Larsen and Toubro (L&T) on Wednesday surprised the street, beating estimates for revenue and net profit for the three months to March.
Larsen and Toubro (L&T) on Wednesday surprised the street, beating estimates for revenue and net profit for the three months to March. But India’s largest engineering and construction company by sales failed to deliver on its forecast for order inflows, thanks to weak capital spends by the private sector.
L&T, the bellwether for the Indian economy, posted a sharp 19% year-on-year increase in consolidated net profits to Rs 2,450 crore, while net sales increased by a good 18% y-o-y to Rs 33,160 crore. Analysts’ estimates from Bloomberg had expected the firm to report net sales of Rs 31,416 crore and net profit of Rs 1,897 crore.
AM Naik, group executive chairman, L&T, said the firm remains “cautiously optimistic” about the economy and has guided for a 15% growth in the company’s order inflows during FY17.
Revenues, Naik indicated, were expected to grow between 12% and 15%. “There are still some impediments in terms of policies, delays in payments from the private sector and government and issues surrounding land which could impact revenue growth,” Naik said.
R. Shankar Raman, chief financial officer, L&T, said that while government and industry were striving to set up viable projects, L&T has been focussing on converting the substantial order book that it has into profitable revenues. Raman observed that the improved performance in FY16 was testimony to L&T’s ability to execute orders efficiently.
L&T’s order book, at the end of March, stood at Rs 2.50 lakh crore, a rise of 7% y-o-y.
The company excluded `15,000 crore worth of slow-moving orders from sectors like buildings and factories, minerals and metals and power while computing the order book for the year. The company’s order inflows, however, declined by 9% y-o-y during the fourth quarter.
Raman said the decline in order inflows is reflective of the “investment sentiment prevailing in the country and the industry at the moment”. Order inflows were impacted by fewer bids in power segment and the continued slow down in Metals and heavy engineering, company statement said. However, the company increased the share of international orders to 32% during the year from 25% in FY15, while the domestic orders share fell to 68% from 75% a year ago.
“Infrastructure projects, a large chunk of L&T’s business is coming from the government, as the private sector is going through stressful times. As a result, 25%-30% of projects that came from private sector are missing. “However, some accelerated movement is being seen in highways but some other sectors remain slow,” Naik observed.
During the year, the company had Rs 5,000 crore pending in payments from the private sector while claims stuck in arbitration with the various government departments were to the tune of Rs 8,000 crore-Rs 10,000 crore, Naik said.
For the full year ended March 31, 2016, L&T posted a 7% y-o-y increase in the consolidated net profit at Rs 5,090 crore, while the consolidated net sales came in higher by 12% y-o-y at Rs 1.03 lakh crore. The company’s EBIDTA for the January-March 2016 period stood at Rs 4,860 crore, a rise of 35% y-o-y, while for the full year it grew by 10% to Rs 12,340 crore. EBIDTA margins stood at 14.70%, higher by 184 basis points for the quarter, driven by improvement in job mix, lower commodity prices and rationalisation of cost estimates. However, for the full year, margins came in lower by 20 basis points at 12%.
Larsen and Toubro’s share price closed up 4.02% at Rs 1291.30, on Wednesday, on BSE, ahead of the results announcement.
Succession plan by September 2017
L&T will finalise its succession plan by September 2017, group executive chairman AM Naik said on Wednesday. Naik said since SN Subrahmanyan has been appointed the deputy managing director and president, and he is the only one at that level, he is “clearly No. 2 in the firm”. He also ruled out the possibility of an outsider taking the top slot of the country’s largest engineering and construction company.