it is going to pan out will depend on the strategy of the different sponsors.” However, he does not anticipate any order cancellations.
SN Subrahmanyan, whole-time director, L&T, said, “We have not seen the rub-off effect of oil slowing down in areas such as infrastructure or power transmission and distribution. Crude prices have come down but most of these countries are extremely wealthy and have funds and reserves, so the programmes will continue for 3-4 years is what our bet is.” L&T secured fresh orders worth Rs 34,580 crore at a consolidated level, a y-o-y increase of 19%. International order inflow at Rs 6,300 crore constituted 18% of the total inflow while 82% was from domestic market. Major orders were secured by the infrastructure segment.