Larsen & Toubro (L&T) on Friday cut its order inflow guidance for the current year to 5-7% from 15% indicated earlier, a sign of slowing capital expenditure in the economy.
Larsen & Toubro (L&T) on Friday cut its order inflow guidance for the current year to 5-7% from 15% indicated earlier, a sign of slowing capital expenditure in the economy. Consequently, the engineering heavyweight lowered its forecast for annual revenue to 12% from 15% earlier. The company, a bellwether for the economy, reported a 16% year-on-year rise in consolidated net profit to R1,000 crore for the quarter ended September 30, beating analysts’ estimates. The increase was supported by an exceptional R309 crore earned from a 5% stake sale in L&T Finance Holding and a strategic exit from a vendor firm.
Chief financial officer R Shankar Raman said investment momentum was yet to pick up despite all efforts from various stakeholders. “In the wake of excess capacity in many industries, companies are worried about efficient utilisation rather than investing in new capacities,” he said.
The CFO also indicated that the high competitive intensity in certain sectors was one reason the company was staying away from new projects. “The asking rate in the market both within India and outside looks steep even by L&T standards,” he said.
SN Subrahmanyan, deputy managing director and president, L&T, noted that while there was stability in government decision-making and issues related to spectrum, coal block allocations and issues related to environment had been sorted, some fundamental issues crucial to development remained.
Among these was the issue of land acquisition. “Many decisions have been taken and we will see traction and positivity finally, but it is going to take time,” Subrahmanyan said.
L&T’s fresh order inflows in the three months to September declined a sharp 28% y-o-y to Rs 28,600 crore while inflows were down by 25% y-o-y in HIFY16. However, given the backlog, the order book stood at Rs 2.44 lakh crore, an increase of 14% y-o-y during the quarter. The current order book gives the company revenue visibility for the next 8-12 quarters. International orders accounted for 38% of the inflows in the July-September quarter while they constituted 28% of the order book as of September 2015.
The firm’s net sales increased 11% y-o-y to Rs 23,390 crore with contributions from infrastructure, power and services businesses. The company’s Ebitda rose 11% to Rs 2590 crore but the operating margin remained flat at 11%. Analysts had estimated L&T’s net profit at Rs 975.2 crore, net sales at Rs 23,228 crore and Ebitda at Rs 2,692 crore, according to Bloomberg.
Referring to the power sector, Shankar Raman said utilities in the public sector had floated tenders for which a “fair amount of competitive intensity” had been seen. “There is good amount of interest for such orders since these have come after a long time. However, the price points at which these projects are being won are extremely challenging to the cost structure. Nevertheless, it is good to be in a position to be participating in bids rather than worrying about the lack of any investment activity,” the CFO said.