No pick-up in private capex: L&T

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Published: October 24, 2019 2:30:06 AM

It reported a 13% Y-o-Y jump in consolidated net profit to Rs 2,530 crore while revenue from operations increased 15% Y-o-Y to Rs 35,330 crore

The management said domestic capex remained weak and there was no pick-up in private capex.

Despite operational headwinds, Larsen and Toubro (L&T) on Wednesday posted results in line with analyst expectations on all fronts for the three months ended September 30, 2019, owing to robust order inflows and continued momentum in project execution. The management said domestic capex remained weak and there was no pick-up in private capex.

CEO and managing director SN Subrahmanyan said there was a strain on payments from governments and PSUs which has affected the company’s working capital. Stalled projects in Andhra Pradesh, coastal road project and the Shivaji statue also contributed to strain on working capital, even though the dues are not high there. In March, working capital was brought to 18% from 26% earlier. In the June quarter, it stood at 22% and continues at those levels. The company said it usually gets some payment released in the second quarter, which did not happen.

Despite slowing capex, L&T has kept its guidance intact on the order inflow at 10-12% higher over the last year and a 12-15% growth in revenue. The management said while the environment looked challenging and impacted the inflow of orders, the company was pursuing a fairly robust order book and is confident of meeting the guidance.

The company reported a 13% year-on-year jump in the consolidated net profit to Rs 2,530 crore, while the revenue from operations increased 15% y-o-y to Rs 35,330 crore. The performance during the quarter was impacted by it moving to the new corporate tax regime and the completion of the acquisition of Mindtree, as its numbers are consolidated with L&T. The company’s effective tax rate this quarter stood at 25.17% against 34% earlier.

L&T reported an increase of 14% y-o-y in EBITDA to Rs 4,020 crore, while the EBITDA margin remained flat at 11.4% versus 11.5% in the corresponding quarter last year. The staff cost rose 39% y-o-y on resource augmentation in service businesses and Mindtree consolidation. Total operating expenses during the quarter were up 15% y-o-y to Rs 31,310 crore.

R Shankar Raman, chief financial officer, said, “There are a lot of challenges in the economy which showed further signs of slowdown as demand weakness was beginning to prevail over several sectors of the industry”. He added that there are lot of concerns over liquidity. “Ironically, systemic liquidity was good and in excess of Rs 2 trillion in cash but credit flows are weak. Demand pull from borrowers and the lending push from banks and financial institutions were absent.”

On the slowing momentum in the infrastructure orders space, SN Subrahmanyan, CEO and MD, said the roads sector has gone down due to lack of momentum in the EPC space and packages coming in are small, which he said the NHAI should look into. No new orders coming from the Dedicated Freight Corridor project and no movement on the high-speed corridor project also impacted infrastructure orders.

Still, there is only the public sector-led investments which is holding the momentum, while private sector continues to remain shy. Subrahmanyan said, “We have seen some spends on airports given that capacity augmentation is a necessity there. Barring those, there is no significant improvement in private capex.”

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